Australian and US players beat European ones in Sustainability Benchmark, reports Jane Roberts
European fund managers have a long way to go before they can call themselves sustainable, according to a leading foundation of investors. The Global Real Estate Sustainability Benchmark (GRESB), set up by some of real estate’s largest institutional investors, this month published data on the 2010 performance of 340 funds and property companies, 194 of them from Europe.
While it found that reporting on environmental metrics is improving, European fund managers trail their Australian peers. Of the top 10 fund managers and property companies, six were Australian and two were North American. But in Europe there were also two champions, both large property companies: the UK’s Hammerson in seventh place and Sonae Sierra, an investor in southern European retail, which came third.
The report says: “Both in the listed and in the private market, Australian property funds lead the way, just as documented in the 2009 GRESB survey. “The difference between Australia’s overall score and the score of the other regions is still substantial. By and large, listed property companies have higher sustainability scores than private funds: the global average score for listed funds is 41 (out of 100) and its is 31 for private funds.”
These scores are low compared with the top 10, which had overall scores of 80-88. The benchmark broadly divides participants into four categories of environmental performance: Green Starters; Green Talk, where there are dedicated resources and implementation plans have been developed; Green Walk, where sustainability policies have been integrated and key indicators are measured, but with limited reporting to investors; and Green Stars.
This year the percentage of Green Stars rose from 10% to 19%, while the Green Starters dropped to 55% from 67%. Private funds were the dominant group among the starters. European unlisted funds were also behind in terms of monitoring the energy costs of their portfolios; at the moment only 26% do this. Two exceptions in the UK were funds managed by Climate Change Capital and Capital & Regional (see table below). Private equity group Climate Change Capital has a £160m UK property fund managed by Tim Mockett and Esme Lowe for six investors, including Dutch SNS, Insurance Australia Group and Merseyside Pension Fund.
The pair have taken the first step towards returning capital to investors, selling one of the fund’s four buildings, 77 Gracechurch Street, over the summer after receiving off market approaches from would-be buyers. Lowe says they felt the investment market had become more “risky and volatile” and selling the City building “enabled us to return money to our investors at what we felt was a sensible time to be de-risking”. It is thought investors have had about 40% of their equity back.
Pension funds drive sustainability
Some of the driving forces behind GRESB and this second study are Dutch pension funds. Angelien Kemna, chief investment officer at APG says: “The data provided by the GRESB foundation now forms an integral part of APG’s’ investment process, assisting us in the due diligence process of new real estate investments and in engaging with our existing property investments. “Policymakers’ ever-louder demands to reduce emissions will increasingly affect the way the property sector operates.”
Jac Kragt, PGGM’s chief investment officer, says it is important for his company “to be able to benchmark ESG (environmental, social and governance) performance and compare between funds, companies, regions and listed and private real estate”. Institutional investors’ interest in ESG factors reflects the view that these issues can affect the performance – and the risk – of investment portfolios. However, in terms of cutting energy use, the median reduction in Europe between 2009 and 2010 was just 0.11%, while the best globally cut use by 3%.