Why real estate investors can forge ahead in quest to cut emissions

Compared to many other asset classes, it is easier to set carbon emission reduction targets and collectively engage in real estate. Real estate significantly contributes to global emissions, and investors are in a position to meaningfully help reduce pollution.

“You have the power to do something about it,” said Piet Eichholtz, department chair and professor of Real Estate Finance, School of Business and Economics, Maastricht University and co-founder, GRESB, speaking at FIS Maastricht.

In countries that are urbanizing, it is possible to cut emissions by building green real estate from scratch. Eichholtz said that much of the developed world has sufficient real estate. In these countries, investors should focus on the opportunity to refit and climate-proof real estate, an area Australia’s Cbus Super is increasingly focused, said fellow panellist Kristian Fok, Cbus’ CIO.

Research now clearly proves that greening real estate and improving the energy efficiency of buildings is value enhancing.

“Academic consensus states that green real estate is value enhancing,” said Eichholtz.

It is possible to measure the energy consumption of a building. This means investors can make a meaningful and measurable impact. A measurement system allows pension funds to enter a dialogue with property companies, creating a popularity contest that brings developers towards alignment with the Paris agreement.

“It is useful, and creates incentives,” he said.

For example, the Global Real Estate Sustainability Benchmark, GRESB, provides validated ESG performance data and peer benchmarks for investors and managers, looking at every element of sustainability within a building from waste management to energy and water use.

“It was a strong example of racing to the top,” Fok said.

He added that Cbus encourages its managers to use the GRESB standards, although he noted that Cbus strategy is less focused on ranking and more focused on how real estate is changing and opportunities in the sector that will make the biggest difference.

Investors can also harness the tool for engagement. This is important because academic evidence shows that engagement in real estate works in terms of improving ESG integration and boosting operational and financial performance. Eichholtz noted how engagement in real estate is also relatively easy, and it is also possible to find a collective voice.

GREEN

For example, an initiative called the Global Real Estate Engagement Network (GREEN) aims to bring collective investor engagement further to the foreground.

It combines investor voices (with a combined €2 trillion assets under management, to date) in listed and private real estate together. Eichholtz noted that most investment engagement in real estate is reactive. A preferred model is continued, persistent engagement working to rolling targets towards the Paris goals, using benchmarks and disclosure to incrementally add value.

Australia has turned from laggard to leader when it comes to integrating sustainability in real estate, said Fok. A key accelerator in the transformation came via state governments requesting minimum sustainability standards.

“This catalysed the need for premium property,” he said. The introduction of benchmarking and ratings followed, forcing Australia’s real estate players to compete and lift standards.

Fok noted how the conversation around sustainability in real estate in Australia has now moved to focus on new areas like the indigenous workforce, as well as gender equality and innovation via technology.

“Sustainability has now evolved to ensure people get paid fairly and the industry is building capacity,” he said.

Progress in the Netherlands includes labelling buildings from next year, but Eichholtz called for ambitious legislation that also bites.