NEWS & BLOGReal Estate Portfolio Emissions Considerations for Fund Managers
Alts Axis Real estate is directly in the crosshairs of the fight against climate change. The reasons behind this direct relationship are straightforward. To begin with, institutional asset owners are going net-zero, real estate is a significant source of Greenhouse Gas (GHG) emissions and net-zero is a fixed, definable target.
In recent years, many real estate investors have made commitments to reduce their portfolio emissions in support of the Paris Agreement. For example, 236 asset managers with $57.5 trillion in assets are signatories of the Net Zero Asset Managers Initiative (1) and have committed to achieving net-zero alignment by 2050 or sooner. Firms such as Allianz Real Estate have committed to reducing emissions by 25% by 2025 across their $85 billion global real estate portfolio. It is becoming clear that managers who do not measure portfolio emissions may be excluded from an increasing number of investor allocations.
In 2019, real estate accounted for 16% of GHG emissions in the United States, making it a primary target for institutional investors. Given its disproportionate contribution to climate change, real estate investors ask managers to reduce their emissions from utilities and HVAC sources (scopes 1 and 2 emissions). These investors also wanted to understand how buildings minimize energy usage if managers set emissions targets or favor “green” buildings, such as LEED-certified buildings or those that use renewable energy in their investment selection process.
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Top 10 allocators to private real estate |
Formal Emission Target |
|
Abu Dhabi Investment Authority |
Supporter |
|
APG |
Yes |
|
Allianz Real Estate |
Yes |
|
Nuveen, a TIAA Company |
Yes |
|
Temasek Holdings |
Yes |
|
AXA Investment Managers |
Yes |
|
Canada Pension Plan |
Yes |
|
Qatar Investment Authority |
Targeted |
|
CalPERS |
Yes |
|
Swiss Life |
Yes |
Commercial real estate energy usage is easily comparable from building to building. ENERGY STAR® is a government-backed Environmental Protection Agency (EPA) initiative widely used in the U.S. for rating a building’s energy performance. The Carbon Risk Real Estate Monitor (CRREM) and GRESB (Global Real Estate Sustainability Benchmark) are other benchmarks used to compare a property’s energy efficiency. Having readily accessible benchmark data makes it easy for investors to model portfolio investments and see which funds are best at managing energy usage and are most in line with their emissions targets.
In closing, real estate is an easy target for investors committed to reducing portfolio emissions. Fund managers that recognize the importance of emissions can make their funds more attractive to institutional investors by paying attention to emission data. By doing so, fund managers will attract institutional investors and reduce their energy costs, which is a win-win proposition.
For more information on this topic, please contact Joe Holman jholman@withum.com of Withum’s Environmental, Social and Governance Services Team.
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