Financial performance is linked to ESG - research

EUROPE - Most European real estate fund managers believe there is a relationship between environmental performance and financial returns, according to a survey by the UK's Environment Agency Pension Fund and Aviva Investors.

The same proportion of respondents (95%) said they held a broad social responsibility policy, although only 23% provided details of a policy targeted at a fund level.

The majority of the funds surveyed - 91%- also use environmental consultants and the same proportion evaluate flood risk exposure, though 36% said they would invest in flood plain areas.

However, 59% said they did not collect carbon emissions data and 64% either said they did not have water management programmes in place or did not respond.

Despite this, Richard Jones, managing director of UK real estate at Aviva Investors, said: "This survey shows that the vast majority of funds believe there is a link between environmental performance and financial returns.
"The challenge is that despite this awareness, both actual performance and demonstrable commitment remain low, and few funds disclose, monitor or report environmental performance to investors."
Howard Pearce, head of the Environment Agency Pension Funds, stressed the importance of the survey as part of the institution's wider responsible investment strategy.

"We are committed to responsible investment across all asset classes and with potentially significant financial impact of climate change and other environment issues on property, this is not an area any investor, especially those in for long term, should overlook," he said.

The £1.5bn (€1.66bn) Environment Agency Pension Fund employs an environmental and social governance "overlay" on all its investments, including its £67.6m indirect UK property portfolio, managed by Aviva Investors through a multi-manager account.

As part of the pension fund's mandate, Aviva Investors carries out an environmental impact assessment on all underlying property funds and ensures all dedicated sustainable funds available in the market are considered.

The pension fund aims to gain exposure to appropriate dedicated sustainable property funds, such as Aviva's Igloo Regeneration Fund, but also seeks to improve the sustainable performance of mainstream funds in its portfolios.

"Ideally, it should be embedded in the mainstream. That is the direction we are pushing people," he said.

Pearce admitted that real estate funds "are behind the curve a bit" when compared with funds in other asset classes, but the awareness over the last two years has increased.

"There is more interest from institutional investors and I think there are a few enlightened companies out there who see it as a marketing opportunity."

For the last two years, the pension fund's property portfolio has outperformed the IPD UK all-property benchmark, by 3.8% in 2007-08 and by 2.6% in 2006-07.