Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. REAL ESTATE
July 10, 2017 01:00 AM

Investors, tenants demanding that managers go green

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Jacques Gordon said market forces, not regulation or politics, are behind the sustainability clamor.

    Investor and tenant demands are pushing real estate managers to make their properties more sustainable.

    Commercial real estate contributes 30% of global annual greenhouse gas emissions, a recent report noted, despite early and continuing efforts by real estate managers to make their properties more environmentally friendly.

    Many investment managers now are accelerating those efforts, notwithstanding the Trump administration's moves to loosen environmental regulations and drop out of the Paris climate accord.

    But the sustainability movement in real estate is driven more by market forces than regulation or politics, said Jacques Gordon, global head of research and strategy at real estate money management firm LaSalle Investment Management, Chicago.

    "The overwhelming majority (of real estate managers and property owners) desires to have green buildings or sustainable buildings … It's true of big companies. It's true of small companies … it's true of Jones Lang LaSalle (LaSalle Investment's parent company) and LaSalle and most Fortune 500 companies," Mr. Gordon said.

    Executives at these companies believe the best and smartest workers prefer to work in healthier, more environmentally friendly buildings, Mr. Gordon said.

    "That's not just in the U.S. but it's global," he added.

    LaSalle has approximately $60 billion in assets under management.

    While many managers began focusing on the environmental impact of their real estate portfolios after the financial crisis, their efforts have not been enough to stem global real estate's affect on climate change.

    Real estate greenhouse gas emissions continue to grow rapidly and could reach 50% of CO2 emissions by 2050, according to the UNEP Finance Initiative, a partnership between the United Nations Environment Program and the financial sector.

    Needed improvements to existing properties aren't cheap. Should the industry decide to embrace the goals of the Paris agreement — keeping the global temperature rise this century well below 2 degrees Celsius above pre-industrial levels — the building sector's energy consumption would have to decrease by at least 30% through building highly energy-efficient new buildings and a deep renovation of the existing stock of buildings by 2050.

    That would cost roughly $11.5 billion between 2015 and 2050, according to the UNEP Finance Initiative.

    Investor pressure

    Investors are increasing pressure on their real estate investment managers to make investments more sustainable.

    In 2017, the $324.7 billion California Public Employees' Retirement System's real asset managers, including real estate, were required to begin reporting into GRESB, formerly the Global Real Estate Sustainability Benchmark, an organization committed to assessing by environmental, social and governance factors real asset performance globally.

    CalPERS' real asset portfolio has a net asset value of $31.8 billion and accounts for 10.8% of CalPERS' total assets.

    The GRESB results are expected to be reported as part of CalPERS' real asset review in November, said spokeswoman Megan White, in an email.

    CalPERS adopted carbon footprint reduction goals as part of a five-year strategic plan for ESG approved in 2016. That includes reducing its carbon footprint by 50% by 2021.

    CalPERS is not alone. Sixty pension plans worldwide are GRESB members.

    Officials at the $20.3 billion Los Angeles Fire & Police Pension System consider ESG a financial issue, but "the bonus is that it is better for the planet," said Tom Lopez, chief investment officer, in an email.

    "Buildings use a lot of power," he noted. "Since building energy usage directly affects cash flow, all building owners had a financial incentive to be green."

    What has changed is improved technology that allows greater energy savings, "and the new attention that is now paid to water usage," Mr. Lopez wrote.

    Investment officials at the roughly $192 billion New York State Common Retirement Fund, Albany, also keep an eye on environmental factors in the various asset classes, including real estate.

    "We consider ESG factors in our investment process because they can influence both risk and return," said Brian Butry, pension fund spokesman.

    In March, pension officials took steps to expand the New York fund's ESG program from focusing on public equities — where ESG practices are more mature — to the rest of its asset classes, including real estate.

    Pension plan officials recognize "that different ESG policies and factors are relevant for different asset classes and will evaluate accordingly," Mr. Butry said.

    Managers are responding. For example, PGIM Real Estate, Newark, N.J., has been working to incorporate sustainability practices into its real estate investment process and the management of its $65.9 billion global portfolio since it started the program in 2008, said David DeVos, global head of sustainability, in an email.

