With the emergence of a growing investment conscience that incorporates environmental, social and governance factors into the investment process, more investors are seeking to identify, define and benchmark the direct and indirect value creation of investing sustainably. Some pension funds have adopted sustainability scores for managers and assets, while others have even declared sustainability as a driving force in overall investment planning.
As capital has begun to prioritize the importance of ESG, private real estate managers and investors have followed suit. However, the value creation story is less understood in the industry as investors have applied varying definitions for what sustainability means to their investments and investment process.
A holistic approach
Sustainability must be deeply and broadly incorporated into both the investment process and platform with an eye for the long-term value of the asset.
This long-term outlook is important as we examine both within and beyond the building into the surrounding community. This offers a better understanding of how an asset will perform as demands for live-work-play environments and the competition for attracting top talent intensifies.
This holistic approach to understanding and valuing sustainability considers social, environmental and governance aspects of assets to provide another key set of indicators to inform decision-making. At Bentall Kennedy, we are seeing the direct impact of measured processes that incorporate sustainability factors throughout the asset and investment life cycles.
From the investment identification perspective, alongside return and diversification variables, sustainability factors help to create and preserve value. Incorporating a focus on resiliency – physical, locational or environmental – is a key component of investing with a sustainability lens.
Asset managers that fail to seek out and deliver sustainability-driven action plans that jointly reduce operational costs and carbon output risk going down a path to asset obsolescence.
Tenants have also become both drivers and participants in sustainability efforts to effectively reduce energy consumption, water consumption and waste. Tenant engagement programs are driving mutually advantageous behavioral changes that are contributing to a reduction in operating costs, increase in tenant satisfaction and retention, and delivering greater long-term value for clients.
In addition, using proprietary data analytics systems, property management and asset management teams are able to see the outcomes and converge on strategies that enhance operational performance relative to portfolio benchmarks.
For example, at Bentall Kennedy we feed this data into our Target Setting Program aimed at systematically identifying opportunities for energy and cost savings, developing detailed implementation plans, then executing and monitoring progress. Through this and other strategies, we have been able to save $3.77 million in total utility costs across our North America portfolio from 2016-17.
Great expectations
Expectations are rising for how the built environment must respond to economic and climate challenges. New real estate development projects affirm these growing expectations from the marketplace by prioritizing the attainment of internationally acclaimed third-party certifications that validate environmental and wellness performance of assets, set against an ever-rising global standard.
In Denver, Colarado, for example, a LEED Platinum-certified office building owned by the Bentall Kennedy US Core Fund has achieved savings of $357,000 in utility costs since 2010, representing a 12.7 percent reduction.
These efforts are an important element in maintaining a 99 percent occupancy rate, demonstrating a connection between sustainable practices and tenant satisfaction.
For investors, considering sustainability factors in pension plan investment decisions helps to mitigate risk, preserve value and create upside given mounting capital flows that have been categorized with an ESG or socially responsible investment (SRI) mandate.
Realizing value from sustainability efforts over the life cycle of long-term real estate investments is an ongoing exercise that prioritizes client interests, empowers property and asset management teams, and engages tenants as critical participants in creating communities that are built to last.
This article is sponsored by Bentall Kennedy
For more information: www.bentallkennedy.com/cr
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