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Tatiana Bosteels
Chair IIGCC Property Working Group
8 May 2012
IIGCC Mission/Purpose IIGCC’s ambition is to provide European investors with a voice on climate change, to
engage with government and investors on addressing long-term risks and
opportunities associated with climate change and to improve the disclosure,
reporting and management of investments.
IIGCC’s approach
IIGCC encourages policymakers to provide policy frameworks that facilitate the move to a low
carbon economy and are consistent with the long term investment objectives.
IIGCC encourages investors to take on a pro-active approach on climate change through adapting
their own investment activities and processes in order to enhance and preserve long-term
investment values.
IIGCC seeks to improve the disclosure, reporting and management of investments.
IIGCC Members IIGCC currently has 78 members with over €7.5 trillion assets under management
Amundi Earth Capital Partners Mercer Global Investments Europe Limited
AP1 (First Swedish National Pension Fund) Environment Agency Pension Fund Mn Services
AP2 (Second Swedish National Pension Fund) Environmental Technologies Fund Northern Trust
AP3 (Third Swedish National Pension Fund) Ethos Foundation Nordea Investment Funds
AP4 (Fourth Swedish National Pension Fund) F&C Management Ltd Osmosis Investment Management
APG Asset Management Five Oceans Asset Management PGGM Investments
ATP Generation Investment Management LLP PKA
Aviva Investors Greater Manchester Pension Fund Platina Partners
AXA Real Estate Grosvenor Fund Management Limited PRUPIM
Baptist Union of Great Britain Henderson Global Investors Railpen Investments
BBC Pension Trust Hermes Robeco
Bedfordshire Pension Fund HgCapital Sampension
BlackRock HSBC Investments Sarasin & Partners LLP
BMS World Mission Hudson Clean Energy Partners Scottish Widows Investment Partnership
BNP Paribas Investment Partners Impax Asset Management South Yorkshire Pensions Authority
BT Pension Scheme Insight Investment Temporis Capital
CB Richard Ellis Joseph Rowntree Charitable Trust The Church of England Pensions Board
CCLA Investment Management Kent County Council Pension Fund The Church in Wales
Central Finance Board of the Methodist Church Kleinwort Benson Investors The Roman Catholic Diocese of Plymouth
CF Partners (UK) LLP Legal & General Investment Management The Roman Catholic Diocese of Portsmouth
Church Commissioners for England London Borough of Hounslow Pension Fund The Roman Catholic Diocese of Salford
Church of Sweden London Borough of Islington Pension Fund United Reformed Church
Climate Change Capital London Borough of Newham Pension Fund Universities Superannuation Scheme
Co-operative Asset Management London Pensions Fund Authority West Midlands Pension Fund
Corporation of London Pension Fund Low Carbon Investors Pte Ltd West Yorkshire Pension Fund
Dragon Capital Group Ltd. Merseyside Pension Fund William Leech Charitable Trust
Energy efficiency in real estate
unlocking finance through an
effective regulatory framework
Stakeholder consultation – Financing energy efficiency in buildings
May 8, 2012
Tatiana Bosteels
Hermes Real Estate - IIGCC
07 May 2012Hermes Real Estate I 5
Energy efficiency and real estate
Buildings are key to energy efficiency
Existing buildings are real challenge!
Regulatory pressure has been one of main drivers
for sector
No evidence, yet, of impact of sustainability on
financial performance
Increasing market pressure from institutional
investors
Growing sense in industry that sustainability is risk
and opportunity that will impact financial
performance
Financing energy efficiency in real estate
Energy efficiency and clean technology funds
backed by multilateral banks
– Able to support building energy efficiency
products and services industry
– Often government backed and public sector
targeted
– Few directly applicable for commercial and
residential
– Better suited to equities and infrastructure?
OR
Energy efficiency as investment theme within real
estate investment and management
Large potential capital investment opportunity within
EU real estate investment industry
07 May 2012Hermes Real Estate I 7
The responsible investment case
Risk assessment
– Economic risks
– Reduced risks of obsolescence and depreciation
– Accounting for whole life costing and savings
– Occupier risks
– Better tenant retention & reduced risks of long voids
– Reduced operating, utility and carbon costs
– Improved productivity for occupiers
– Investment risks
– Greater liquidity
– Future proofed for RPI due diligence
– Managed regulatory risks
Key elements of investment case for sustainable buildings
– Less depreciation and lower volatility in market value
– „bad‟ assets: reduced value through negative impacts on yields and rents
– „good assets‟: growing evidence they will generate positive value in long term
ESG Market research applied to Real Estate
Unlisted Real Estate Funds Environmental Review -
AVIVA 2008
– 95% of funds perceived there is link between
environmental practices and financial returns but difficult
to quantify at the current time
Russells Investments Survey “Themes on ESG in
current practice”, June 2010
– No green premium today but believe that sustainability
contributes to tenant retention, reduced operating
expenses and the strengthening of building occupancy.
GRESB Global Real Estate Sustainability Benchmark
(2010, 2011)
– Global listed and unlisted Real Estate Fund
Respondents find green investments increasingly
important, but few walk the talk
Studies on value of US Green Certified buildings
Growing evidence of higher rental and price premiums
Studies for US Energy Star and LEED certified buildings
– Published: Miller. Spivey and Florance (2008); Fuerst and McAllister (2009); Wiley, Benefield and Johnson (2010); Eichholtz, Kok and Quigley (2010); Fuerst and McAllister (2011);
– Drafts: Fisher and Pivo (2009); Chegut, Eichholtz, Kok and Quigley (2010); Fuerst and McAllister (2010);
Emerging evidence of impact for offices
– Rental premiums variations - ~ 3-7% up to 20%
– Price premiums variations - ~ 15-25% up to 30%
– Higher occupancy rates - up to 10%
– Lower occupancy costs (energy) – up to 30% lower
BUT some important limitations
– Limited data in scope and time
– Studies try to normalise – but difficult given limited data set
– Higher rated buildings may be located in higher value locations within urban areas
– and/or have superior construction and/or specification.
Is pay back the answer?Buildings greater low cost potential for carbon reduction
Mc Kinsey Carbon Cost Abatement Curve - 2006
NO COST Actions in RE!
Is pay back the answer?Low cost potential Savings up to 28%!
Crucial to understand real estate’s sustainability barriers
Dynamic and cyclical nature of European real estate
markets
Large number of practitioners during long life cycles
Complex management arrangements, fragmented
responsibilities and conflicts of interest between them
Limited investment terms by each practitioner
Lease conditions limits opportunities for „carbon
events‟
Small investment scale and lack of energy
economics
Lack of market information, demand, impact on
financial performance
Limited information and skills among large variety of
practitioners
07 May 2012Hermes Real Estate I 14
Key principles for strong & effective regulatory framework
Leadership by industry, members states and
parliament
Understanding complex management
arrangements in buildings
Acknowledging who has management control
and control over capital allocation
Understanding carbon improvements events
in buildings life cycle
Implementing appropriate mix of regulatory
instruments
Fiscal incentives necessary to unlock full
potential
Supporting market drivers
Improved enforcement of existing legislations
07 May 2012Hermes Real Estate I Presentation to [insert client name] I 15
Contact:
Tatiana Bosteels
Chair Property Working Group
Email: [email protected]
Stephanie Pfeifer
Executive Director
Email: [email protected]
www.iigcc.org
Contact
