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Significant Opportunities in the Environmental Social and Governance Investment Space

A Recent Dynamic

Portuguese companies as well as financial entities, are responding to regulatory and investor demands and are increasingly using synergies to comply, not only with the new European regulation regarding ESG (environmental, social and governance), but also to provide a range of services that provide new business opportunities, whilst also exploiting a niche in the market that offers high potential and is still yet to be fully explored and developed.

The Investor Perspective

From the investor side, the directives that are being implemented by the EU have already been causing a shift in investment, with increasingly higher capital flows being redirected to sustainable investments, with investors and funds being compliant with ESG common market principles.

Returns

Various reports and studies, from the last couple of years, acknowledge that ESG investments present similar, or even better returns, than traditional investing and refute any scepticism regarding the correlation of better than average returns and ESG investing.

In 2021, according to Reuters, the MSCI World ESG index has risen 22%, when compared with the MSCI World index gain of 15%. This can be explained as the investments being made in renewables; waste reduction mechanisms, solar energy systems and other sustainable projects, are increasing at a rapid rate due to more impressive returns, technology advance and promising opportunities being backed by the change in world politics towards a common green agenda.

Further Potential

This market is continuing to grow and present opportunities. According to Reuters, a record EUR 649,000M were poured into ESG funds worldwide in 2021, making ESG funds account for 10% of worldwide fund assets.

Climate Change: the Community and Investors

As climate exchange momentum is at its peak, investors should consider the perception of their investment not only from the community perspective but also from the shareholders’ perspective.

New ESG opportunities can help businesses not only to enter new markets but to also capture new clients by providing more sustainable products, thereby helping to drive consumer preferences.

Real Estate and ESG

Real Estate is one of the most valuable asset classes in Portugal. The potential is evident as to how ESG can provide investors in Real Estate companies more incentives to; not only get better terms for investing in purchasing or refurbishing properties, but also to take advantage of tax-friendly policies, to boost  interest in these sustainable products and at the same time to benefit from attractive rental yields.

The Property Market in Portugal and Ongoing Investment Opportunities

According to JLL (a global commercial real estate services company), more than 190,000 homes in Portugal were sold in 2021, which represents an increase of 16% versus 2020 and 10% when compared with 2019.

Current projections maintain that in 2022 this trend will continue in Portugal, mainly due to demand still being higher than supply, and due to the fact that in 2021 there was a 10% increase in licencing permits granted for new builds, in comparison to 2020.

These factors, combined with the high incentives given to investors who invest in green and sustainable residential projects, will push and sustain the growth of investment in 2022, despite the current economic environment and geopolitical uncertainty that the world is experiencing.

Additional Information

If you have any questions or require additional information regarding ESG and the opportunities available for investment in Portugal please contact Sean Dowden, or Joᾶo Fialho at the Lisbon office of STAGadvice@stagfundmanagement.com.

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