ESG (Environment, Social and Governance) aspects are defined in the context of the non-listed real estate sector as critical differentiators for institutional investors and investment managers. With the purpose of keeping the industry updated on the impacts of incorporating further ESG best practice and risk mitigation into their investment strategies, keen consideration continues to be made towards the role of the ESG concept in a variety of INREV’s tools and resources.
About ESG Library
INREV and ANREV have merged their libraries of ESG-related resources together to form a shared Global ESG Library for the non-listed real estate industry. Through the Global ESG Library, members will be enabled with a robust and evolving depository of featured reports, papers, and case studies ranging from a variety of geographic locations (most notably Europe, and Asia Pacific).
Sustainability is one of the game changers impacting today’s business value in the real estate investment sector. There is a lot happening in the non-listed real estate industry and beyond to drive better understanding of the relevance of sustainability by industry participants, including the link between sustainability and financial performance.
The sustainability committee has highlighted the following publications to increase knowledge and market transparency, support measurement of sustainability and provide practical guidance for sustainable investments.
As impact performance becomes a powerful differentiator and a meaningful new dimension of overall performance for all types of investing, understanding the current trends in the impact investing market becomes crucial to take part in this new type of race within the investment marketplace.
With its latest Impact Measurement and Management (IMM) Survey published in January 2020, the GIIN provides a comprehensive overview of the current impact investing market .
The report take a look into how investors describe their objectives, motivations and strategies for understanding and improving their impact, and the processes for holding themselves and their investees accountable, along with the other elements of their IMM practices.
Findings of the report reflect the growing sophistication and maturation of IMM, the integration of IMM into investment processes and the rising focus on impact results.
1. While impact investors pursue diverse impact objectives, they universally agree on the importance of measuring and managing impact results.
- The most commonly targeted impact themes or sectors include employment (71%), agriculture (63%), and financial services (62%).
2. Across the market, IMM practices have grown increasingly sophisticated as investors shift from building consensus for IMM to strengthening its integration within investment processes.
- IMM responsibilities are allocated to investment teams (68%), to staff dedicated to IMM (50%), and to senior leadership (39%).
- IMM is integrated into the investment process itself. Impact data is considered across each stage; most commonly during due diligence (81%), investment screening (77%), and identifying the social or environmental needs to address through investment (75%).
3. As the market grows and matures, impact investors increasingly demand insight into impact performance.
- Key challenges of impact investing are cited as follows; a lack of transparency on impact performance (89%), the inability to compare impact results with market performance (84%), collecting quality data (92%), aggregating, analysing, or interpreting data (74%),
- Investors demanding resources; impact benchmarks (92%), pooled impact data (86%), case studies on best practices (86%), tools to strengthen impact screening (83%).
4. Impact measurement and management incurs some costs, but it also generates financial benefits.
- On average, impact investors spend an estimated 12% of their organisation’s total budget on IMM-related activities,
- Respondents use impact data directly related to an organisations’ financial strength, such as communicating results to stakeholders (89%) and assessing risk factors (45%), to strengthening IMM processes and improving impact results by identifying or refining metrics (69%), setting or revising impact goals (65%), and strengthening data-collection processes (62%).
Summarised by Bahar Yay Celik, Analyst at INREV’s Professional Standards Team
The United Nations Environment Programme (UNEP) FI Property Working Group and the Positive Impact Initiative published a framework in 2018 in collaboration with RICS, UN PRI, and members of the Global Investor Coalition on Climate Change. The framework was initiated to develop an impact-based approach in real estate finance and management.
The Positive Impact Real Estate Investment Framework offers a process tool for institutions to identify impact and corresponding investment opportunities, measure ex-ante and ex-post impact, and ultimately re-orient institutional capacities and capital for intentional delivery of outcomes that support the SDGs .
The framework provides a practical and action-oriented guidance for the real estate industry to accelerate the impact paradigm for the delivery of the SDGs.
The Positive Impact Principles
- Four main principles are defined for positive impact within the paper; Definition, Frameworks, Transparency, Assessment
- The Positive Impact Principles require a holistic approach; appraisal of both positive and negative impacts, consideration of all three dimensions, i.e., economy, society and environment, and transparency and assessment of methodologies and impact achieved as a core requirement.
The Investment Objectives
- To operationalise the Positive Impact Principles, an action-oriented framework based on four Investment Objectives has been developed; Clarity of Impact, Market and Sustainable Returns, Measurement of Impact, Additional Finance and/or Impact Flows,
- The Investment objectives offer a way for institutions to frame decision-making for more immediate-term investment activities and longer-term aspirations that derive from a holistic and impact based approach,
- For each of the four Investment Objectives, the Framework provides a number of ‘leading questions’ and recommended actions to be considered by investment practitioners
- Positive Impact applies to all investment activities within institutions.
- Institutions will be subject to learning curves in building skills and capacity internally for an impact-based approach and for improved alignment between asset owners, asset managers, and others within the investment value chain.
- The framework listed the actions investors can take as they orient themselves on the adoption curve for applying an impact-based approach
Applying the Impact-Based Real Estate Investment Framework
- The paper provides a table showing an application of the framework for a preliminary assessment of property sector impacts and indicators, and how investment decisions can respond to those,
- Twenty two impact categories are included into the table with an aim of capturing all realms of sustainable development,
- Investment themes relevant to real estate investors are aligned to the impact categories,
- Suggested indicators are provided, both for delivered impact measurement and potentially for assessing additional finance and / or impact flows
Summarised by Bahar Yay Celik, Analyst at INREV’s Professional Standards Team
This starter guide provides a quick summary of how to manage environmental, social and governance (ESG) issues for direct and indirect real estate investors. It outlines options for how to include ESG issues throughout the investment process and in the relationship between asset owner and investment manager.
