Property survey highlights green stars

The Global Real Estate Sustainability Benchmark (GRESB) is being actively used by its investor supporters, including PGGM, to make service providers accountable for ESG performance, with the second annual survey finding a larger proportion of managers in the top quadrant this year.

The Global Real Estate Sustainability Benchmark (GRESB) is supported by a group of 11 of the world’s largest pension and asset managers and Maastricht University.

Researchers surveyed both listed and unlisted property funds and found that Australian funds make up six of the top 10 fund managers.

Total assets under management covered in the survey is now approaching $1 trillion.

The Commonwealth Property Office Fund, a listed Australian property fund managed by Colonial First State Asset Management, is the top performer, followed by Australian private fund Investa Office Portfolio.

European private fund manager Sonae Sierra ranks third.

The investors – which include APG, PGGM, USS, ATP and OTPP – have collaborated to create the index, which aims to create shareholder value and reduce the sector’s substantial carbon footprint.

A co-author of a report summarising the findings of the survey, Rob Bauer (pictured), a professor of finance at Maastricht University, says growing support for the initiative from institutional investors has led to greater involvement from funds in this year’s survey.

This year 340 real estate managers from around the world participated – up 72 per cent from the 198 funds that responded last year.

“I think these funds, if they want to grow and have a large amount of assets under management and institutional investors, in the end have to respond – otherwise pension funds will not stay with them,” Bauer says.

“Investors just want them to comply by environmental management standards, and one of the ways to do it is to respond to our survey.”

The survey ranks funds and their managers into four quadrants, from those funds starting to develop sustainability policies to top performers which have integrated the measurement and management of environmental key performance indicators into investment processes.

The number of these top quadrant performers, so-called “green stars”, has increased from last year with 19 per cent of respondents on aggregate achieving this top ranking, compared with 10 per cent the previous year.

Regionally, managers in Asia scored worst, being listed as “green starters”, followed by private European funds. North American listed and private fund managers on aggregate performed slightly better but were still listed as “green starters”.

This indicates these funds have developed plans and dedicated resources to sustainability management but need to focus more attention on implementation.

European funds on aggregate scored slightly better in implementation but were still ranked in the “green talker” quadrant.

The author also reports that GRESB participants in general had cut their energy consumption by 1 per cent, with Green Stars having reduced their consumption by 3 per cent.

PGGM senior investment manager private real estate, Mathieu Elshout, says the collaborative approach with fund managers, investors and academics is an example of constructive engagement that would improve transparency and, eventually, ESG performance.

Elshout says PGGM will include the findings of the survey in its investment process, and had urged all its managers to participate.

“This is the first step in getting all parties involved to improve their ESG performance,” Elshout says.

“These are the figures now and I think the more interesting part is the next steps, which are really understanding the underlying trends in these figures. On the basis of these KPIs we can look at why a reduction is achieved (or not), is it incidental or structural and what  are the drivers.”

GRESB provides member investors and managers an online facility to benchmark property funds against their peers. For institutional investors it also allows them to better understand the overall ESG performance of their property portfolios.

PGGM will look to use this facility to better benchmark its property service providers in the coming months, says Elshout.

“For us it is not about us being invested with the greenest funds, it is still possible to be invested in so-called grey real estate as long as there is a strategy to improve and add value,” Elshout says.

“So, we are not benchmarking our own portfolio but our responsibility as we see it is to improve our manager’s performance.”

As an investor, the annual survey will form part of the engagement PGGM already undertakes with its property managers on ESG issues.

“The results enable us to have a discussion with each manager and ask him or her to place their own results into perspective,” he says.

“We might for example look for explanations on why a specific fund hasn’t improved on its energy or water consumption or any other ESG KPI when their peers have been able to. If that explanation isn’t satisfying then we would really have to mark that.”

For more information on the report please click here.