Compared to many other asset classes, it is easier to set carbon reduction targets and collectively engage in real estate. Real estate contributes significantly to global emissions and investors are able to significantly help reduce pollution.
“You have the power to do something about it,” said Piet Eichholtz, department head and professor of property finance, School of Business and Economics, Maastricht University and co-founder, GRESB, speaking on FIS Maastricht.
In countries that are urbanizing, it is possible to reduce emissions by building green real estate from scratch. Eichholtz said much of the developed world has enough real estate. Investors in these countries should focus on whether to re-develop climate-resilient real estate, an area where Cbus Super in Australia is increasingly focused, said Kristian Fok, CIO of Cbus.
Research now clearly proves that greening real estate and improving the energy efficiency of buildings increase value.
“The academic consensus is that green real estate increases value,” Eichholtz said.
It is possible to measure the energy consumption of a building. This means that investors can have a significant and measurable impact. A measurement system allows pension funds to enter into dialogue with real estate companies, creating a popularity contest that leads promoters towards alignment with the Paris agreement.
“It’s helpful and it 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, examining every element of sustainability within a building, from waste management to the use of energy and water.
“It was a great 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 ranking oriented and more focused on real estate developments and opportunities in the sector that will make the biggest difference.
Investors can also leverage the engagement tool. This is important because academic evidence shows that real estate engagement works in terms of improving ESG integration and boosting operational and financial performance. Eichholtz noted how engaging in real estate is also relatively easy, and finding a collective voice is also possible.
For example, an initiative called the Global Real Estate Engagement Network (GREEN) aims to bring collective investor engagement more to the fore.
It combines the voices of investors (with a total of €2 trillion in assets under management, to date) in listed and private real estate. Eichholtz noted that most real estate investments are reactive. A preferred model is a continuous and persistent commitment to move goals towards the Paris goals, using benchmarks and disclosure to incrementally add value.
Australia has gone from laggard to leader when it comes to integrating sustainability into real estate, Fok said. A key accelerator of transformation has come from state governments that have called for minimum sustainability standards.
“It catalyzed the need for high-end properties,” he said. The introduction of benchmarking and ratings followed, forcing Australian property players to compete and raise standards.
Fok noted how the conversation about sustainability in Australian property has now shifted to focus on new areas like indigenous workforce, as well as gender equality and innovation through technology. .
“Sustainability has now evolved to ensure people are paid fairly and industry is building capacity,” he said.
Progress in the Netherlands includes labeling buildings from next year, but Eichholtz has called for ambitious legislation that also bites.