Prepared by PRI
A report released in 2019 by Urban Land Institute and Heitman details the potential risks and implications of climate change on the real estate sector. Furthermore, the report makes a call to investors and investment managers to come into action and work towards better solutions in the future, for which the report presents a number of thinking paths.
Firstly, the report aims to give property investors a better understanding of climate risk and its real estate investment implications. As such, types of climate risk and their potential impact on real estate are explained.
Secondly, the research addresses the state of current practice for assessing and mitigating climate risk in real estate as well as highlighting best practices across the industry. From the examples it becomes clear that, nowadays, climate risk insurance is used as the main protection for asset value.
Finally, it is acknowledged that climate risk insurance alone is insufficient to mitigate the risk of devaluation in the future. As such, investors and investment managers need to find effective solutions. The report touches upon a number of potential solutions:
- Mapping physical risk for current portfolios and potential acquisitions;
- Incorporating climate risk into due diligence and other investment decision-making processes;
- Incorporating additional physical adaptation and mitigation measures for assets at risk;
- Exploring a variety of strategies to mitigate risk, including portfolio diversification and investing directly in the mitigation measures for specific assets; and,
- Engaging with policymakers on city-level resilience strategies and supporting the investment by cities in mitigating the risk of all assets under their jurisdiction.
Summarised by Barbara Maltha-Koppelman, ESG Committee member
A report released in May 2019 by a consortium of real estate investors and academic groups called the Carbon Risk Real Estate Monitor (CRREM) details the potential implications of global and European climate policy on long-term risk in the European commercial real estate sector. The report was funded by the European Commission.
The report of the CRREM project applies findings from natural science, economics, and finance to conclude that the current rate of emissions from the European commercial real estate sector is too high given the carbon budget available for 2050 defined by EU climate targets. In fact, the available carbon budget would be consumed by 2036, suggesting the average energy-intensity of commercial real estate is 45 percent higher than an emission pathway aligned with long-term EU climate targets.
The report has several implications for real estate investors:
- That the long-term is getting closer. Targets set for 2050 may seem far off but are only a few renovation cycles away. Major retrofits planned and completed today will in effect lock in energy- and carbon-intensities for a decade or more, given the life span of major equipment and management systems. The report implicitly states that it may therefore be prudent to set sustainability ambitions for major retrofits that are aligned with the sector carbon budget at the end of the renovation cycle.
- Tighter carbon budgets will likely accelerate innovation. As the development of environmental technologies accelerates, the energy performance gap between new buildings and newly retrofitted buildings on the one hand, and existing stock on the other hand, will grow. This may increase the risk of obsolescence for individual assets (“stranding risk”) resulting from declining tenant demand and higher operating and compliance costs.
- Carbon budgets are emerging as potentials tools for assessing and managing long-term climate risk associated with the broader transition to a low-carbon economy. Governments are using carbon budgets to define the extent of the climate problem, set policy ambitions, and define targets for different economic activities and sectors. We can assume that funds or assets that generate more carbon emissions than what their respective carbon budgets allow carry more long-term risk than those that do not. For real estate investors and managers, risk can materialise in the form of higher expected capital, operating and compliance costs, and asset depreciation.
Overall, the CRREM report highlights the need for new risk management tools to understand, assess, and monitor long-term risks in the real estate sector associated with the broader transition to a low-carbon economy. The report opens up the door to integrating commonly agreed, plausible, and scientifically-derived scenarios into the range of environmental KPIs used in the real estate industry to asses asset and fund performance.
Prepared by Christopher Wright, chair of INREV’s ESG committee
New construction is a vital part of a balanced real estate strategy, but in many cases, there are equally compelling opportunities in improving the operations and management of existing assets. More than 75% of existing commercial buildings will continue to operate as is over the next 15 years. Thus, it is important tackling sustainability through improved operational efficiency rather than focusing solely in newly constructed properties. Many changes can be done at lower or no cost, with significant improvements to both operational efficiency and a property’s profitability, such as 2-degree Fahrenheit temperature adjustment or installing VFD pumps for water features.
Furthermore, sustainability takes on even more important dimension when considering improved management and governance. By establishing a formalized sustainability program, property owners can then be better positioned to underwrite the skills and capabilities of the property managers needed to operate each property. Benchmarking properties will establish references which would make identification of sustainability success more apparent. Regular and open communication between all parties from asset manager to engineering team is also a key factor.
Finally, it can be stated, that better operated buildings are more profitable. Next to lower operational costs there is evidence of garnering rental premiums, faster absorption as well es lower cap rates. Moreover, studies have shown that individuals working in green buildings are more comfortable and have fewer illness symptoms because of improved indoor air quality as well as natural lighting.
Prepared by Principal Real Estate Investors
This piece of research, commissioned by the PRI, looks at how ESG engagement creates value for both companies and investors, amid growing evidence that engagement by investors with companies on environmental, social and governance (ESG) issues can create shareholder value.
- Companies can enhance their communication with investors by closing the loop between internal ESG information systems, ESG engagement information and ESG reporting practices. This can be enabled by deploying dedicated information systems to manage investor relations.
- Learning opportunities can be extended by ‘acting rather than being acted upon’. Corporations can use engagement proactively and strategically to test ESG policies, identify more efficient ESG targets and KPIs, and build better ESG management systems.
- Political benefits can be maximised through enhanced internal coordination between corporate investor relations departments, sustainability departments, and board-level executives before meeting with external investors.
- Investors can enhance the communicative value of engagement by making their engagement objectives, expectations and desired form of success clear to companies upfront. Communicative value can also be increased through improved public transparency and disclosure – and hence social accountability – of how engagement processes are initiated, executed, managed, monitored and evaluated.
- Learning value can be advanced if investors strengthen the feedback loop between new ESG information and knowledge gained through engagement, and their main ESG integration databases and decision-making processes. Learning opportunities can be lost however, if engagement is outsourced without any standardised feedback process.
