Global real estate

Our team places great emphasis on aligning the values of our prospect funds and managers with our own. Of the managers we have committed to in the portfolio, 100% participate in the annual Global Real Estate Sustainability Benchmark (GRESB) assessment and 100% report under SFDR as either an Article 8 or 9 fund. All but one manager are UN PRI signatories and all have been assessed through our ESG and IMP scorecard assessment, where they scored between ‘Professional’ and ‘Leader.’ 

In 2022, a notable development is the increase in carbon emissions of the portfolio from 2021. As the world continues to recover from COVID-19, the depressed levels of economic activity and thus energy usage picked up to pre-pandemic levels in 2022. This makes our task as responsible investors all the more important to continue tracking, and engaging with our managers to make change happen. 

A sure way to do this is to constantly increase the quality of our carbon emissions data collection to have more specific conversations with managers. The weighted average greenhouse gas (GHG) emissions coverage of the portfolio was 92% with the coverage of managers we have committed to ranging from 60-92%. As ESG transparency is the foundation for improving the operational performance of assets in real estate portfolios and making progress towards sustainable real assets, we are engaging with our managers to improve asset-level usage and GHG emissions data. 

The funds we invested in during 2022 not only published firm-wide policies on ESG issues, but also developed systems and procedures to ensure that these policies are followed. One manager we invested in during 2022 additionally published a supplier code of conduct which must be adhered to at all development projects, as well as all operational assets. It requires safe working conditions, working hours and wages, prohibits child labour/human trafficking/slavery, freedom of association, and data privacy.

We try to invest in line with our values, which is also what we believe the world needs. As Europe’s population ages, there are significant gaps in social infrastructure like healthcare and education. 

In 2022, we committed to a European impact strategy that aims to contribute to seven SDGs by investing in social infrastructure assets: healthcare and education facilities, social and affordable housing and buildings related to justice, emergency and civic services. The fund seeks to achieve a dual return objective: generate financial returns and have a positive social and environmental impact in the community. Through this investment, we strongly believe that positive outcomes could be achieved by aligning long-term capital with purpose-driven solutions to environmental and social challenges. 

Given the contribution to global emissions from the built environment, coupled with our proprietary methodology for measuring carbon, we have placed our emphasis on climate and decarbonisation as a focus theme for 2023.

During 2022, the team’s ambition was to assess every manager in the portfolio using our ESG and IMP scorecard, as well as engaging with them thereafter. We did this to ensure we improve oversight of every underlying manager’s position with regards to ESG and responsible investing. The team achieved this goal and now has a strong foundation of intel to build on.

With the insights obtained in 2022, we managed to identify where certain managers are lagging or leading compared to their peers. We also found there is clear room for engagement as managers’ policies are often better than their practices. This is not surprising as sustainability and responsible investment among real estate funds are still in their early stages, managers are learning as they go and guidance from regulators and policymakers is a work in progress.

During 2023, we plan on raising special topics with our managers, particularly climate, in addition to engaging on areas where the managers may be lagging. There is still a long way to go, but we believe there is an opportunity to have a positive impact as assessed by the IMP part of our assessment.

With that backdrop from 2021 to 2022, there was an increase in leaders from 25% to 43%, a decrease in professionals from 49% to 41.7%, a decrease in novices from 19.4% to 15.3%, and a decrease of laggards from 4.5% to none.

For IMP scores, we note that from 2021 to 2022 the number of funds that may or do cause harm increased from 14% 17.4%, a decrease of funds that act to avoid harm from 78% to 75.6%, an increase in funds that benefit stakeholders from none to 6.9%. Our allocation to funds that contribute to solutions remains at zero for the time being.