1: GRESB 2019 scores
Another year, another step up for the sector. Total participants in the 2019 assessment number 1,005, including both listed and private entities – an 11 percent increase on 2018 – and the total average GRESB score has improved to 72 from 68 last year. Across seven key sustainability indicators, the sector has upped its game, too. Looking regionally, Europe and Oceania lead the way, dominating the GRESB award tally in the category of overall global sector leaders, picking up a collective eight.
2: Decade of progress
It is 10 years since GRESB was launched by a group of pension funds. In that time, the sector’s commitment to sustainability, at the fund management level and at the asset level, has grown significantly. In 2010, there were 198 participants in the assessment, compared with 1,005 in 2019. This is the go-to benchmark against which managers and investors now measure themselves and their peers. It is a sign of the times – the environment matters and institutional capital is acknowledging property’s critical role in creating a more sustainable world.
3: Technology and big data
Technology and sustainability are core talking points in the private real estate sector. Both are disruptors changing how the built environment operates. But often they are discussed as separate agenda items. That is changing. There is a realization that technology is helping managers and investors improve sustainability performance. Throughout this report there are examples of technology facilitating energy efficiencies and data offering a snapshot of whether space is used optimally, helping managers drive down operating costs and improve investor returns.
Nuveen Real Estate’s head of sustainability, Abigail Dean, says: “Improving buildings with technology future proofs their value in the years to come.” And Nina Reid, M&G Real Estate’s director of responsible property investment, agrees data is a “game changer.”
“ESG has become mainstream in the real estate sector, although there is more room for improvement”
Mathieu Elshout, PGGM
4: Health and well-being
The notion that property can improve occupants’ well-being has quickly become a core part of the sustainability conversation. Much of the well-being movement is tenant-driven, particularly in the office sector. In waging a war for talent, corporate tenants want to ensure they are perceived as responsible, compassionate employers. And with social, regulatory and political pressure on businesses to step up to sustainability and create healthy working environments, the space leased must be conducive to meeting such expectations.
While it remains challenging to correlate social initiatives to actual value-add, there is a “gut feeling” among a growing cohort of the investment community that a focus on these aspects is warranted and will in the long term improve bottom lines. Success, after all, depends on getting tenants in the door. And that hinges on making property attractive to them. The equation is simple – no tenants, no cashflow, no returns.
5: Impact investing
Another cog in the ‘S’ wheel, impact investing is the idea that institutional capital through property has an obligation to contribute positively to the wider social community. And that the commercial success of buildings depends on communities thriving and being attractive places to live and work – symbiotic success.
The correlation between social impact and returns is also challenging to prove, but an increasing number of managers are buying into the argument. As Hermes Investment Management’s director – real estate risk and environmental impact, Sharon Brown, concludes in her article in this report: “Profit and impact can co-exist in real estate. Indeed, we now see them as two sides of the same coin.”
6: Climate change, energy efficiency, carbon reduction
As this report was in production, one of our contributors, South Carolina-based Greystar, found itself in the path of Hurricane Dorian, which had already wrought devastation in the Bahamas. Addressing the impact of climate change on property and pricing the risk into investment decisions, and the sector’s role in reducing carbon emissions, remain mission critical. The built environment is responsible for around 40 percent of the world’s total carbon emissions and has been tasked by the World Green Building Council with achieving net zero carbon across all buildings by 2050.
As David Russell, head of responsible investment at USS Investment Management says: “In a net zero world, the real estate sector needs to increase its efforts to reduce energy use and also to adopt renewable energy. This will require a shift in the thinking in the sector sooner rather than later, otherwise we could have ‘stranded’ real estate assets – ones that are very difficult to sell except at a large discount to market value.”