- Political benefits can be derived internally if ESG and financial analysts work more closely together on engagements. External political value can be gained through better collaboration with clients and their beneficiaries when developing or refining engagement policies, objectives and accountability mechanisms, as well as through balancing individual and collective forms of engagement to create and maintain long-term relationships with investee companies.
Prepared by PRI
Sustainable investing and environmental, social and governance (ESG) factors are increasingly becoming a priority for worldwide investors and a trend in what refers to investment strategies and best practices. Several studies developed over the last years, correlate the sustainable investing to superior returns and the investors are increasingly integrating ESG factors in the investment strategy, which positions Sonae Sierra as a reliable partner, and our owned and managed assets as best in class investments.
To help investors capitalize on opportunities in sustainable investing, this article developed by Mckinsey offers insights on how to integrate ESG factors with the investment process—from defining the objectives and approach for an investment strategy, through developing the tools and organizational resources required to manage investments, to managing performance and reporting outcomes to stakeholders. It is based on more than 100 interviews conducted with CEOs, chief investment officers, ESG leaders, investment managers, and others at a range of investment funds, about their experiences with sustainable investing: how they got started, what practices they follow, what challenges they encountered, how they resolved them, and how they have enhanced their sustainable investing approaches over time.
A report connecting global risks to local economies.
60 million people, equivalent to the world’s 24th largest country, are forcibly displaced, and crimes in cyberspace costs the global economy an estimated US$445 billion, higher than many economies’ national incomes.
The Global Risks Report 2016 highlights the most significant long-term risks worldwide. The year 2016 marks a forceful departure from past findings, as the risks which the Report has been warning about over the past decade are starting to manifest themselves in new, sometimes unexpected ways and harm people, institutions and economies.
The responses from Europe show that the most dominant risks include fiscal crises, cyber-attacks, unemployment, asset bubbles and energy prices. In this context, the Report calls for action to build resilience – the ‘resilience imperative’ – and identifies practical examples of how it could be done.
As resilience building is helped by the ability to analyse global risks from the perspective of specific stakeholders, the Report - for the second year - also provides country-level data on how businesses perceive global risks in their countries.
Prepared by The World Economic Forum
In a constantly evolvingworld, even a traditional sector such as real estate changes and innovates. In the view of KPMG, the future of real estate is directly linked with innovation. The startupsof today are the potential industry leaders of tomorrow. Incumbent firms that not only want to survive, but also thrive, should constantly follow developments and trends of these innovations and startupsas there are numerous lessons to be learned. KPMG gives a comprehensive overview examples and insights into the innovations and startups that might shape the future real estate landscape. Startus have been categorized by several innovation topics based on current market trends, including:
- digitizing processes
- flexible workspace
- healthy workplace
- innovative constructions
- internet of things
- new ways of funding
- platforms to connect
- sustainable innovations
- virtual Reality & 3D mapping
The purpose of the document is to provide insight into the current innovative developments in the real estate market. The information provided for each startup includes key information such as name, country of origin, founding year, key words and website details. Not all startupsare ‘live’ or in full production yet, leaving room for innovations that might disrupt the sector at a later stage. Next to the general classification of startups into nine innovation topics key words are included to describe each startup using specific and recognizable characteristics. Besides key information the publication provides a short summary of the company and the respective product.
There are significant challenges in our world today, ranging from deep income-inequality to climate change. There are also advances in understanding and analysis that allow us to take a pragmatic approach to a critical but seemingly elusive question: how can we leverage capital markets to improve not just risk-adjusted returns, but our society as a whole? In other words, how can we create sustainable value?
To answer to this question, State Street conducted a global survey of almost 600 institutional investors who are, or are planning to implement Environmental, Social and Governance into their investment process. In this study, they also surveyed 750 individual investors, including both ESG and non ESG investors, and interviewed 25 executives. The goal is to provide a pragmatic approach to ESG integration that delivers on the principle of sustainable value creation through risk-adjusted returns.
With commercial real estate finance sector witnessing a dramatic shift in attitudes towards sustainability agenda, leading lenders are now exploring new opportunities that go well beyond risk management through sustainability initiatives that drive new business, strengthen customer relationships and improve the data they hold on the buildings in which they have an interest.
The report outlines the drivers and opportunities to lenders by showcasing best-practice examples, including:
- Improved borrower engagement, where ING Bank and ABN AMRO have used innovative technology as an engagement tool to help their borrowers identify energy improvement measures that will provide both a financial return and improved environmental performance;
- New lending products, where Lloyds Bank has launched its Green Lending Initiative;
Deep integration of sustainability practices, where Better Building Partnership (BBP) members Hermes Investment Management and TH Real Estate have taken learnings from their longstanding direct real estate investment funds and are applying this to the newer debt side of their business.
The report also issues a call to action urging real estate lenders to recognise the significant opportunities available, explore the commercial and reputational prizes to be won and collaborate to develop standards that will help products and services to become mainstream.
Over the last 10 years or so, the investment community has become increasingly alert to the sustainability qualities of the property portfolios they invest in.
Sustainability has been embraced for its potential to provide cost savings to customers and value to capital partners, as well as for its benefits to wider society. The case study describes Goodman’s response to this trend and how they have continually improved their GRESB score resulting in a steady outperformance of the peers.
Goodman has developed a long-term approach to sustainability with a strategy focusing on four main areas: sustainable development, asset management, corporate performance, and people and community. In response to the lack of a specific external sustainability tool for industrial property Goodman has developed a unique assessment tool – the Goodman Sustainability Snapshot – to measure the energy efficiency features of its properties. The tool gauges the intrinsic quality of just the building. By measuring the quality of assets in this way, Goodman is better able to advise on investment and timing for feature upgrades, including those related to sustainability.
