How can socially responsible investment support resilient real estate assets?

These sustainable development funds are one of the levers that mean social and environmental criteria can be taken into account when looking at the performance of a building. Investors are now more and more concerned with investing in a responsible manner, whilst positively contributing to society and guaranteeing the value of their assets. The health crisis which we are currently undergoing clearly illustrates this new ambition, as according to Morningstar & MSCI World, ESG funds have withstood the crisis better than other types of funds. Companies who have taken environmental, social and corporate governance (ESG) criteria into account have seen less significant drops than those companies who haven’t.

When it comes to responsible development, the question remains as to how to find the right balance between the preservation of the environment, a positive social impact and being financially competitive. ESG criteria allows companies to weigh up certain decisions in order to improve their practises and foresee future changes.  

Evaluating a company’s engagement must be done whilst keeping in mind the fundamentals of a sustainable and responsible economy that represents ESG criteria. SRI integrates these criteria in a way that is both systematic and traceable, in terms of the management of assets and the expertise related to real estate property. 

That means favouring attractive and environmentally high-performing investments, which take into account social principles (energy savings, renewable energy, responsible water management, pollution control, waste treatment and recycling and biodiversity). It is in this way that the six objectives outlined in the Principles for Responsible Investment (PRI) set out by the UN in 2006 have been imagined. Investors who have committed to these engagements must take into account ESG questions in their investment processes, their exchanges with shareholders and when working collaboratively with the financial sector which is committed to respecting PRI in order to improve efficiency by reporting on their activities and progress in this area. 

In France, a law relating to energy transition was established in 2016 which aims to boost the growth of green solutions. Different actors including real estate and real estate Asset Mangers, must therefore demonstrate clarity when it comes to ESG criteria. These measure support energy transition by guaranteeing the improvement of energy performance in new buildings. This is done by favouring renovation and working alongside other sectors in order to promote such actions as the circular economy or the development of renewable energy. 

The website Novethic, which specialises in this area, has recently consolidated different sustainable finance labels across Europe. The label FNG-Siegel has gathered 101 funds in Germany, Austria and Switzerland. LuxFLAG counts 112 across Luxemburg and Towards Sustainability 265 in Belgium. The French SRI label remains the first in Europe with 321 registered fund as of 30th December 2019. 

As an article on the Novethic website explains, "With 935 certified funds and more than €326 billion outstanding at the end of the first trimester, the European certified fund market continues its quest. The French SRI label and Belgium’s Towards Sustainability are markers of this trend with 300 certified funds and €100 billion in the pipeline. In terms of the effect of Covid-19 on the world’s stock market, this remains very modest."

 
The number of labels and certificates are expanding across Europe and with some having the reputation of being more stringent, this is the first step in standardising the criteria of labels in the years to come within the European Union. 
 

The SRI label also allows you to better anticipate risk and to safeguard the value of real estate assets. For example, a reversible building will be able to respond to a difficult situation and adapt in order to propose new solutions (co-living for example has given new value to old office buildings that had become obsolete). Taking into account non-financial criteria such as climate related risks, allows Asset Managers to identify opportunity and to make placements that are more sustainable. The SRI as such allows for the anticipation of new regulations that will be put in place in the future and to avoid the obsolescence of certain real estate assets. 

Sustainable investment responds in part to the service economy whereby the objective is to develop the performance of a property or a service rather than the actual property. The idea is to reduce any negative outputs and increase the value of how a building is used. Environmental gains linked to this method allow for a systematic approach to green construction whereby the economic and environmental advantages are clear. With climate change creating greater risk for humans, it is now more important than ever to create cities that are resilient and that work towards an ambitious and adaptable strategy, which aims to cut greenhouse gases. 

Many can agree that such environmentally labelled funds are the way forward. The benefits of sustainable investment don’t need to be proven, CSR is a challenge that the real estate sector must grab hold off. It’s impact is tangible and questions related to ESG contribute directly to the quality of life of the general population.