Green properties are better financial performers, says Piet Eichholtz, of Maastricht University in the Netherlands, who recently helped build a global environmental real estate index. But most managers are either unaware of this dynamic or prefer to talk about sustainability rather than take action. However, some exceptions – primarily from Australia – provide a “green” benchmark for institutional investors in property. SIMON MUMME reports.
It might be that more energyefficient and sustainable buildings lure better management teams and tenants, or that advanced heating, lighting and cooling systems reduce costs, but good environmental management of properties enhances financial returns, according to the developers of the Environmental Real Estate Index (EREI), says Piet Eichholtz, a researcher at Maastricht University’s European Centre for Corporate Engagement (ECCE). “We don’t know the causality. It could be environmental performance improves financial performance, or good management [generates] good financial and environmental performance,” he says. “It means that green property investments or sustainable performance does not conflict with the fiduciary responsibility of institutional investors.”
The global commercial real estate sector ranks among the world’s most demanding consumers of natural resources, its heaviest emitters of greenhouse gases, and its producers of waste. To better engage property managers about their environmental performance, the $50.5 billion Universities Superannuation Scheme, the $138.5 billion PGGM of the Netherlands and the $332.2 billion APG of Denmark [which collectively hold $20.3 billion in property investments] commissioned Eichholtz and other researchers at the ECCE to build the index by conducting a global survey of property funds managers. They aimed to gather information on current environmental management practices among managers, and identify the best in the field. Without this type of data, it is difficult for institutions to assess the environmental performance of property funds and fully implement a sustainable investment program.
The observation that green performance boosts financial returns is backed by a 2009 study that Eichholtz and Nils Kok, also from the ECCE, did with the University of California. Looking at 10,000 buildings, Doing Well by Doing Good? finds those with a green rating attract rents about 3 per cent higher per square foot than otherwise identical buildings, and sell for 16 per cent more. Conversion of a non-green building into an environmental performer adds about $6.2 million in value. The EREI survey, which drew responses from 198 managers, showed that Australian property managers are best at developing, implementing and assessing environmental policies, followed by managers in the UK and Sweden, and should be viewed as a benchmark for the environmental performance of commercial properties. “Australia is the world’s benchmark when it comes to green performance, and they’re also good financial performers,” Eichholtz says.