Areim: Future proofing the Nordic way

This article is sponsored by Areim.

Nordic property owners have long been at the forefront of sustainable development and innovation, say Areim sustainability manager Marika Hilldoff and investment professional Julia Mejegård, who particularly understand the importance of turning “brown into green” by investing in improvement journeys by retrofitting assets.

Now that the ESG debate is moving on to social impact, it is perhaps no surprise to find them once more leading the charge. Hilldoff and Mejegård believe the real estate industry needs to take a broader view of assets, as it is what is inside and around those assets – the people – that is really important. 

In true Nordic style, this move to broader view is being led by the company’s own employees and management.

How do you see the ESG mission for Nordic real estate managers?

Marika Hilldoff: We closely follow the mega-trends and challenges around the world, as they bring both risk and future investment opportunities. By continuously monitoring and understanding the various market drivers at an early stage, we can better respond to challenges such as environmental risk, energy transformation, technological disruption and socioeconomic and demographic change. 

Sustainability to us is about leaving something good behind for our future generations. This includes all parts of ESG, where the joint efforts of E, S and G constitute the long-term perspective. We see these elements as equally fundamental to value creation for all our stakeholders. 

Our vision is to invest in new shapes of progress, for society and beyond. We like to talk about “adding potential to impossible” and to “smile while doing it,” because at a time when COP27 is underlining the scale of the challenges we face, it is important to stay curious and optimistic. 

Julia Mejegård: It is easy for many property owners to forget to smile. So much is happening in the world with climate change and regulations being imposed which can lead to frustration, also for us, and in this situation it is important to stay calm and remember to have fun, both for our own wellbeing and to maintain the energy to continue with the important job we are doing. 

What makes the environment such a considerable area of focus?

MH: It has been so for a long time and was perhaps a simpler starting point than ESG’s social aspect. We’ve made considerable progress in energy efficiency and are using all the renewable energy sources at scale – wind, water and geothermal – which we are privileged to have a lot of in the Nordics. 

This is also reflected in the great GRESB scores for us and many of our peers in the Nordics. We really see this as a win where we challenge each other and share industry knowledge and improve.

For Areim, we have set a net-zero goal of 2030 and created a detailed pathway for how to get there. This goal guides us on the journey ahead to focus on continuously improving ourselves in the long term. We all need to contribute to the global solution.

JM: This is central to how we work. We are a value-add manager and one way to drive value is to increase the net operating income.

You can do that either by increasing the income or by decreasing the costs – and preferably both. Energy efficiency is therefore an obvious value driver, particularly now in the current energy crisis.

Working to improve the efficiency of a property also increases its resilience going forward and makes it more likely that it will have a “green premium” in the future. Positive energy certification is now vital when it comes to exiting assets. 

What about when it comes to new purchases?

JM: We like to acquire difficult assets and improve them. In our due diligence we analyze not only if the product is sustainable today, but whether or not we can upgrade an asset to meet certain ESG targets during our hold.

If the answer is “no,” we will not do the deal. If the answer is “yes,” then we establish what the cost for refurbishment or other relevant sustainability initiatives will be. This is a key success factor when striving to turn brown into green as we do.

Needless to say, these moves will bring significant economic value, as we have seen already.  

In some cases, we also tie such investments to a greening financing facility in which we agree with the lender to follow a sustainability business plan in order for the loan to remain within the facility. We do this, for example, in the light industrial segment, which is generally an environmentally overlooked property type. 

How is your approach to ESG changing? 

MH: It is not just about the environment; increasing regulation across Europe is putting more emphasis for managers on the governance element of ESG, while social factors will be of increasing focus in Europe under the new Taxonomy. But we see this very much as a positive thing and support the EU’s push for a greener built environment and for more transparency.

JM: Crucially, we are also increasing our focus on the social part of ESG. The concept of the “15-minute town” may now be fashionable but is nothing new for Nordic investors such as us.

Back in the 1950s in Sweden we used to talk about “the ABC town,” those three letters standing for the Swedish words for “work, live, make commerce.” The whole city needs to live and function in everyone’s daily life, and it needs to be a safe place.

This increased focus on social sustainability has partly been driven by our own staff. They have seen the social impact of our projects and want to do more to create value for a broader range of stakeholders.

This is part of a general Nordic trend, where we are seeing employees seeking more purpose in their work and employers needing to offer their workers a job that they can be proud of. Not to do that would simply be “unmodern.”

Likewise, we feel that there is an urge to step in where the public sector has failed and do what we can to push for positive change. This is not the seed of this new spirit here; we have always been community minded.

Do you also believe there are business benefits from having greater emphasis on social impact?

JM: Absolutely. In the very near future, all sustainable aspects will be taken into account for properties. There will be a sustainability discount for those that fail to meet standards helped along by EU regulations. We have to ensure therefore that all of our properties are future proofed.

But it also goes beyond that. There is no question that improving a neighborhood is likely to translate into being able to charge higher rents, thus lifting the value of the property. Properties which have the human dimension will be more attractive to tenants. The problem is that it takes more time for the human benefits to become apparent and it is quite complex to measure those changes.

MH: It is all about people and their reaction to an asset. Often, you have to engage with all the stakeholders in the community to make changes, but even if you carry out sustainability initiatives quickly it still takes time to see the social impact.

And how do you measure that social impact?

MH: We seek to have a structured process built into the business plan for each asset. We need goals and measurements to make sure we are on the right track, that we stay innovative and are continuously improving.

Tenant surveys include aspects on people’s feelings of pride and safety. We might introduce a community meeting place like a cafeteria or sponsor a scheme such as bike sharing. We want to create sustainable environments which feel alive and safe. It will take quite some time for the benefits to show up in surveys.

We are also looking for external providers of impact measurement. But it must be said we don’t want to overstress about finding the right KPIs. We want to get on with doing good.

JM: It should also be said that working closely with local communities and municipalities is very important since they often have a lot of very useful data, but not always the resources to analyze it. This is something we can step in and do – and means we can focus on the ‘S’ in ESG.

Importance of education and co-operation

Areim’s Joyful Learning initiative provides a compelling case study in social impact

Marika Hilldoff: At Areim, education has always been close at our hearts. We believe you can tackle several of society’s biggest challenges in the education field. By focusing on education, we have the opportunity to make an important contribution in reaching SDG4, to ensure inclusive and equitable quality education for all. 

The impact of our school years cannot be overstated and how school facilities are designed and maintained has an impact on students’ results and wellbeing. One example is the research by University of Salford that shows that better classroom design can lead to a 16 percent improvement in students’ grades.

In Sweden, inequality and bullying in schools has increased in recent years, and more and more children are reporting mental illness. 

This is why we joined forces with Friends, a well-reputed non-profit organization working to prevent bullying. Together we initiated Joyful Learning, a social innovation process to accelerate our possibilities to participate and support transformative solutions in dialogue with students in our school facilities and a diversity of relevant stakeholders.

We are currently exploring methods to promote more inclusion and wellbeing in the intersection between school facilities and impactful support measures to improve students’ wellbeing and positive results.

Julia Mejegård: That is social impact in a nutshell: taking pride in going beyond the traditional view of owning real estate assets. It is important to remember that this is not only about the bricks.