by Qontigo
“One cannot ignore the real estate sector, if we’re going to move the needle.”
Hans Op ’t Veld, the chair of the Sustainable Development Investments Platform (SDI AOP) & Markets Committee
Empowering investors with transparent and measurable data for the real estate sector is an accountability challenge that the platform is meeting head on.
The real estate sector has a variety of activities that align with the different UN Sustainable Development Goals (SDGs). This holds true both for (affordable) housing, as well as for other types of real estate, such as hospitals and the provision of laboratory space and schools.
The collaboration between APG, AustralianSuper, BCI and PGGM to launch the SDI AOP three years ago, gave us a real opportunity to tackle the real estate sector in a thoughtful and systematic way. At the time, there wasn’t enough detailed public information to provide the right coverage and so instead, we provided guidance to our asset manager and asset owner users. Responding to feedback from platform users, we are pleased to say that in the latest quarterly update, data for listed real estate has been added. By adding this additional coverage, portfolio managers and asset allocators can get accurate insights about the sustainability of their overall portfolio.
Social purpose
By examining the sector as a whole, first, a decision was made to include listed real estate investments because we believe that trusts, funds and companies are the participants that have the most potential to make contributions in sustainability terms. They hold large portfolios with both commercial and residential buildings. Second, we’ve also chosen to take a closer look at the social aspects – does the company provide healthcare real estate, affordable housing or education real estate? These investments align closely to the UN SDGs under Healthcare (SDG 3) and Education (SDG 4) and results in about 50 companies considered a Sustainable Development Investment (SDI), using our methodology (out of 720).
There’s still something about the E (in ESG)
In addition to these social functions, there also is an important environmental opportunity that real estate plays a role in. According to the United Nations Environment Program, almost 40% of global energy and process related carbon dioxide emissions comes from the real estate sector[1]. To put that into perspective, the real estate sector emits more CO2 than the transport sector (22%). Focusing on real estate provides a clear opportunity, if we are to decarbonize the planet.
Global share of buildings and construction operational and process CO2 emissions, 2021
Source: UNEP 2022 Global status report for buildings and construction
In our former guidance, the threshold of a company to be considered aligned with the SDGs, was linked to a (partly qualitative) ranking, reflecting primarily the quality of ESG reporting. As data has become more specific and time-bound, this can now also be applied to real estate. After consulting with platform members, the Carbon Risk Real Estate Monitor (CCREM) was chosen as a reference point to measure alignment. We like this approach because of the way it monitors and prescribes different pathways depending on the type of real estate and its location.
Where the energy/carbon intensity is below the 2030 CRREM pathway for a given type of real estate e.g., residential versus commercial, it should now be considered an SDI by users. This is in addition to the existing SDI taxonomy which already covers relevant products and services that contribute to reducing building emissions, e.g. energy efficiency technologies, alternative construction materials and renewable energy sources.
The devil is in the detail
One of the biggest challenges with developing an SDI taxonomy is agreeing on widely accepted definitions. In that sense we are helped by converging views. Whereas in the past there was little data to be specific about contributions, this is now becoming much better. This is true for the granularity of environmental data, as well as differentiation by product, such as affordable housing. For now, the key criterion, in this case intentionality, is measured by the degree to which affordable housing is being provided. Focused companies are considered to have the specific purpose of providing solutions to social issues.
We say ‘for now,’ because ours is a research-based dataset that constantly evolves as new information is brought to light. As we continue to do more research and revise our thinking, we will continue to improve our data and coverage – including adding private markets alongside the existing public coverage for real estate. An important conduit to achieving this is the engagement with industry experts within our user community, who collectively have the expertise to guide us in reaching this goal. At the end of the day, the main priority is that we find the best way to quantify contributions of companies that will really translate into sustainable outcomes.
Qontigo is the exclusive distributor of the SDI AOP. For more information, contact sdi@qontigo.com.
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[1] Source: UNEP 2022 Global status report for buildings and construction.
