In the presence of leading real estate asset managers and investors, the United Nations Environment Programme Finance Initiative (UNEP FI) recently launched a report which proposes a framework for Corporate Real Estate Sustainability Management (CRESM).
The framework is a useful tool for real estate asset managers to mitigate risks and create opportunities across the investment process at the corporate, portfolio and single building level, and ensures that sustainability information will become a valuable resource for boards and key decision makers. It also helps investors both protect the value of real estate funds and comply with their fiduciary duties.
The report, Sustainability Metrics: Translation and Impact on Property Investment and Management, draws on the findings of a sector survey conducted by the Centre for Real Estate at the Karlsruhe Institute of Technology (KIT), and highlights that the property investment community has already developed a relatively sound understanding of what sustainability means in relation to single buildings and investment vehicles. However, it also suggests that the data and information crucial for sustainability performance assessment and management are not yet systematically captured and processed, even though it may already be available ‘somewhere’ within an organisation.
From a boardroom perspective, it is critical to harness the relationships between sustainability issues, related metrics and property investment / asset management operations. An individual asset’s sustainability performance can impact on portfolio value, corporate reputation and corporate success in many ways. Therefore, the adoption of Corporate Real Estate Sustainability Management (CRESM) is a vital element of a responsible corporate policy. It requires implementation into standard investment and asset management processes.
“We believe that sustainability risks are integral to both functional and physical depreciation of buildings. […] We see this as a key risk factor that should be incorporated in the real estate industry’s existing dividend discount models in assessing value. Only in this manner will we be able to manage our portfolio as a responsible investor on behalf of our clients,”said Chris Taylor, Chief Executive Officer, Hermes Real Estate.
With approximately 70 per cent of the world’s wealth bound up in land and real estate, the sector is vital to economic development, helping to underpin stable, sustainable investment and growth around the globe. Buildings also account for approximately a third of the world’s energy consumption; they contribute to global greenhouse gas emissions and are thus considered a sector requiring urgent action to mitigate climate change.
“Our aim is to assist the financial sector with enhancing and protecting real estate value in ways that ultimately support UNEP’s agenda, which is to work towards a more sustainable, energy efficient and low-carbon economy. This report presents policy makers with an easy to understand analysis of sustainability management in the real estate sector and is a basis for action by investors,” said Charles Anderson, Director of the United Nation Environment Programme Finance Initiative.
“From a Royal Institution of Chartered Surveyors’ perspective, the UNEP FI metrics report could not have come at a better time. The January 2014 RICS Red Book edition now specifically lists sustainability as a factor that valuers need to take into account when performing valuations and risks assessments for their clients as these sustainability factors can influence investment decision-making. With the new Red Book and the Sustainability Metrics report we now have a holistic approach with guidance to valuers and associated capacity building programmes on the valuation side and guidance on the real estate investment and financing side. Both are aimed at raising awareness about the importance of data collection and sustainability metrics not only among valuers and responsible investors, but also amongst the wider investment community”, said Louise Brooke-Smith, President Elect of RICS.
Led by the Property Working Group within the UNEP Finance Initiative and developed by the Centre for Real Estate at the Karlsruhe Institute of Technology, the report represents a joint venture between leading stakeholders in the field of property investment, advice and management. It was supported by the Royal Institution of Chartered Surveyors (RICS), the Institutional Investors Group on Climate Change (IIGCC) and the Principles for Responsible Investment Initiative (PRI).
“The PRI is proud to collaborate with its partner, the UNEP Finance Initiative, to deliver pragmatic solutions for investors that contribute to a more sustainable financial system. We are pleased to recommend this resource to the property investment management community as a useful tool to facilitate responsible investment practices” said Fiona Reynolds, Managing Director, Principles for Responsible Investment.
The common goals of these organisations are to encourage sustainability in property finance and promote property investment and management practices that achieve the best possible financial, environmental and social outcomes.