This week, find in Urban Chronicles Primonial REIM’s vision on the upcoming release of the SRI label for real estate through an interview with Daniel While, Head of Research and Strategy, and Guillaume Regert, Head of Technical Asset Management.
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GS: The SRI label for real estate is long overdue, why is it important for the market?
Daniel While: This is important because, firstly, there are already labels for UCITS as well as labels at the asset level (HQE, BREEAM certifications, etc.) but there was no label for unlisted real estate funds. However, these real estate funds open to the general public represent €90 billion (SCPI, OPCI and other vehicles) in capitalisation. This is quantitatively important because, to give you an order of magnitude, the MSCI estimates that the real estate stock held by institutional investors in France is worth €330 billion in capitalisation.
The interest of this SRI label is also to be able to offer investors and insurers an SRI choice for real estate funds because under the PACTE law they will be encouraged to offer at least one vehicle with an SRI label in life insurance contracts. We also know that prudential regulations for insurers (i.e. future Solvency III rules) will tend to favour a reinforcement of these SRI criteria. This means that SRI becomes an asset class in itself. This is an important step that will help mobilise French savings to finance green real estate and thus indirectly the ecological transition.
GS: What are your expectations from this label?
Guillaume Regert: The objective, for Primonial REIM, is to transform what may initially appear as a constraint into an opportunity. This is the work of conviction that we are currently carrying out to show that although there are regulatory obligations surrounding the environmental transition, it is also a voluntary approach to be taken, for example within the framework of the SRI label. This is an opportunity to develop even more comprehensive and exciting asset management work for several reasons:
- To get to know our assets better. This is essential for optimising the day-to-day management of our assets. Today, an asset manager manages several dozen assets and it is a major challenge to better understand the technical specificities of each one, while ensuring the usual monitoring of the legal and economic elements of our assets.
- Optimising the technical management of our assets. The aim is to combat the obsolescence of our assets under management. This can be achieved through various criteria: reducing energy consumption, water consumption, optimising maintenance by better serving the needs of the occupants, etc. The objective is also to improve the direction of our investments when we carry out work and by thinking about them in the longer term. In short, this makes it possible to modify and broaden the usual angle of approach in asset management.
- Retrieving and monitoring indicators. Today’s asset managers have a fairly broad knowledge of their assets. The current context is an opportunity to enrich this knowledge and, at the same time, the relationship with our tenants on the basis of tangible data. Until now, the environmental appendix, imposed by law, allowed an exchange with tenants on environmental and energy issues, but as we all know, these appendices were mainly put in place because they were mandatory, but in the end they were not very lively. With the concomitant arrival of the tertiary decree and the SRI label for real estate, the lessor and the tenant will find themselves united around more shared environmental, societal and governance objectives, and this will necessarily enrich the exchange and the creation of value, especially extra-financial value.
- Preserving the liquidity of assets and providing answers to the needs of our investors. We often say that we have two clients: the partner who invests money in the funds managed by Primonial REIM and the tenant to whom we owe the provision of a high-performance building. The SRI label is an opportunity to make a new kind of reporting to these two clients on our extra-financial actions. In particular, this implies having quantitative technical data to communicate to our investors, who will need it more and more in the context of their own communication. For us, it is an obligation to be able to provide them with more relevant answers on this topic. We also remain convinced that this approach will make it possible to better defend the value of an asset when the time comes to arbitrate it.
- Take part in the collective effort and have a dynamic of preservation of the planet. It is a question of starting from the finest possible granulometry, which is that of the building, in order to tell a true, concrete story, far from any “green washing”. Every day, we strive to develop criteria for our assets and then translate them into a more general language for our portfolio so that they can be communicated to all our stakeholders in a transparent manner. We manage assets directly and we must therefore remain down-to-earth because, unlike mutual funds, we work with tangible assets that have a very direct impact on the environment and our company.
GS: Are you already working on anticipating the label?
Daniel While: Indeed, we have been working for a little over a year on the labeling of one of our main funds composed of 70 assets and valued at €3 billion. It is important to underline that this is an existing fund because within the framework of real estate asset management funds, we are committed over the medium/long term to holding and managing these assets. Today, commercial real estate accounts for 30% of energy consumption and the response to this situation will not be able to be achieved through new construction alone. The reduction of this 30% in energy consumption will necessarily involve the transition of the existing stock, which represents 98% of the French stock. Thus, for the fund that we are targeting to obtain the SRI label, we will apply as soon as the label is officially published.
In addition, the SRI labelling process has enabled us to further improve our asset and property management processes, which will also benefit our other funds. In this respect, I believe that in the future, management will be increasingly data-driven. SRI seems to me to be a way of quantifying all the externalities of a building and therefore of gaining a better understanding of the building and its tenants’ uses, in the service of a more qualitative relationship.
GS: What other tools will be essential for the successful environmental and societal transition of real estate finance?
Guillaume Regert: The SRI label is the buffer that validates a more general strategic vision. Two major operational elements seem to be part of this approach.
Firstly, and before we can meet the ambitious quantitative savings targets set by the regulations, we need to know where we stand. Indeed, we realise that having the precise and consolidated reality of the existing real estate stock – its consumption, its operating methods (schedules for example), some of its technical and/or usage specificities – is a first challenge to be taken up because to have it at the asset level, we must collect information on the private areas of our tenants, even where we do not usually manage the various contracts in place. This is where one of the major challenges of good landlord-tenant collaboration and communication lies.
Secondly, the maintenance over time of the feedback of this data and the continuous use that must be made of it is another key issue. In this respect, the concept of “energy management” – engineering and consulting based on the mapping of building environmental data, and in particular energy consumption – will prove to be essential to achieving the energy saving, or even carbon neutrality, objectives set by the legislator, while allowing the identification of property risks, whether climatic, environmental or industrial.
As SRI and environmental transition cannot be achieved without energy data and its adequate processing – a huge field of work – big data management platforms are essential tools in our business. In real estate, too, the environmental transition will have to be supported by technology.
Daniel While: To conclude, the definition of environmental transition is evolving today because we see the need to include more and more healthcare in SRI – Primonial REIM is the leading owner of healthcare real estate in Europe, so we are well aware of these issues. Basically, our health and our environment (which are also linked) have the same problem: the cost of a proactive prevention policy is much, much lower than the cost of managing an emergency situation. We must learn this lesson from the current health crisis. What we are paying for are not the consequences of a virus but of our lack of preparedness. It will be the same for a climate crisis. That is why solidarity in time – and not just in space – is becoming a key concept, which we are learning in pain: the present generation must show solidarity with future generations.
Interview transcribed by Constance Flachaire for Urban Chronicles.