In order to ensure that the real estate industry reaches the Paris Agreement goals on climate change, some of the largest global institutional investors have joined forces by signing up to the Global Real Estate Engagement Network (GREEN). Together these signatories represent over EUR 2 trillion Assets under Management. At present the real estate sector is still responsible for approximately 30 – 40 percent of global energy consumption and greenhouse gas emissions. The members of GREEN, therefore see it as their fiduciary responsibility to take ESG and climate risk factors into account in their investment policies. Through the power of coalition the institutional investors aim to steer real estate companies to improve their sustainability performance, and reduce their exposure to financial and non-financial climate risks.
Growing network increases influence to achieve Paris goals
Since its launch in September 2021 the following additional institutional global investors have signed the Investor statement: asset owners ABP, PME, PMT and asset managers APG, Wellington Management, MN, Robeco, and Neuberger Berman. The growth of its platform allows GREEN to increase its influence, which in turn strengthens the voice of each member. The network now represents approximately EUR 2 trillion of Assets under Management. The network is backed by renowned academics such as Professor Piet Eichholtz from Maastricht University and Professor Kees Koedijk from Utrecht University.
What is in the statement?
GREEN’s ultimate goal is to encourage the real estate sector to effectively reduce its carbon emissions and manage progress against science-based 1.5° targets, such as the Carbon Risk Real Estate Monitor (CRREM) pathways. The undersigned collective of real estate asset owners and asset managers believe it is their fiduciary responsibility to take ESG and climate risk factors into account in their investment policies. In the statement, the signatories outline four actions on climate change and sustainability for real estate funds and companies.
1. Enhance disclosure on the robustness of companies’ business plans in different climate scenarios.
2. Implement a strong governance framework for climate change and sustainability, including ambitious target setting aiming for 1.5 degrees pathway.
3. Develop science-based transition pathways to help meet Paris Agreement goals.
4. Promote certified and standardized green building certifications across the portfolio.
Real estate sector responsible for 30-40 percent of worldwide carbon emissions
Environmental factors are becoming increasingly important in real estate. Legislative and regulatory requirements for curbing emissions to ensure net-zero compliance by 2050 at the corporate level are ever more likely, while at the other end of the spectrum there is increasing focus on measures that target tenants and owners. Real estate investors are increasingly required to demonstrate and report on the sustainability of their investments. These developments, coupled with the physical risks associated with global warming, mean that real estate portfolios are becoming increasingly vulnerable to climate change on a range of levels. According to Prof Piet Eichholtz, one of the initiators of GREEN, scientific research shows that a careful implementation of sustainability factors contributes to the risk/return performance of real estate.
Call upon other investors to collaborate to achieve real-world impact
Experience demonstrates that real estate carbon emissions can be curbed without major impact on business models or financials, while research shows that the sector is not yet on track to reach the goals of the Paris Agreement. Existing collaborative engagement initiatives like Climate Action 100+ don’t include the real estate sector in their program and the sector remains largely under-engaged. GREEN network members acknowledge the importance of collaboration to initiate change and maximize impact. We therefore call upon other institutional investors to join GREEN and work together towards a Paris-aligned real estate sector.
Patrick Kanters, Managing Director Private Investments at APG: “We strongly believe that shared investor expectations and joint engagements will get the real estate market moving. Curbing global carbon emissions in real estate will contribute significantly to the Paris goal of limiting global warming to 1.5 degrees or less. GREEN has the potential to grow into an effective platform for like-minded investors to meet and leverage shared objectives. We expect real estate companies to be transparent on how their portfolio performs against science-based targets such as the CRREM pathways. As APG we have helped to shape the GREEN investor statement. Consequently it serves our global engagement objectives and we fully endorse the actions required from real estate companies. We encourage like-minded investors to join this global network and together work on improved sustainability in the real estate sector.”
Peter van den Tol – Senior advisor impact investing & responsible investing at MN on behalf of PMT and PME: “We believe that we are at a pivotal moment in time where we still have the opportunity to effect sufficient change to reach the objectives of the Paris Agreement. Therefore, via this collaborative action, we strongly press real estate companies to disclose factual consumptions and climate performance and urge those companies to develop concise CRREM aligned retrofit roadmaps. The need to accelerate now is evident because of the building component life spans and long term planning regarding retrofits.”
Bradford Stoesser, Senior Managing Director & Portfolio Manager at Wellington Management: “Wellington Management joined GREEN because it aligns with our philosophy and process regarding climate change and real estate– material climate risk factors are strategic business issues that could ultimately impact the long-term value of real estate companies. We look forward to working with GREEN initiative members to help enhance climate disclosures and advance the adoption of environmental best practices across real estate companies.”
Brian Jones, Managing Director & Portfolio Manager at Neuberger Berman: “Investors, occupiers and regulators are focusing more attention and scrutiny on the environmental performance of real estate. REITs with credible environmental programs can lower regulatory risks, attract high-quality tenants and generate better returns for investors. Real estate companies have begun to quantifiably measure carbon emissions and develop pathways to reduce emissions, but the scale of the real estate emissions means they need to do more. The collective investor advocacy of the GREEN-network is a powerful way to encourage real estate companies to accelerate their emissions reductions and reach carbon net zero well ahead of 2050.”
Carola van Lamoen, Head of Sustainable Investing: “We strongly believe in the importance of collaboration to instigate change and maximize impact at investee companies. Since there is room for further collaborative investment initiatives in the real estate sector, we are motivated to join this global network and work together on urging real estate companies to increase their efforts on combatting global warming.”
Paul Chandler- Director Stewardship PRI on the importance of the initiative: “The real estate sector is responsible for 30 – 40 percent of global energy consumption and greenhouse gas emissions, which positions the industry as a central player in the fight against climate change. Urgent progress is critical if we are to protect investors’ ability to continue delivering returns to clients and beneficiaries. Against this backdrop, the PRI is pleased to welcome the continued growth of GREEN and commends investors who have chosen to join forces in this ambitious programme. Collaboration via stewardship initiatives like GREEN will be central to investors achieving tangible outcomes within the sector and beyond”.