RPI and ESG on the Up-and-Up

As previously predicted by CBRE, the demand for ESG investment in real estate is stronger than ever. Results from CBRE’s 2016 EMEA Investor Intentions Survey indicate that investors are increasingly tuning in to the benefits of investing in sustainable property. Results show that 39% of institutional investors view sustainable asset selection as ‘critical’ or ‘one of the most important criteria’ when selecting properties to acquire, and just 11% view sustainability as an insignificant factor during due diligence.

Why the Interest?

• Regulation and financial penalties – Investors are keen to reduce the risk of building obsolescence, while adhering to the EU Energy Efficiency Directive to create a more energy efficient environment by 2020. If investors do not adapt to new regulatory frameworks and update their buildings to suit new minimum requirements they risk direct financial penalties, stranded assets and negative  value impacts.
• The business case for better buildings – Many recently constructed and critically acclaimed buildings have sustainability features built in. There is increasing evidence that buildings with energy efficiency and wider sustainability characteristics hold, and add, financial value to investors portfolios.
• Corporate reputation and quality tenant attraction – As the carbon economy continues to gain momentum, investors don’t want their reputation tarnished by dismissing wider sustainability aims. Sustainable buildings are also more attractive to tenants (notably large firms with clear corporate sustainability targets) as they seek alignment with their own policies and programmes to attract and retain employees.
• ESG funds shown to outperform non-ESG counterparts – Recent research has identified superior performance by funds and companies adopting robust ESG strategies. For instance, MSCI’s ESG research has demonstrated consistently higher performance of European ESG funds every year since 2010.
• New ESG assessment tools and innovation – Recent development of new ESG metrics services – such as those offered by MSCI, Mercer and Morningstar – and certifications for financial products that integrate ESG criteria will enable improved monitoring of RPI strategy and performance, and are expected to generate additional activity in the RPI space.
• A global push for action on climate change – ­­­­­­­­­­­­­­­­­­­­­­­Between governments pledging $100bn a year in climate financing at COP21 and the UN Global Goals for Sustainable Development, which came into effect earlier in 2016, those investors who have been pushing for action on climate change are further empowered to do so.

Observed drivers for responsible property investment are both plentiful and varied. Let us hope that this ESG storm continues.