Regulation helps to unify ESG targets and reporting standards, but asset managers at PERE’s Europe Forum said it was still a challenge to reconcile the varied approaches and requirements of their investors and tenants around ESG – particularly when operating in today’s increasingly global market.
Speaking on a panel at the event in London last week, Peter Holden, global co-head of real estate asset management at Zug-headquartered Partners Group, said he sees regional differences in the approach to ESG among his firm’s investor clients. “European pension funds are probably the most demanding, from who we talk to. There’s also a political dimension there as well, in so far as many of the representatives of those pension funds have elected representatives, and that’s really a grassroots drive, a greater commitment towards investing in a sustainable way.”
Stéphanie Bensimon, head of real estate at Paris-based manager Ardian, said there was also divergence at a country level. “Most of our clients, at least for our funds, are European, but sometimes we have to educate because we see big differences between countries’ awareness on ESG topics. We try really to adapt and get to understand really what are the needs of our investors.”
A key challenge discussed by the panel was that much of the market is moving faster on ESG than the regulation designed to enforce its progress.
“We have investors who go far beyond the regulation,” said Kristina Arsenievich, director of real estate ESG at Barings European Real Estate. “They would in fact mandate all the KPIs, whether they’re mandatory or optional, and want full granularity, want full process, want to log into the data platform, want to see how it’s verified and really dive in, and they have significant resources on their side.”
Conversely, she added, “there are other investors that might just ask, ‘are you Article 6 or are you Article 8?’ and the conversation will stop at that.”
Holden said this extends down the value chain to the building user level, too. For example, although the EU is setting minimum requirements for Energy Performance Certificates for assets under construction, he noted that the bar is set even higher by target tenants. “While the legislation has of course influenced the local delivery of what is designed and constructed, actually, when you’re having conversations with occupiers, they’re setting standards which are potentially higher than that minimum standard.”
Legislative mismatches are even more acute when applied to a global asset portfolio. “We have a global footprint in real estate and we must adjust at each regulation,” said Bertrand Absolut, manager, sustainable investment – Europe at Ivanhoé Cambridge, the investment arm of Canadian pension fund CDPQ.
“What we consider a sustainable investment at Ivanhoé may not be a sustainable investment as per SFDR or the EU taxonomy or the Australian taxonomy or other taxonomies that are under development,” he added.
“In Europe, we are very top-down with the directive that applies to local countries. In North America, it’s the inverse, it’s very much bottom-up. It’s led by the municipalities and some regulation of the municipalities – the most famous one is Local Law 97 in New York.”
If the challenge of complying with a long list of varying regulations in different jurisdictions, matching them to an organization’s own sustainability goals and then meeting the additional and varied expectations of one’s investors and tenants was not hard enough, the heightened macroeconomic uncertainty of the current market could even see ESG deprioritized in some corners of the globe, as explored in PERE’s latest deep dive.