[Urban Chronicles 2.0 #03] How to take ESG criteria into account in real estate?

2018: a year of transition for Socially Responsible Investment (SRI) applied to real estate?

The integration of environmental, social and governance (ESG) risks into real estate investment strategies is evolving, as evidenced by the 11% increase in the level of participation of European real estate players in the Global Real Estate Sustainability Benchmark (GRESB). Driven by a favourable political, legal and market environment, the growth of responsible real estate investment raises the question of objective indicators related to asset sustainability to measure the "sustainable or even responsible value" of assets.

The publication last March of the European Commission's action plan for green finance, including a proposal on the fiduciary duty of fund managers to take ESG data into account, demonstrates a real change in attitudes. This is a strong signal of paradigm shift in the asset management industry by proposing to legally endorse the fact that ESG data can have an influence on financial interests. Paradoxically, the university studies conducted on the performance of Socially Responsible Investment (SRI) funds are not yet unanimous but are symptomatic of a questioning on the added value of taking ESG aspects into account in terms of performance.

For the real estate sector more specifically, the analysis of environmental, social and governance criteria continues to be structured, while the formalization and deployment of ESG policies continue. The GRESB confirms this evolution of the average result for the French real estate actors, with a rate which reaches 58% in 2018 against 49% in 2011. Among the seven analytical criteria used by GRESB, environmental certification is a criterion recognised for its transparency and tangibility, and is a rational indicator that management companies favour. Indeed, comparability of performance and transparency of indicators are an asset, and even a necessity for the effective orientation of capital towards financing environmental transition in line with the Paris Agreements. In this context, approaching "Sustainable Value" on the basis of the environmental certification criterion, so that it becomes a key element for the eligibility of real estate assets with financial funds, could have real meaning and relevance. Thus, environmental certification can become a real lever for value creation, and no longer only a market tool preventing the destruction of value.

The Baromètre de la Certification Environnementale™, a useful reference study for green finance and its role as an accelerator of responsible real estate

Since 2008, the certification of sustainable and more widely responsible quality in real estate has been a fundamental and growing trend, particularly under the impetus of the Grenelle de l'Environnement. This is marked by the multiplication of offers of certifications and labels, especially thematic, and their adoption by real estate players in the field. Today and even more so tomorrow, the trend is towards the increasing integration of environmental and societal issues, centred on the expectations of the user-citizen within the framework of a responsible promise placed at the heart of the DNA of real estate projects. Thus, depending on the maturity and sensitivity of real estate players, sustainability considerations and subsequent actions can range from strict energy efficiency to improving the living environment of employees.

Since 2014, Green Soluce has published each year its Baromètre de la Certification Environnementale™, a study drawing up a quantitative inventory of certifications in tertiary real estate, thus constituting a photograph of the shares and trends of the certification market. The Barometer is intended to be a decision-making tool for real estate and urban stakeholders interested in issues relating to sustainability, well-being and, for the first time this year, digital.

The strength of the Baromètre de la Certification Environnementale™ is based on a robust and proven methodology, developed by Green Soluce, which uses databases provided publicly by certification bodies with the aim of total transparency of information. Today, it is the most successful and relevant study in the sector and capitalizes on its capacity for innovation, its privileged relationship with certification bodies and its partnership with GRESB to continue to offer the most relevant data on certifications to the market.

The Green Soluce Baromètre de la Certification Environnementale™ also has a European scope since its 2017 edition, its scope of analysis of certifications covering 21 of the 28 States of the European Union. A special focus is also placed on the major strategic investment centers in the tertiary property market, namely Greater Paris, Greater London and four major German cities: Berlin, Frankfurt, Munich and Hamburg.  Now an annual "Green Building" event in France and in Europe, the 2017 Barometer lists more than 15,000 certified or currently being certified projects at European level, and the figures are on the rise, testifying to the growing interest in sustainability and well-being in the real estate ecosystem. Office projects represent almost half of the workforce, while shops occupy second place with 35% of the shares.

For the new 2018 edition, upcoming very soon, in the perspective of innovation that drives each new publication of the Barometer, and which is at the heart of Green Soluce's philosophy, digital certification is entering the spectrum of the study. The study content is therefore intended to reflect the image of tomorrow's Agiles Cities™, and is thus based on the Environmental, Well-being and Digital triptych. In parallel with this new approach, Green Soluce will also propose a new approach to Sustainable Value. This pioneering approach in the sector will propose to quantify, as far as possible, the impact of environmental certification on the value of goods. See you very soon for the publication of the study!

For more information on Green Soluce and our services regarding the Barometer launching event or green finance & real estate in general, please do not hesitate to contact us.