What is the impact of the health crisis on ESG criteria applied to real estate investment?
More and more, real estate investment players and operators are deploying a sustainable approach to the management of their assets and integrating ESG criteria in all their decision-making. This is why the health crisis has had a real impact, accelerating the integration of ESG criteria for real estate investors. They are increasingly asking us to develop ESG and sustainable products, and to demonstrate how we integrate ESG risks (regulatory, market, obsolescence risks) into real estate investments for all asset classes. As a result, we are developing more products with a strong ESG approach to anticipate environmental risk and demonstrate resilience, which is increasingly sought after by investors.
So the crisis highlights the greater resilience of property funds that adopt ESG criteria?
It underlines the need for greater resilience as well as the approach to risk reduction and anticipation. Property investors and managers who have been incorporating these practices for a long time are showing greater resilience in their property investment products.
Are changes and requirements, which are already being implemented, such as the integration of ESG criteria, being accelerated by the Covid-19 crisis?
Yes, requirements in terms of transparency and the adaptability of buildings. It is no longer possible to build as we did 10-20 years ago. Today, we have to think about the resilience of buildings and their transformation. For example, how to transform office buildings into housing and vice versa. Or how to transform shopping centres into other types of assets. These are the changes that we are seeing in real estate.
French and European regulations are constantly evolving. The new SRI label applied to real estate is coming out in 2020 in France, the European Disclosure regulation in 2019 and the Taxonomy regulation in 2020. This regulatory context challenges your environment. How is BNP Paribas Real Estate Investment Management adapting its practices to build a sustainably responsible approach?
think it's important to remember the three main levers that are helping to accelerate the responsible investment process:
- Growing investor demand.
- The convictions and expertise of property managers like BNP Paribas Real Estate Investment Management.
- Increasingly stringent regulations.
On a European level, the Disclosure and Taxonomy regulations will force the entire financial sector to be more transparent in their reporting on ESG products and their responsible investment approach. This will avoid the pitfalls of greenwashing. In France, the tertiary decree will accompany a process of reducing energy consumption between lessors and lessees. It is a very restrictive regulation.
Beyond this regulatory framework, there are voluntary approaches that guide investors towards a responsible savings path. We can mention the real estate SRI label. BNP Paribas Real Estate Investment Management has had the BNP Paribas Real Estate Diversipierre OPCI labelled. This label acts as a guarantee of transparency and quality of SRI management for investors.
Beyond the labels, we can go further with investment products with a positive social or environmental impact. In this respect, in December 2020 BNP Paribas Real Estate Investment Management launched the European Impact Property Funds (EIPF), which aims to align with the Paris Agreements and propose a reduction in greenhouse gas emissions.
There is a challenge in building management; data collection and processing. To meet this challenge, how do you need to develop your links with the various stakeholders, and in particular with the tenants?
First of all, let's remember that one of the major environmental challenges is to reduce the greenhouse gas emissions that are produced by the buildings we manage. The tenants who occupy these buildings are the main energy consumers. Consequently, it is with them that real estate portfolio management companies must work to reduce energy consumption, and the carbon footprint of the buildings.
Many tools exist to collect, measure and monitor this data. For example, it is possible to sign environmental annexes. This is mandatory in France for office leases, and as a European manager, BNP Paribas Real Estate Investment Management is trying to extend this practice in Europe. We run awareness campaigns with tenants, as well as training courses to change their actions and behaviour patterns.
We know that today 30% of energy savings can be achieved simply through the behaviour of tenants. We are emphasising and improving the management of various office equipment. All of these measures accompany our approach to reducing energy consumption and allowing us to engage with tenants by exchanging as much data as possible with them.
Is it important to raise tenants' awareness because some of them are still reluctant to share their data?
There is still a significant proportion of tenants, particularly in office buildings, who do not wish to share their data. The tertiary decree will help property managers as lessors and lessees will have to exchange their data and set targets for reducing energy consumption by an average of 40% by 2030. This will become mandatory.
We are also supported by a number of property companies in collecting this energy consumption data and facilitating these exchanges, which can still be difficult.
So exchanges are important with a range of stakeholders, not just tenants?
Absolutely. PropTechs and the Property Managers who manage the buildings are key players in this data sharing. The Property Manager, who has a pivotal role between landlords and tenants, also has an essential role in managing this energy and CO2 consumption data.
Can you tell us about a concrete example of an emblematic repositioning operation for a property complex?
Absolutely, especially since energy renovation is a real lever for optimising and reducing greenhouse gas emissions. When a large company moved out of an office building in Neuilly-sur-Seine, on the outskirts of Paris, BNP Paribas Real Estate Investment Management decided to reposition this office complex to fit in with its environment, with a clear and strong objective, technical and energy optimisation. We aimed for a certain number of labels (BREEAM, WELL Gold, WiredScore) and above all a strong environmental ambition to have a zero waste site. It was a green clearance project, meaning that instead of demolishing the entire building, we tried to recover as much material as possible. 17,000 m² of carpet was recovered and sent to recycling centres in Morocco. Doors, taps and partitions were recovered. During construction, we tried to use materials such as false floor tiles and paint from the bottom of paint cans. Overall, the carbon impact of the site was reduced by 30%, which is significant.
Is this building already on the market?
It is currently being marketed and potential tenants who are considering moving in are very sensitive to the approach we have put in place. There is just over 2000 m² of green space in the building.
Are there any extra costs involved in repositioning a building?
There can be an extra cost. This is why it is important to integrate all these elements from the programming stage, i.e. very early on. Today, in France, the method of reusing materials is becoming organised and the more they develop, the more property fund managers like BNP Paribas Real Estate Investment Management will be able to have access to recycled materials in a much simpler way at the time of planning.
Isn't this extra cost penalising investors with a long-term vision?
It depends on the case. In the example given, the investors are very favourable to this approach and encourage it since the building's resilience will be demonstrated in the longer term thanks to this type of repositioning operation.
We see with the Covid-19 crisis that the health characteristics of a building are increasingly important. Do you think that initiatives relating to social and societal issues will grow?
I am convinced of this and is very much what we believe at BNP Paribas Real Estate Investment Management. We are seeing a change in the investment asset class. Today, investors are asking us more about health-related asset classes (nursing homes, clinics, retirement homes). These are new asset types that are very attractive, that offer interesting financial opportunities and that have a strong social impact.
In the more traditional office sector, we are interested in the layout of the building, the well-being and comfort of users, and the layout of work spaces. These are new themes that are arriving to provide more comfort, especially in the context of this health crisis, with larger meeting spaces.
The objective now is to measure this social impact over time, and to monitor it as we do in office property.