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The clear case for energy-efficient property assets

Part of the Discussion Paper for the 11th International Sustainability Leadership Symposium, Zurich, Sept 28.

One of the world’s largest pension fund managers, APG Asset Management, the solely-owned manager of the giant ABP pension fund, which also runs assets for 20 other client pension plans, giving it total assets of more than €250bn Euros, has taken up sustainability and low carbon into its investment process. This reflects its view of the way the world is developing financially because of major social and political changes. Where it believes sustainability issues are material, APG has integrated them into portfolio investment decisions. The pensions manager has invested across a huge variety of environmental themes, including a €500 m Euro trading position in the European carbon market in 2007, a €250m Euro clean tech private equity commitment, and a €100 m Euro investment in a European renewable energy infrastructure fund. In 2008, APG also created an internal think-tank looking at climate change amongst other strategic energy issues. The pension fund manager is also involved in a climate change strategicasset allocation project organised by Mercer, the investment consultant, which will look at long-term implications for investing in bonds, equities, private equity and infrastructure.
One area where the pension fund manager sees the transition to a low-carbon reality combining clearly with business rationale is that of property investments. Real estate, considered in terms of the construction, use and demolition of property, is estimated to be responsible for around 30 — 40 % of global carbon emissions. The Intergovernmental Panel on Climate Change (IPCC) identified buildings as offering the most significant opportunity for cost-effective emissions reductions worldwide. Real estate is also a key constituent of most institutional investors’ portfolios, often as much as 10 % of overall assets, giving significant scope for a reduction in greenhouse emissions. APG, along with pension fund management peers PGGM in the Netherlands and USS in the UK, have created a global benchmark for the greenest
listed and private property management companies to gee up poor reporting levels in the sector. The benchmark idea came after a survey of property managers revealed a “strikingly low” number able to provide meaningful data on environmental factors. Only 19% of respondents were able to report verified figures for energy consumption of their buildings, while just 16% could do so for water consumption and a mere 14% for carbon emissions.
Sander Paul van Tongeren, Senior Sustainability Specialist Global Real Estate at APG, said: “We believe that most new construction buildings from 2019 on will be close to carbon neutral. We asked most real estate companies whether they measured their carbon exposure. About 14 % said they did, but mostly limited to UK, Swedish, Dutch and Australian property companies. Conversely, there was very little measurement in Asia.“ Van Tongeren says APG sees its endeavours in greening its real estate investments as a classic double bottom-line win where financial savings lead to greater sustainability: ”When buildings are made energy efficient the tenant benefits from lower energy costs and the owner from potentially better rent and overall building value. Legislation is the main driver of change, but there is also demand from corporate tenants.“ The Dutch government, for example, has committed to a private sector target of a 25 % increase in energy conservation by 2011 and 50 % by 2015 in new shops, homes and offices. Its ultimate target is to achieve energy-neutral construction across the board by 2020.“The UK’s mandatory carbon emissions scheme, the CRC Energy Efficiency Scheme, started on April 1, 2010. It requires companies liable under the CRC to pay GBP 12 per tonne of CO2 emissions with the intention that laggards will be shown up in a league table. Building codes are becoming tougher in each country based on carbon emissions,“ he notes. “We’re conducting more surveys and looking at making real web-based progress in such a way that you are able to monitor the progress investments make year-on-year. New real estate investors (listed and non-listed) will be able to complete the survey online. Participating investors will be able to use the automatic report generated as part of their sustainability due diligence process, as they will see the relative environmental performance of the potential investment against that of a peer group. It is a topic on the mind of all CEOs and CFOs in property companies and is increasingly presented as a pure financial business case. What we are now seeing is that some of the things we requested in the first survey coming through in the sustainability reporting of the likes of property companies like Hammerson and Unibail-Rodamco. We’ve had a lot of engagement success, and it’s interesting to note that this straddles both the listed and unlisted sector.“
This article is part of the “Discussion Paper” for the 11th International Sustainability Leadership Symposium” on “Financing the Transformation to a Low-Carbon Economy” taking place on 28 September 2010 in Zurich Link to event