Increasing numbers of institutions now have a requirement to collect and utilize ESG data on their real estate investments – a sign that investor capital is intensifying its focus on ESG and decarbonization in response to new EU climate targets, according to a survey by real assets manager Patrizia.
Seventy-six percent of the 100 institutional clients surveyed by Patrizia confirmed that they captured and used ESG data when making decisions, which is an increase of 18 percent on the previous year.
Sixty-nine percent said that they would measure the energy consumption of their real estate investments within the next five years. Notably, the percentage of respondents measuring CO2 emissions has increased across all three categories in the past year. Sixty-six percent will track Scope 1 or direct CO2 emissions, compared with 60 percent in last year’s survey, while 39 percent will measure Scope 2 or indirect CO2 emissions, compared with 30 percent in 2021. Thirty-two percent will track Scope 3 or CO2 emissions along their value chain, nearly doubled from 17 percent in 2021.
Mathieu Elshout, head of sustainability and impact investing at the investment manager, which is headquartered in Augsburg, Germany, said heightened awareness of the urgency of the climate crisis – helped by last year’s COP26, as well as new legislation – had caused a “rapid increase” in the importance of ESG reporting.
The EU adopted the EU Climate Law in April, which included ambitious targets to curb climate change. It ruled that member states would cut carbon emissions by at least 55 percent by 2030.
“It has started to impact portfolios,” said Elshout. “Transition risk is coming and the evidence shows regulation is becoming tighter. As a result, investors are more aware and we will see that continuing.”
Patrizia, which has more than €55 billion in assets under management, has said it will achieve net-zero carbon across its corporate and real estate portfolio by 2040, an aim that includes reducing both operational and embodied carbon emissions for new developments and major refurbishments. It is also targeting a 50 percent carbon reduction by 2030.
Elshout said: “We have set our overall goals, and this survey shows we are on the right path. At the fund level, we need to adopt these decarbonization strategies and back those up with data as well. Investors not only appreciate that but they also expect it from us.”
Since June 2020, Patrizia has been supplying investors with ESG information through its online portal, which gives investors access to real time, personalized information on their investments.
Elshout said that the company had increased data coverage of its assets and its tenant engagement in order to harvest the data it needed. However, he noted that fund managers faced challenges in capturing ESG-related information
“Where you have a fund with relatively small assets and hundreds of tenants, that requires more efforts to gather energy consumption data than a fund with larger assets and fewer occupiers, which makes the process easier,” he said.
Almost half – 47 percent – expect to measure the social impact of their portfolio by 2027, and 23 percent say they will grow the share of impact investments. Meanwhile, 21 percent are willing to accept a “financial discount” to generate social and environmental impact.
Patrizia, which kicked off its impact investment strategy in February, is focusing its first fund on providing thousands of affordable and sustainable homes in European metropolitan areas. Its Sustainable Communities I fund is classified as an impact investment fund because it provides homes for key workers who cannot afford to live close to their workplaces and for people on the social housing waiting list.
Elshout said that quantifying and measuring social impact is made possible by the “extremely clear need” for social and affordable housing in Europe. For instance, in Dublin, Ireland, Patrizia is providing 290 homes in a city in which there are over 60,000 people on the social housing waiting list and where affordability is a major issue.
“We can contribute to solving these problems by creating homes across Europe. But inclusion is also our focus. Around 75 million people in the region are lonely, according to EU figures. We will provide community properties – such as libraries, day care centers and other common areas – where people can meet.”
He added: “It is very encouraging to see many of our investors are considering a move into impact investing and our strategy is to increase our portfolio in this respect.”