EUROPE – Investors should focus on property companies' business strategy and customer service rather than energy consumption as drivers of sustainability performance, according to APG senior sustainability specialist Sander Paul van Tongeren.
In an interview with IP Real Estate, van Tongeren, who is charged with integrating sustainability across the Dutch pension fund manager's portfolio, suggested a shift away from sustainability focused exclusively on green credentials towards sustainable business strategies based on better understanding of demographic trends.
"We need to look beyond environmental indicators," he said. "If you look at retail, for example, you need to get local communities involved – to think about how to attract consumers to shopping centres.
"That's also sustainability, and it's probably more important than lowering your energy consumption.
"The real estate sector is predominantly managed by traditionalists and converts. The end consumer is young and dynamic. You have to understand that end consumers will not accept, in the end, businesses that are not sustainable."
Predicting the imminent emergence of a green index targeting institutional investors, van Tongeren broadly welcomed rigorous environmental regulation, but rejected the idea that APG should base its own approach on regulatory compliance.
"We find that the managers with the best performance are those based in countries where the legislation is most stringent – in Australia, France and the UK, for instance – so there's probably a link between the two," he said.
"[But] we invest in many countries, and we can't monitor the environmental legislation in each one of them. It would be too time-consuming. Compliance with regulation is a minimum requirement. Our aim is to go beyond it and improve the portfolio."
Asked why APG had sought out institutional partners including fellow Dutch pension fund manager PGGM to develop the GRESB standard despite having sufficient influence in the market to force companies to adopt the sustainability agenda, he said: "What we see is, especially if you team up with other investors who are invested in a listed company, the management will listen because, collectively, you own a big chunk of the company."
In fact, according to Nils Kok, associate professor at Maastricht University and, with van Tongeren, co-founder of the GRESB standard, smaller pension funds tend to target sustainability more aggressively than their larger counterparts.
"Unlike smaller pension funds, APG cannot really exclude – it excluded Walmart, but at the end of a very long process of engagement," Kok told IP Real Estate.
"Limiting your investment universe if you are a €300bn pension fund is not really an option. If you're the Philips pension fund, you can exclude because your allocation is much smaller."