The group, which represents investors and asset managers worth €7.5 trillion, reveals that market participants believe these changes have the potential to impact investment risk and the financial performance of real estate assets.
The paper, Protecting value in real estate: Managing investment risks from climate change, details examples of changes in market behaviour investors have recently seen that impact financial performance.
This includes low energy certificate ratings being used to reduce acquisition prices as part of the overall transaction negotiations in France, UK and Germany; requests for energy performance certificates early in the transaction process as part of their standard due diligence processes; setting minimum sustainability standards; introduction of formal ‘green’ clauses in standard tenant leases and sustainability risk assessments prior to acquisition.
In response, leading market participants are no longer awaiting empirical evidence demonstrating the impact to financial performance from valuation analysis, it says. Rather they have already started to embed green building programmes in their real estate investment and asset management practices, and developed sector initiatives and tools to mitigate these risks.
The paper, which comes after the introduction of the Energy Efficiency Directive and the recent European Parliament vote for an 80% cut in energy used by buildings relative to 2010 levels by 2050, also outlines the legislation many member states have in place which is driving changes in the real estate market.
These actions signal the ambition of European policymakers to introduce strong energy efficiency targets for the real estate sector.
To assist institutional investors and their managers in real estate investment, the paper gives guidance, consisting of key questions and approaches This aims to ensure real estate portfolios are managed in a way that addresses investment risks and opportunities arising from climate change and sustainability.
‘Real estate investors are making welcome progress incorporating sustainability concerns into decision-making processes. However regulatory pressures on the sector will only grow, increasing the impacts on property values,’ said Stephanie Pfeifer, executive director of the Institutional Investors Group on Climate Change.
‘It is critical that investors understand and manage the implications of these changes. In a sector which accounts for 40% of final energy use and 35% of carbon emissions in the EU, supportive policies which reduce energy use in buildings will be crucial to slowing dangerous climate change,’ she added.
According to Tatiana Bosteels, head of Responsible Property Investment at Hermes Real Estate Investment Management, and chair of the IIGCC Property Programme, in order to protect the long-term value of their real estate investments, it is property investors’ fiduciary duty to understand today the changes and new risks brought by climate change and resource efficiency concerns in order to mitigate them ahead of time and to take advantage of new market opportunities.
‘There are many tools and initiatives out there to help the sector adapt. There is also a historical opportunity to add value to real estate investments while scaling up the sustainable buildings and energy efficiency sector to a size aligned with the needs of society today,’ she explained.