Prepared by Goodman and INREV
One of the essential functions of financial markets is to price risk to support informed, efficient capital-allocation decisions and it is increasingly important to also understand the governance and risk management context in which financial results are achieved. One of the most significant, and perhaps most misunderstood, risks that organisations face today relates to climate change. While it is widely recognised that continued emission of greenhouse gases will cause further warming of the planet which could lead to damaging economic and social consequences, the exact timing and severity of physical effects are difficult to estimate. The large-scale and long-term nature of the problem makes it uniquely challenging, especially in the context of economic decision making.
To help identify the information needed by investors to appropriately assess and price climate related risks and opportunities, the Financial Stability Board recommends for consistent, comparable, reliable, clear and efficient climate related disclosures. The framework considers the impact of climate change on the following four elements: (1) governance, (2) strategy, (3) risk management and (4) metrics and targets.
The Task Force on Climate-related Financial Disclosures (TCFD) was established to consider the financial stability risks associated with climate change. One of the most effective ways for addressing the financial stability risks that might emerge from climate change are effective disclosures to ensure that climate-related risks are effectively understood by financial markets. Effective disclosure of climate-related financial risks will help to avoid an abrupt repricing of risk and therefore will reduce risks to financial stability. The Task Force developed four widely adoptable recommendations on climate- related financial disclosures that are applicable to organisations across sectors and jurisdictions. Importantly, the Task Force’s recommendations apply to the financial sector, including banks, insurance companies, asset managers, and asset owners. Large asset owners and asset managers sit at the top of the investment chain and, therefore, have an important role to play in influencing the organisations in which they invest to provide better climate- related financial disclosures.
Prepared by the Task Force on Climate related Financial Disclosures
ntegrating sustainability into investor communications is genuinely difficult and requires internal collaboration.
Too few companies get clear sustainability performance messages out to their investors and one of the main barriers is the internal dynamic between Sustainability and Investor Relations (IR) departments.
The report makes the case for stronger internal engagement to enable proactive, integrated communications to investors. It starts by outlining five key gaps related with language, time frame, expertise, relationships and resources. It then moves on to examine each gap in detail, exploring the reasons, the pain points and solutions that have been proven to help close the gaps. The report also includes case studies in which companies have successfully applied the solutions to build stronger internal collaboration on investor communications.
In Closing the Sustainability-Investor Relations Gap, the report outlines five key gaps where Investor Relations and Sustainability teams feel misalignment:
The report makes detailed suggestion how to overcome such misalignment and presents practical steps organisations can take to improve the link between the investor relations and sustainability teams.
Prepared by SustainAbility
The aim of this guide is to provide asset owners with a range of investment strategies and solutions to address the risks and opportunities associated with climate change. The guide is targeted at asset owners and more specifically at trustee boards and investment committees, but also contains insights for asset managers. The guide concludes that there is a need for these actions to be more widely integrated into mainstream investment processes to ensure that investment portfolios are more resilient to the financial implications of climate change. This requires, in part, the development and adoption of new industry norms, tools and expertise that embed climate change into core investment processes, which this Climate Change Investment Solutions guide aims to contribute to.
The guide presents a framework for considering climate change investment solutions, by:
presenting actions to integrate climate change into investment beliefs and investment policies that are actionable and transparent,
discussing actions for measuring and managing the risks and opportunities of climate change, both within the existing asset allocation structure and through evolving the asset mix over time, mitigating investment actions to reduce the carbon intensity of existing assets, along with opportunities to invest in low carbon, clean energy and energy efficient assets.
discussing actions to reduce the vulnerability of existing assets to the physical impacts of climate change, as well as building exposure to adaptation opportunities.
The guide also affirms that corporate and policy engagement are important complementary strategies which can address climate change risks across portfolios and facilitate new investment opportunities.
Prepared by the Global Investor Coalition on Climate Change
A guide to developing the business case for saving energy in real estate portfolios.
This toolkit is a practical guide for organisations to plan and initiate energy efficiency programmes. It provides a variety of corporate approaches towards achieving efficient building portfolios, which assist in developing an approach that best fits your organisation.
The tool guides you through a five step process, first the creation of a vision, the planning of the implementation process, and the organisational implementation. This is followed by evaluation and measuring of the outcome and the final step is the conclusion of results and related feedback.
There are three main components to the Vision Stage of this toolkit that help establish a clear vision which is vital for a successful energy efficiency program. The tool helps with (1) formulating a clear statement of intent, (2) demonstrating an organisation's commitment and (3) forming a framework for subsequent program development and implementation.
In addition the tool helps set up the monitoring systems that are essential to support any energy reduction measures. Whilst this toolkit has been designed for standalone use, it can also be used to assist companies working towards the ISO 50001 Energy Management System Certification.
Prepared by the World Business Council for Sustainable Development
What can be measured, can be improved.
An assessment of the transposition of the Energy Efficiency Directive into Member State legislation.
According to the EU Energy Efficiency Directive of 2012, companies are required to regularly undergo mandatory energy audits or implement energy management systems by the December 2015 deadline. At the same time, EU Member States must develop programmes to promote voluntary energy checks to SMEs, including through financial incentives.
Delayed transposition in eight Member States and missing secondary legislation in additional countries has created considerable legal uncertainty for businesses. Large companies are generally aware of the December 2015 deadline for conducting mandatory audits, though the conditions under which these audits have to be performed are, in many Member States, still unclear. Additionally about half of EU Member States are behind schedule in the provision of support programmes for SMEs to undergo energy audits and to implement identified energy saving measures.
Prepared by EUROCHAMBRES – The Association of European Chambers of Commerce and Industry
Are there financial benefits from improving the environmental performance of shopping centres?
According to this research, investing in sustainable features can increase shopping centres' market value by over 5%.
For the first time there is research-based evidence to support the real and tangible benefits of investing in energy-efficient features to drive shopping centre market value. The research, undertaken by CBRE, spans 35 shopping centres and uses valuation modelling to investigate the dynamic between energy efficiency (and associated costs) vs shopping centres’ asset value in relation to the premature scrapping of high energy equipment and replacement with new energy efficient kit. The concept is designed to decipher the impact on rents and yields for occupiers and owners of shopping centres, while highlighting energy risks and promoting sustainability awareness.
