By Tim Shen
Responsible property investment (RPI) is coming of age globally. The release of the hotly anticipated 2015 Global Real Estate Sustainability Benchmark (‘GRESB’) Survey results, which spans over 700 participants reporting on the sustainability performance of real estate portfolios, is testament to this.
The value of institutional capital backing GRESB this year rose by more than 10% to USD 6.1 trillion from 5.5 trillion last year. This level of capital is significant and tallies with findings at a recent CBRE event hosted in Asia where institutional investors spoke of significant volumes of capital for which they were still seeking vehicles with sufficient ESG performance credentials to invest in. Recent academic research highlighted by GRESB found a strong correlation between integration of ESG and stock market performance as well as lower cost of capital, and better risk-adjusted returns for investors.
One core theme can be distilled from this year’s GRESB results - building owners globally are increasingly implementing comprehensive ESG programs. This shift in focus toward holistic RPI performance is cited by the majority of reporting real estate portfolios achieving GRESB Green Star status for the first time. Drilling down further, two additional trends of interest emerge. The widespread adoption of green leases is increasingly ‘par for the course’ and more attention than perhaps ever before is being placed on the health and wellbeing of building occupants.
While traditional areas of RPI focus, such as energy and water efficiency, and Greenhouse Gas (GHG) emissions reduction, remain core to the efforts of portfolio owners, this year’s survey results highlight a profound evolution of ESG programs that clearly look beyond the physical management of real estate assets towards areas which have the potential to add value to portfolios by addressing aspects that may benefit tenants.
In particular, green leases are now the norm among GRESB respondents, with 60% of portfolios reporting some form of green clauses in their standard lease contracts. With tenants being responsible for up to half of a building’s total energy use and associated GHG emissions, green lease clauses can have a profound effect on a building’s overall performance, which explains the attention given to them by institutional investors for whom the GRESB survey was created.
Well specified green lease clauses will be of equal benefit to tenants, and there is a growing trend among large multinational occupiers to seek their inclusion in leased portfolios to facilitate the achievement of corporate sustainability goals that makes early adoption of green leases sound business sense for building owners.
While there is still some way to go regarding the mainstream adoption of green lease clauses in all markets, this year’s GRESB results represent a significant milestone towards new real estate standards that promise to have a transformative effect on the industry.
Another key positive trend uncovered by this year’s GRESB survey is the increased attention being placed on the health and wellbeing of stakeholders. Since the CBRE global headquarters in LA became the World’s first WELL certified offices, the company has gone on to advise tenants around the world on incorporating health and wellbeing into the design and operations of their offices. This should, over time, create a ripple effect meaning more WELL certified locations will develop to meet the growing demand from occupiers for the healthy spaces to conduct business.
It is therefore evident that portfolio owners who understand how to address the social aspects of sustainability, and in particular, how to effectively engage with tenants add significant value to their assets. This makes portfolios more attractive to institutional capital and also critically fulfils their increasingly sophisticated ESG requirements.
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