Germany is a leader in green construction, yet it lacks a standard certificate. Why? Why is sustainability key to the strategy of Union Investment? Chair of its management board, Reinhard Kutscher talks to Martin Hurst
Although Germany has lagged behind its developed world peers on sustainability, some of Germany's bigger investors are starting to develop their sustainable strategies.
"Interest in sustainability used to be largely confined to the academic world," says Reinhard Kutscher, "but things are starting to change. Investors are becoming increasingly aware that by adopting an ecological approach, they are investing in the long-term quality of their property portfolio - and that this strategy pays dividends." Union Investment Real Estate in Hamburg is contributing to the development of a green building certification scheme as part of the German Sustainable Building Council (DGNB).
Kutscher explains that the turning point for German investors came only very recently.
"The fact that climate change is due in major part to human activity was recognised only last year based on what has been published on the subject. Al Gore's film has encouraged more and more in this industry to realise that this is something we have to think about in terms of our future investment strategy. I know from my discussions that we're not the only ones to think about the importance of sustainable real estate - what does it all mean and how we can prepare for what will be a major trend in the coming years."
As previously noted, progress in Germany has been slow compared with other countries such as the UK and US. Kutscher explains that standards are part of the problem. "It is important to have an industry standard because it provides a
How far sustainable issues in real estate have advanced varies by country - some are more advanced than others. Regulation in Germany has integrated into the building code rules concerning energy efficiency, but we lag behind because we do not yet have a national standard certification."
According to Kutscher this is partly because Germany is a federation. "A lot is happening in the sustainable real estate arena at the state level and below but the sustainable real estate debate has been slow to reach central governmen. This is why, until very recently, we did not have an equivalent to the British Property Federation in Germany."
The German Property Federation (ZIA), a regulatory and economic lobby group, was founded in 2006 to represent the interests of the German real estate industry. "The industry is still very fragmented; we still have 80 different real estate associations," Kutscher points out. "German sustainable building technology - energy saving systems such as facades for example - is among the most advanced in the world, but nobody has collected all that to put it into a system. To create a standard we need a single body to create one proposal."
Being behind means that Germany has had the opportunity to draw on the experiences of other countries. "Systems and standards in other countries are taken into account so that we can develop something better than what has been created so far," says Kutscher.
Some might argue that one international standard would be far simpler but Kutscher questions this point. "You will have to have different standards in different countries to take account of the different environment starting with the climate itself," he says.
He adds that the market should not have too many standards and it may well be that we progress towards fewer standards thanks to the progress of globalisation. "The standards that are strongest are those used by big international players that bring an idea into a country," Kutscher points out. "An example is the case of a big international group in Paris that was faced with the French HQE (high environmental quality) standard.
"But instead of using that they decided to use the LEED standard (Leadership in Energy and Environmental Design, a product of the US Green Building Council) to assess the 300-400 buildings they own in France. LEED has its weaknesses but it is already accepted in several parts of the world outside the US, especially by multinationals and countries that don't want and cannot develop their own system. LEED will become more widely used and developed. Another key to the success of a new standard is that it should not place an unrealistic cost burden on the industry."
Does the EU have a role to play? "This is something that is happening on a country level," Kutscher says. "It would be really helpful if the national organisations would try to cooperate more and set international standards. Even though Germany has benefited from the lessons learned elsewhere, currently there is insufficient exchange of ideas and experience between the various bodies in different countries on this issue."
Environmentally friendly new buildings grab the headlines but, of course, a much bigger issue is the existing stock. "We'll see much more happening in refurbishment although it will be difficult and heavy investment will be required to replace energy systems and facades," says Kutscher. "Clearly we will face problems in this regard if the building in question is listed.
"We're in the process of checking our whole portfolio with a view to deciding what reasonable measures we can take and the likely impact in terms of returns because our task ultimately is to create a return for our investors. Over the next couple of years we want to create a long-term programme that will detail what we can do to our stock at short notice and other things that we will only be able to do as part of a major refurbishment."
Sustainability will be a major aspect of Union Investment's long term investment strategy. "We have already achieved certification of a number of our buildings in the US and in London," Kutscher notes. "These are the first; there will be others."
The lack of performance data for sustainable real estate is a handicap, but for Kutscher the case is already clear. "At some point in time, sustainability will be a price differentiator because a tenant will only pay the top rate for a class A building based on that definition," he says.
"You can see the first companies - mainly multinationals - selecting their offices on the basis of sustainability factors. In this way the value of a building's sustainable credentials will soon be quantifiable. If you want a building in a class A location and you want it to remain in the class A category you will have to incorporate environmentally friendly features as well."
A major part of the strategy will be to find a way of measuring the performance of sustainable real estate. Will the tenant be willing to pay more for a higher standard of sustainability? "There's no evidence yet," says Kutscher. "Data figures are coming through but so far they are insufficient."