Prepared by BCSC and CBRE
The investment principles and responsible investment approach are not separate topics at APG, where one of the principles is that: “We invest responsibly.”
It has been several years now since APG began building its extensive investment management procedures, incorporating sustainability and governance (S&G) factors as part of its day-to-day investment activities across all assets classes including capital markets and alternative investments.
Research already acknowledged the many benefits of green building, mainly for the environment. But it was not clear whether it is possible to attach a financial value to those benefits, an information crucial to the real estate industry and the investment community.
Do green buildings attract a financial premium in terms of rental and sales value?
Are they more attractive to tenants and occupiers?
Are employees occupying green buildings more productive?
These are some of the questions addressed by the report “The business case for green business”, promoted by the World Green Building Council and sponsored by Grosvenor among others.
Research already acknowledged the many benefits of green building, mainly for the environment. But it was not clear whether it is possible to attach a financial value to those benefits, an information crucial to the real estate industry and the investment community.
In order to answer those initial questions, the report includes a review of the costs and benefits for developers, investors and occupants. And the findings leave no doubt: yes, there can be added a financial value to green building.
In what concerns the design and construction costs, building green does not necessarily mean spending more. Particularly if cost strategies, program management and environmental strategies are integrated in the process right from the start.
When the asset value is the issue, as investors and occupants become more knowledgeable about and concerned with the impacts of the construction, buildings with better sustainability credentials benefit of increased marketability. In some markets there is already evidence of emerging ‘brown discounts’, where buildings that are not green. Besides, building green has shown to be money saving in operational costs: this saving is achieved, for instance, through reduced energy and water use, exceeding any design and construction costs within a reasonable payback time. When the work productivity and health are at stake, the case is, once again, in favor of green buildings, with research concluding that green indoor attributes of workplaces can improve the well-being of the workers.
And this, ultimately, are business benefits.
The report also evaluates the risk mitigation associated with sustainability. Between the risks identified there are the regulatory ones, since many countries already have environmental guidelines for the construction industry that penalize inefficient buildings , the extreme weather events and changing tenants’ preferences that can question the resilience of the building and the risk of its obsolescence.
The study shows a business case for green buildings – it’s not just about saving the planet.
Prepared by the WGBC in cooperation with PRP, sponsoring partners included Skanska, Grosvenor and Estidama
This report seeks to demonstrate that the benefits of managing commercial real estate in a sustainable manner outweigh the perceived burdens of doing so if done in a systematic way.
It has been recognised that while the real estate industry has developed a broadly shared approach to assessing sustainability at the building- and investment vehicle-level, this does not necessarily happen in a co-ordinated manner.
The purpose of the report is to overcome the property industry’s complex web of information flows by introducing an organised and systematic approach.
It presents a framework for a Corporate Real Estate Sustainability Management system allowing property investment and management organisations to both meet their Environmental, Social and Governance (ESG) responsibilities and to establish an overall quality assurance mechanism.
The report concludes with 24 ‘best practice recommendations’ across the corporate, portfolio and property levels which can be used as a practical guide for property investment and management firms.
Prepared on behalf of the UNEP FI Property Working Group by Thomas Lützkendorf and David Lorenz from the Centre for Real Estate at the Karlsruhe Institute of Technology (KIT)
A global survey based research paper that shows the importance of qualitative information such as environmental, social and governance (ESG) reporting to investors and other key stakeholders in their decision- making process.
The last few years, corporations have started to report more non-financial information, including data on their environmental, social and governance (ESG) performance. The growing trend driven by regulation, market advantage or meeting the needs and concerns of key stakeholders is changing global business behavior. The survey was conducted amongst investors, analysts and portfolio managers.
A number of these investors were interviewed to gain a deeper understanding of their answers. Key trends and drivers for the uptake of ESG information are identified in the paper.
Most investors use this information when assessing investments. They mostly use the information provided directly by the company themselves, rather than relying on third parties, such as ratings agencies. However, they are having difficulties in meaningfully comparing data and drawing quantifiable links between non financial and financial performance.
Two-thirds of the investors used different methods in evaluating their non-financial disclosures and only half of this group uses guidelines to make their assessments. Amongst those that never consider ESG information in their decision making process, the main reason for not utilizing it was that in their opinion it was not material. Investors also said that they mostly used non-financial performance as a good risk benchmark. Risks such as poor governance history or the lack of long term strategy, were considered to be more important as the others.
Investors said that they interpreted the disclosure of non-financial performance as a means by companies to improve their corporate reputation.
As the ESG information is considered more and more important, there is also a request from the investors to get a level of accountability of the information, preferably through independent audit verification but also through approval by the board and shareholders.
This could enable for investors to weigh their portfolios according to all sustainability risks. Almost half of the investors mentioned that an unclear strategy could make them completely rule out a company from their investment decision. Also a history of poor governance was emphasized as especially important as a deal breaker.
For reporters, this survey not only shows that their investors care about their non-financial performance. It also indicates why, how and when they use this information.
The key recommendations that reporters can draw from the results of the survey include:
- Invest in reporting
- Report on and highlight what’s truly material to your business performance
- Keep abreast of international developments
- Act now, or be penalized
- Get your governance right
Prepared by EY
INREV is working to highlight the importance of sustainability for the industry. There is a lot of existing practical knowledge about sustainability in the non-listed real estate.
Many INREV members have been promoting and developing sustainability within their portfolios for years, and important lessons from these experiences are shared here via case studies.
Climate change is affecting the mindset of investors globally in a multitude of ways. A term originally defined for companies in the coal and oil industry ‘stranded asset risk’, is increasingly part of the broader investment vocabulary and linked to climate change. As a result of increasing awareness but also the Paris Climate Agreement, more and more real estate investors are taking climate-related financial risks into account. From a real estate perspective, properties are unlikely to become truly stranded as could happen with an oil well, but they do run the risk of becoming obsolete if they are no longer capable of generating rental income. In our view climate change related factors could cause property obsolescence through two partially related channels. The first is due to a lack of adherence to local regulation which forbids landlords to lease space and as such generate income.
A lack of affordable housing is a global issue and not one exclusively seen in developing markets, with acute issues also common in property hotspots in Western Europe and North America. Whilst there is no single definition of affordable housing, generally the term captures a wide spectrum of housing options, varying from social rent, to intermediate rent, to first-time buyer schemes aimed at getting people on the property ladder.
SWELL is a new flagship property to be delivered in 2020 with quadruple certification: WELL “Silver”, BREEAM “Very Good,” HQE “Excellent” and Effinergie. The energy efficient 201,285 square foot project, initiated in 2018, includes 27,000 square feet of biophilic garden terraces with outstanding views of the Seine River.
The AXA Impact Fund - Climate and Biodiversity, launched in July 2019, was developed in response to increasing concerns about how climate change threatens biodiversity.
The United Nations’ Sustainable Development Goals (SDGs) are a powerful organizational and communications tool for institutional investors and asset managers as they are universally accepted across multiple facets of society. But the SDGs are vulnerable to misuse, misrepresentation and dilution. Investors need to ensure that when a product is labelled as “aligned with the SDGs” that it moves beyond just alignment and makes a real contribution to positive social and environmental outcomes. In this article we explain how we have approached this challenge with an investment in affordable housing, one of the main sectors within social infrastructure.
40 Holborn Viaduct is a prime example of how using technology can help to enhance occupier experience, drive energy savings and optimise maintenance – all in line with our goal of developing a sustainable portfolio where the customer comes first. The building has already made a 12% reduction in energy use and is on track to achieve a 20% saving over a four year period. Health, wellbeing and productivity has also improved in the building with better regulation of temperature. Nuveen is now in the process of rolling out similar solutions to its offices and retail centres across Europe.
Prepared by Nuveen
ParkLake, located in Bucharest, Romania, is a multi-award winning retail destination developed by Sonae Sierra. It offers a truly unique retail experience that harnesses the beauty of nature by bringing the outside environment inside, giving it a 'park-like' feel. Having attracted a variety of diverse and high quality tenants, ParkLake has become a popular destination not only for people residing in Bucharest, but also those living across Romania.
Sonae Sierra applied its rigorous Safety, Health and Environment Development Standards (SHEDS) throughout the development project, from planning and design through to deliver. The SHEDS encompass a set of holistic requirements to ensure that a shopping centre will operate with minimum safety and health risk to customers, tenants and suppliers whilst limiting its environmental impact and ensuring the most efficient management of utilities consumption and waste production. By embedding the SHEDS throughout the development, and providing a Safety, Health and Environment Management System (SHEMS) during construction phase, Sonae Sierra has created a future-fit retail destination that fulfils our commitment to creating shared value for our investors, society and the environment. These endeavours were externally recognized with BREEAM Excellent environmental performance rating, as well as the construction works certification according to ISO 14001 and OHSAS 18001 standards.
Prepared by Sonae Sierra
In September 2016 Real Estate of Credit Suisse Asset Management acquired a new building in the city center of Amsterdam.
The office building is situated in an excellent location fronting a river near the Amsterdam city center. Just four years old, the high-quality property mirrors the neighboring industrial charm by offering large outdoor areas and floor-to-ceiling windows. The entrance hall provides communal lunch facilities and a lounge area on the ground floor entirely fit out in the style of the building.
The building underlies a profound analysis of its energy efficiency performance. Energy Star identifies energy efficient buildings by both defining reference of energy use (comparable buildings) and benchmarking its performance (US building population). Real Estate collaborates with Siemens in order to achieve its ambitious target of a top quartile score performance (+75) within 3 years.
CUBE 2020 is a European energy consumption contest for buildings, run annually by the Français pour la Performance du Bâtimen (IFPEB) in France. The contest awards winners based on their ability to reduce energy consumption in buildings over a one-year period through quick win solutions and improved management and operations processes.
This case study features four projects and contest participants located throughout France. The following four case studies – taken from prize winners of the 2015-16 competition – illustrate the dramatic improvements in building efficiency that can be possible over a relatively short space of time.
• The Carré Suffren, Paris, owned by Foncière Des Régions (FDR)
• Le Leoni, Montigny Le Bretonneux, owned by Perial Asset Management and let to Leoni Wiring Systems
• Rennes Colombiers, owned by Poste Immo
• Quai Vendeuvre, Caen, owned by Poste Immo
The ambition to create the most sustainable redeveloped shopping centre in the Netherlands has paid off.
The case study of Heuvel Eindhoven shows how the implementation of a sustainable strategy can turn an outdated asset into one of the top-rated shopping centres in the Netherlands with a double Outstanding score.
This project has been approached first and foremost from the perspective of sustainability and provides details of technical and operational improvements.
This resulted in a BREEAM-NL In-Use Outstanding score for the asset and an Outstanding score for the operations. The score of 90.82% is the highest score in the field of operations in the Netherlands, unique for a 25 year old shopping centre.
Prepared by CBRE and CBRE Global Investors
BRIGHT is an innovative project developed by Sonae Sierra in 2014, which uses a theoretical model to produce optimal energy consumption figures for each of its shopping centres.
Le Terrazze in Italy provides a case in point. After applying the Bright analysis, it was found that the shopping centre was consuming more energy in practice than it should in theory.
Through a series of management measures, and the introduction of free cooling, Le Terrazze was able to identify potential savings of €163,000 – equivalent to 27% of the shopping centre’s annual electricity bill.
Prepared by Sonae Sierra and INREV
Skanska used the redevelopment of the Bentley Works factory to set the standard for future undertakings.
Bentley Works is 7.5 ha site for engineering, manufacturing and servicing which has been redeveloped into a state-of-the-art facility. Skanska used the project to create a new standard and developed an internal rating system with 'Deep Green' as the highest rating. Achieving net zero primary energy, zero waste, zero hazardous materials and net zero water, Bentley Works went beyond the minimum requirements of Deep Green.
Prepared by Skanska and INREV
In accordance with their long standing commitment to sustainability, Sonae Sierra sought to implement the highest standards of Environmental, Safety and Health management on the Loop5 project, both in the development and operation phases.
LOOP 5 is a 56k m2 shopping centre in Weiterstadt, Germany, that demonstrates exceptional environmental, safety and health performance, built under Sierra's Environmental Management System and with a construction certified in accordance with the ISO 14001 environmental standard. It was conceived to be highly functional, bringing the world of aviation alive for its visitors in its themed architecture.
Prepared by Sonae Sierra and INREV
Our sister organisation in Asia Pacific, ANREV, also has a sustainability library with over a dozen case studies.
78 Shenton Way, a modern office tower property located in Singapore’s District 02 - Tanjong Pagar, underwent several projects to improve overall efficiency, as well as occupant experience and health and wellbeing.
After securing the first and largest sustainabilitylinked loan in Asia’s real estate sector from DBS Bank (DBS). The CapitaLand Group has signed new sustainability-linked loans with Credit Agricole Corporate & Investment Bank (CACIB), Natixis Bank and Société Générale to raise a total of S$600 million to date. CapitaLand has the flexibility to use these sustainability-linked loans for general corporate purposes.
Located in the heart of the major commercial precinct of North Ryde Sydney, the Sydney-based asset marks Australia’s first Holiday Inn Express hotel and Pro-invest Group’s first operational hotel. Holiday Inn Express Sydney Macquarie Park offers a smart choice for value conscious business and leisure travellers, with the hotel’s business model strongly ingrained in operating ‘smart’ – offering guests everything they need and nothing they don’t. This philosophy extends to the hotel’s sustainability design, considerations for furniture, fixtures and equipment, and operation.
With the release of the Financial Stability Board’s Final Recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and increasing expectations from investors and Australian regulatory bodies, there has been a growing impetus for companies to assess and report the risks posed by climate change.
Grosvenor Asia Pacific’s Hong Kong and Shanghai office refurbishments have both been awarded the International WELL building Institute’s™ (IWBI™) Gold Level Certification for the WELL Building Standard™ (WELL™). Both the Hong Kong and Shanghai offices were also awarded LEED Gold and Platinum, respectively.
Holiday Inn Express Melbourne Southbank is being developed by Pro-invest Group, one of the largest hotel investment platforms in Australasia. Together with the guidance of Clean Energy Finance Corporation (CEFC) - a specialist clean energy financier, investing with commercial rigour to increase the flow of finance into renewable energy, energy efficiency and low emissions technologies - will incorporate a range of initiatives into the Melbourne Southbank hotel, boosting the initial targeted 4.5-Star NABERS Energy rating to 5-Stars.
222 Exhibition Street is a 29-storey office building built in 1989. When LaSalle Asia Venture Trust purchased the property in 2015, LaSalle saw an opportunity to improve the building, in particular its sustainability performance to achieve better building efficiency overall.
LaSalle took a long-term, asset lifecycle approach to sustainability at this property, believing that exceptional outcomes can be realized without millions of dollars in capital expenditure.
In 2014, Invesco Real Estate acquired 321 Exhibition Street, a 30,200 square meter office building in Melbourne, Australia.
The property is a 20-level office/retail building constructed in 1990. It was fully refurbished and upgraded with modern specifications in 2011.
Upon acquisition, improvement works have been carried out to upgrade the building’s National Australian Built Environment Rating System (NABERS) Energy rating from 5.5 to 6 Stars, where 6 stars represents market leading performance. The time period to achieve this current rating took about 9 to 12 months and costs around AUD100,000.
Galaxis is located in the heart of one-north district, a 200-hectare development designed to host a cluster of world-class research facilities and business park space, and target end-users engaged in Biomedical Sciences, Infocomm Technology, Media, Physical Sciences and Engineering.
The project’s objective is to develop a sustainable business park building that would achieve a higher BCA Green Mark Platinum standard. Key features include extensive greenery, recycling bins at common areas, high efficiency multi-tiered chiller plant and air-conditioning system, high eco-friendly interior fittings and materials, effective ETTV, as well as intelligent lighting control.
Galaxis was designed to achieve more than 30% energy consumption saving against the Singapore Building Control (Environmental Sustainability) Regulation 2008. This translates to an estimated energy and water consumption savings of S$0.9 million per annum.
Chateau Mount Tai is a high-quality neo-Chinese residential development located in Tai’an city at the foot of Mount Tai. White Peak (“WP”), a Swedish fund manager and developer, acquired the land in 2014 and developed it with a vision to create one of the most iconic ecocommunity in this famous and historically significant city.
The project received exceptional sales result with transaction price of 30% higher than market competitors. Chateau Mount Tai has become an iconic development in Tai’an bringing new living standard to the local market. The success of Chateau Mount Tai was followed with a second investment from White Peak in Tai’an.
Garden Square is the oasis in the Jing’an district, Shanghai. Completed in 2013, with a 10,000 sqm garden full of greenery and paths that allows busy people to feel at ease, Garden Square aims to be one of the most environmental friendly and unique commercial buildings in Shanghai.
In 2016, it has undergone further improvements and achieved LEED platinum certification. It has achieved the highest score within the LEED scale for office in China and thereby it has set the new standard for office buildings in China.
In June 2013 Cromwell Property Group acquired a portfolio of 6 assets from the New South Wales Government (GPNSW) with a lease back provision, including a Green Lease that required the parties to work towards achieving a number of prescribed sustainability objectives.
