After overwhelming the financial markets, the wave of responsible investment is now reaching real estate markets. To measure its scale, Green Soluce and IEIF interviewed 90 major players in European real estate investment, in order to identify future trends to accelerate the environmental and societal transition of the sector.
How do real estate investors take ESG criteria into account? What are the obstacles to the implementation of a SRI strategy? What are the best practices ? What are the prospects for responsible real estate investment in Europe? “It is urgent to have a benchmark study at European level,” noted Christian de Kérangal, CEO of the Institute for Real Estate and Land Savings (IEIF).
To answer these questions, Green Soluce and IEIF have co-produced the first edition of an unprecedented study called “ESG Trends in Real Estate Investment: Best practices, drivers and challenges in Europe” , brought to be updated every year. Carried out with the support of EPRA (European Public Real Estate Association) and INREV (European Association for Investors in Non-Listed Real Estate Vehicles) and 7 national professional associations *, investigators were able to interview nearly 90 institutional investors, listed real estate companies and management companies of unlisted real estate funds from 15 European countries and representing 787 billion euros of real estate assets under management, “A clarification expected by the actors of real estate investment and relevant to their arbitrations” welcomed Ella Etienne-Denoy, CEO of Green Soluce.
One study, four lessons
The first conclusion of the study is that in ESG, the “E” seems more attractive to investors than the “S” and the “G”: more than 60% of respondents have defined quantified targets and follow specific energy and carbon indicators. While social, societal and governance criteria are taken into account, they are rarely subject to quantified monitoring. In addition, players show a desire for generalization: most of them plan to extend the coverage of their ESG policy to more than 75% of their property assets under management or their portfolios over the next five years.
The second lesson concerns the valuation of the assets concerned. Indeed, buildings subject to environmental labeling are highly attractive to tenants: this leads investors to consider these labeled assets as “key levers of the transition”.
Then questioned on the obstacles encountered in this process, the actors put forward three main obstacles: the complexity of the processes and the lack of harmonized normative frameworks, the lack of availability and quality of data, as well as the anticipated costs of projects and corresponding drop in return on assets.
Finally, when asked about their strategic vision of responsible real estate investment for the following years, 25 actors interviewed seemed to speak of a single path: making the reduction of greenhouse gas emissions is an absolute priority. They thus consider the renovation of the existing stock as a priority. Likewise, the problem of data management as well as the reliability of monitoring indicators appear to them to be a major problem, deploring the “lack of clear guidelines from the regulators”. Thus, they see regulation “as an opportunity to allow the convergence of best responsible investment practices”, rather than a brake, underlining the strong need for harmonization at the European level.
* Ejendorm Danmark in Denmark, Investment Property Forum in UK, IVBN in the Netherlands, Norsk Eiendom in Norway, RAKLI in Finland, Wires in Spain, ZIA in Germany