The integration of sustainability best practices and engagement with tenants and improvements to their working environment lead to demonstrable value creation, according to a study by the EPRA Investor Relations Committee.
EPRA’s research ‘Decomposing the value effects of sustainable investment’ provides further evidence of higher rental values for firms with a larger share of LEED or BREEAM certified properties in their portfolio.
The positive effect of voluntary environmental certifications is consistent with the existing literature: according to a Bentall Kennedy study, green-certified buildings enjoy 3.7% higher rental rates; 4% higher occupancy levels; and 5.6% higher tenant renewal probabilities.
The number of listed real estate companies reporting EPRA sBPR (sustainability best practices) has been increasing since the initiative’s launch in 2011. For the 2016 reporting year, more than 90 companies reported at least one EPRA metric. EPRA encourages listed companies to use sustainability metrics, such as its sBPR, as they create a common baseline for public disclosure that allows all stakeholders to access ESG (environment, social and governance) information. Measuring and incorporating ESG metrics is a proven tool for improving company management and operations, including better overall performance across a wide range of business functions, which could also lead to improved access to capital. EPRA sBPR were updated in 2017 to include social and corporate governance impact indicators that are aligned to the EU Non-Financial Reporting Directive.
During the latest meeting of EPRA’s Investor Relations Committee earlier this year, it was noted that if a company has not yet integrated sustainable practices into its business model, it should act now to preserve the value of it assets. The real estate industry needs to adapt to climate change and assess risks and opportunities related to it. For example, cooling costs will significantly increase with hotter weather and water shortages will affect their operations.
‘There should be no doubt that sustainability has an important role to play within the listed real estate sector, and we should be keen to demonstrate our capabilities to attract further investment and improve the environment in which we live.’
The industry should also be aware of the evolution taking place in capital allocations that has shifted the sustainability discussion over recent years towards investment for demonstrable improvements, the Committee concluded. ‘There are considerable incentives being placed upon capital allocation at a political level, for example, the EU’s Action Plan on Sustainable Finance. Asset owner investment processes are also evolving with frameworks, such as the Principles for Responsible Investment (PRI) being prioritised by many of the largest global pension schemes and asset managers.’
The EPRA Investor Relations Committee comprises 18 Heads of Investor Relations from listed real estate companies across the membership. The committee considers topics relevant to the investor relations community and EPRA investor outreach. Over recent sessions, discussions have included the importance of sustainability, the potential impact of passive investing and feedback from the recent MiFID II (Markets in Financial Instruments Directive) implementation.
This is an abridged version of an article that first appeared in the EPRA Industry Magazine