The objective of this case study is to identify the process that Cromwell followed in partnership with stakeholders to develop and implement the EMPs under the GPNSW Green Lease.
ESR Kunshan Distribution Centre, a 2-storey ramp-up logistics facility with leasable area of 61,851 sqm, achieved LEED Gold certification with its innovative design and construction, which optimises energy performance and minimises portable water consumption.
The vision was to construct a logistics facility that would meet the high environmental standards of current and future occupiers, have a reduced environmental impact, provide savings in operating costs and provide a template for future ESR projects in China.
In 2010, Deutsche Asset Management’s (Deutsche AM) real estate business acquired G-Square, a 6,800 square meter office building in Tokyo.
Upon acquisition, G-Square underwent improvements to upgrade the building in order to qualify and apply for the CASBEE (Comprehensive Assessment System for Built Environment Efficiency).
Similar to BREEAM in the U.K. or LEED in the U.S., CASBEE is a tool for assessing and rating the environmental performance of buildings and built environment in Japan. BEE (Building Environment Efficiency), using Q and L as the two assessment categories, is the core concept of CASBEE. The assessment results for buildings can be ranked on a diagram as class C (poor), class B-, class B+, class A, and class S (excellent), in order of increasing BEE value.
Earning a CASBEE (Comprehensive Assessment System for Built Environment Efficiency) “A” rank is an important differentiator among a tenant base in the Shibuya submarket. This will attract younger, creative technology companies that focus more on modern, healthy workplaces and resource efficiency.
Taking advantage of the wholesale conversion scheme by the Hong Kong Government, Pamfleet acquired an industrial building at 164 Wai Yip Street in Kwun Tong and re- positioned it as a quality office property. The building went through the process of BEAM plus certification, a green building certificate issued in Hong Kong.
Sydney’s Masters Home Improvement store at Chullora Business Park, New South Wales, Australia, is a unique and outstanding example of the adaptive reuse process. Goodman has redeveloped a former vacant and redundant warehouse into a new, modern retail facility, whilst retaining elements of the original building.
The ibis Novena Hotel Singapore was awarded BCA Green Mark Platinum Award by the Building Construction Authority of Singapore in March 2015. It is an international 3 star, 10-storey, 241 room hotel completed in April 2011. It sits on four contiguous freehold sites located in the heritage-rich Balestier and Novena area. The hotel is within ten minutes walk to Novena MRT station, just 6 stations away from the Central Business District in Raffles Place and 2 stations away from the main shopping district at Orchard Road.
This is a sustainability case study on improving building energy efficiency. It was a partnership between GPT, the manager of 800-808 Bourke Street, Melbourne and its tenant, National Australia Bank (NAB). The programme commenced in 2012 and the building has since cut its energy use by 29 per cent.
Junction of Qixin Road and Gudai Road, Minhang District, Shanghai, China.
Mapletree is committed to developing environmentally friendly properties. This is driven by the view that sustainable developments not only minimise environmental impact, but enables its users to enjoy cost savings as energy and water consumption lowers.
Spanning 11.9 hectares and comprising two Mapletree signature developments – Mapletree Business City and VivoCity, the Minhang development will cater to the growing demand for decentralised, cost-effective quality office space, and provide retail and lifestyle options to the business and residential communities nearby. For their environmentally sustainable design, both developments were awarded the LEED Gold and Silver level (precertification) respectively.
Raffles City Chengdu (RCC) is an epitome sustainable integrated development in the heart of Chengdu.
The project is designed by Steven Holl and located in the heart of Chengdu city with convenient public transportation and numerous green features.
Raffles City Chengdu (RCC) is situated at the intersection of the First Ring Road and Ren Min Nan Road of Chengdu City. The planning and architectural content of the project is of sliced porosity block forming large public plazas with a hybrid of different functions. Creating a metropolitan public space instead of object-icon skyscrapers, this 300,000m2 project takes its shape from its distribution of natural light. The required minimum sunlight exposures to the surrounding urban fabric prescribe precise geometric angles that slice the exoskeletal concrete-steel composite frameworks of the structure. The large public space framed in the center of the block is formed into three valleys inspired by a poem of the city’s greatest poet, Du Fu (713-770), who wrote, ‘From the northeast storm-tossed to the southwest, time has left stranded in Three Valleys.’ The three plaza levels feature water gardens based on concepts of time-the Fountain of the Chinese Calendar Year, Fountain of Twelve Months, and Fountain of Thirty Days. These three ponds function as skylights to the six-story shopping precinct below. This integrated development comprises of five 110m tailor-made high-rise towers including office spaces, hotels and service residences and a 4-storey shopping mall plus a 4-storey basement car parking. This project was completed in 2013.
As a pension fund manager, APG’s mandate is to invest responsibly by incorporating sustainability and governance factors into every investment they make. In the alternative investment space, they believe their investment success depends on finding and building long-term relationships with investment partners who understand APG’s fiduciary responsibilities and investment philosophy.
Lemon Tree Hotels (Lemon Tree Hotels), a developer and operator of mid-range hotels across India, is one such investment partners. The company owns/operates 3,100 hotel rooms as of December 2014. APG has and continues to support Lemon Tree Hotels’s unique social program, which has made an invaluable social impact within its local community while at the same time helping to consolidate its own brand reputation which in turn has a positive effect on investment value.
40 Mount Street (aka “Coca-Coca Place”) is a landmark 300,000 sf Grade A office building that demonstrates exceptional environmental performance. This awardwinning North Sydney property is the first completed high-rise building in New South Wales to achieve the 6 Star Green Star Office Design and As Built ratings by the Green Building Council of Australia, and was designed to a NABERS 5 Star rating.
Liberty Place is an amalgamation of several sites, with frontages on to both Castlereagh and Pitt Streets. It comprises an office tower of 43 levels, designed by FJMT. ANZ and Freehills are the major corporate tenants. The project has been awarded the highest possible sustainability Design Ratings, and won several awards.