On the minds of the sustainable investing experts

What is the current appetite for sustainable investing?

EH: From conversations with investors, we are seeing a much greater appetite for investment-focused products, particularly from local government pension schemes and institutional investors, since it is increasingly seen as an essential part of asset allocation. That said, global real estate is worth $379 trillion, with less than 1 percent invested currently into impact products, so real estate needs to catch up.

Emily Hamilton

Head of ESG,
Savills Investment Management

Helen Gurfel

Head of sustainability and innovation,
CBRE Investment Management

Janey Douglas

Head of sustainability, UK capital markets,
JLL

Brandy Burdeniuk
Director of ESG, North America, Avison Young

JD: Despite the challenges we are currently experiencing, sustainability remains a priority consideration, largely driven by regulation, occupiers and investors. In our recent JLL investor survey, 80 percent of respondents said they had a greater focus on sustainability over the past 12 months.

HG: The appetite for sustainable investing has been steadily increasing in recent years. One tangible measure of clients’ interest in sustainability is the volume of queries we receive from both existing and potential clients.

Between 2019 and 2022, the number of inquiries we responded to annually increased 20-fold.

How has your attitude toward sustainability and ESG/SRI evolved?

JD: Across the real estate market, it is broadly acknowledged that ESG/SRI is not a passing trend but an essential consideration to embed into investment strategies. Investors are reviewing existing portfolios to meet sustainability targets and adapting acquisition processes to include sustainability considerations. The sector is continuing to become more adept at navigating the challenges and opportunities that sustainability can offer, and what seemed like an ambitious strategy a few years ago has become minimum expectation in some sectors.

BB: My perspective on this industry has consistently been rooted in the belief that sustainability and ESG are integral components for future-proofing investments, managing risk and creating long-term value. Although the vernacular may have evolved over time, no matter what we call it – be it green buildings, sustainability, ESG or SRI – my unwavering commitment to these investment principles remains unchanged. Given our fiduciary responsibilities, I firmly maintain that inaction carries an unaffordable cost and substantial risk; there are no investment opportunities on a dead planet.

HG: Over the past 36 months, stakeholder interest in sustainability topics has accelerated due to an increase in investor demand, tenant and consumer preferences, regulatory disclosures, greater awareness of climate-related risks and a drive to asset efficiency. We have been continually increasing our sustainability efforts and are more deeply embedding sustainability across our investment process, from our investment committee discussions and throughout our assets’ life cycles. Sustainability is no longer just a focus for the investment teams but rather we have been working to upskill all employees about sustainability and how they can drive positive outcomes.

What do you see as the biggest issues, challenges or risks in sustainable investing?

EH: The proliferation of reporting standards, both voluntary and mandatory, is very challenging to manage. We are starting to recommend to clients to focus less on real estate sustainability benchmarking and more on producing high quality, independently audited impact reporting. The other challenge is that, until recently, funds with transition assets were not seen as “impact” largely due to SFDR disclosure regulations focusing on an asset already being sustainable – a brand new shiny building compared to an asset needing retrofitting. This has slowed the flow of capital into transition activities like retrofitting, which is a desperate environmental and social need.

HG: The sustainability space is quickly evolving. As the industry works to develop and adopt consistent frameworks, some elements are still being properly defined, making it challenging to benchmark performance and progress. Another challenge is the rapidly evolving regulatory environment, where regulation can introduce uncertainty and compliance challenges.

BB: The real estate industry needs new paths to success, with the need for decisive climate action in a very tight timeline. The perception that this is an issue for future generations to solve is a real challenge to overcome. The importance of understanding site-specific or asset-level vulnerabilities and evaluating opportunities to enhance resilience and retain value is complex, and so are climate change considerations, building performance and the continuous need for high-quality data to inform decisions.

JD: Keeping up with policy and trends is challenging as there is a risk around long-term viability and compliance, and uncertainty is not good for investors. Complying with evolving regulatory requirements is also a huge resource burden on investment houses, where there is frustration that these obligations are stifling further implementation of sustainability strategies. There is also a degree of reliance on external factors which are out of an investor’s control.

Where do you expect to find the best opportunities for sustainable investing in the next 12 months?

BB: Opportunities will center around simplification without losing rigor. Improved access to data in plain language, enhanced analysis using SaaS platforms and AI integration and a focus on transparency in ESG reporting will help investors make informed decisions in line with evolving environmental and social pressures. Adaptive reuse – for instance, repurposing existing buildings for vertical farming – offers sustainable investment opportunities while reducing demand for new construction.

EH: Affordable housing and natural capital are the two impact areas we see offering the best opportunities. In particular, providing affordable homes and the creation of new low-carbon homes will be a growing area as countries seek to decarbonize residential.

HG: Real estate assets cannot be fully decarbonized without infrastructure. Some examples of this intersection include renewable energy production, like rooftop solar, battery technology, EV charging, smart meters, geothermal and carbon-capture technologies.

What changes are needed in sustainable investing to help better inform the allocation of capital?

EH: With natural capital we find that the sector is perceived as nascent and more work is needed to upskill institutional investors to fully understand the benefits of this investment class, in particular the benefits of landscape-based approaches rather than focusing on a single element of natural capital like forestry only. Disclosure regulations really need to understand the benefits of transition assets; we see this reflected much more in the UK Sustainable Disclosure Regulation than SFDR.

JD: Key requirements include strengthened, and stable, regulatory frameworks, standardized metrics and ratings, improved data coverage and finally, greater transparency of approaches to integrating sustainability on real estate strategies into underwriting.

BB: We need to recognize and prioritize the positive social value created by the investments we are a part of and think about how our activities affect others and what changes can be made to influence positive outcomes for the communities we do business in.