    "We have expanded our (ESG) program to include more assets, more funds and more stakeholders globally," he said.

    In 2016, PGIM Real Estate launched an environmental data management program, got 80 buildings with 27.4 million square feet worth $13.8 billion, LEED certified and 67 properties amounting to 22.7 million square feet worth $12.9 billion Energy Star certified.

    (LEED-certified buildings use less water and energy and reduce greenhouse gas emissions; Energy Star is a joint program of the Environmental Protection Agency and the Department of Energy to increase energy efficiency of products and real estate.)

    In addition to financial benefits such as reducing costs, PGIM Real Estate's initiatives have reduced greenhouse gas emissions by a combined 11.6% at 467 properties from 2011 through 2015.

    Benchmarking efforts

    As part of its data program, PGIM executives start out by benchmarking building performance as it relates to sustainability, Mr. DeVos said.

    Currently, PGIM benchmarks energy, water and waste at more than 900 portfolio properties in 13 countries.

    "With this data, we can focus our efforts on those assets with the greatest potential for savings," Mr. DeVos said.

    PGIM executives then share the information with their property managers, who, in turn, "offer sustainability tips for our tenants to help them reduce resource consumption and better manage their operating expenses," he said.

    In addition to benchmarking, PGIM executives improve their properties to make them more sustainable, including lighting retrofits, mechanical equipment upgrades and water efficiency projects such as irrigation controllers, Mr. DeVos said.

    "Depending on the market, simple returns for such projects can be from one to four years, frequently reducing maintenance costs, improving the tenant experience and adding value to the asset," he said.

    There are a number of steps managers can take to make their properties more sustainable, according to a recently released LaSalle paper. Indeed the paper contends that sustainability of properties will be a secular driver of demand over the next decade.

    Environmental factors that can contribute to improvements in real estate investments' risk-adjusted performance include: energy conservation, carbon footprint reduction, water and waste recycling, and green-building ratings to certify sustainable building design and operations, the paper noted.

    However, investments in sustainability "need to be customized for specific markets and sectors" because regulations and "green building" rating systems vary greatly around the world, said Eric Duchon, LaSalle's global head of sustainability. Mr. Duchon joined LaSalle in January to take on the new post.

    It's not just the big real estate managers that are increasing the sustainability of their portfolios. Denver-based real estate manager Northstar Commercial Partners has been moving toward making investments in sustainable real estate that also have an ESG impact.

    Good sense

    "It makes good social sense and corporate sense," said Brian Watson, chairman and CEO of the real estate firm that has $1 billion in assets under management.

    "With all of our assets, we consider ways to make them more environmentally friendly for the employees that will eventually locate in our buildings and for the companies (tenants) as well," Mr. Watson said.

    There is a demand from tenants for buildings that use technology to be more efficient and create a healthier environment for tenants, he said.

    Mr. Watson estimates that Northstar's funds have reaped double-digit cash-on-cash savings from sustainability efforts. Making a building more energy efficient by adding solar panels, for example, can bring down utility charges about 30%. These efforts also help to retain existing tenants and attract new tenants, he said.

    Related Articles
    Asset owners can still do more regarding ESG, conference attendees told
    Diversity, pay equity and sustainability emerge as key proxy themes — Ernst & Y…
    FSB task force releases recommendations for disclosing climate-related financia…
    Harvard is said to seek sale of eucalyptus plantation in Uruguay
    Northstar makes an impact on society, too
    St. Louis County hires PGIM Real Estate after boosting allocation
    Schroders tool sees the world really warming up
    Silver lining for ESG seen in U.S. withdrawal from Paris accord
    Number of companies setting carbon emissions reduction targets grows, report fi…
    Current investment cycle will be long, with soft landing – report
    Alts managers to cover StuyTown in solar panels
    Ceres creates water risk toolkit for investors
    Investors weighing if industrial real estate's hot streak to continue
    Commentary: When data drives decisions, sustainability shines
    Recommended for You
    Money w padlock
    KKR caps withdrawals on real estate trust in latest pullback
    Christy Loop
    Blackstone's BREIT and other funds curb investor redemptions
    Harbor Group promotes managing director to CIO-multifamily
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    Are Factors a Thing of the Past?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing