Environmental, Social & Governance (ESG) - what is it, how is it impacting real estate and why does it matter to researchers? Joint seminar with the Better Buildings Partnership, 2 October, 2018
TH Real Estate, 201 Bishopsgate, London. EC2M 3BN

ESG is still a challenge for property investors and researchers

ESG is now high on investors’ wish lists, but real estate is not yet able to provide the level of information and analysis they have come to expect from other asset classes. Speaking in the discussion at the end of the meeting, Miles Keeping, Co-Founder and Director, Hillbreak Consulting suggested that this may be partly because surveyor companies are less focussed on ESG than in the past, while there are no longer any asset-level ESG financial performance figures produced in Europe. Abigail Dean, Head of Sustainability at TH Real Estate also noted that buyers here don’t have access to operational energy efficiency information on buildings – as available through the NABERS system in Australia – only construction certification schemes such as BREEAM.  These views were reinforced by the meeting chair, Sarah Ratcliffe, Programme Director at the Better Buildings Partnership, who agreed that European real estate investors have no way of fully measuring ESG outcomes.

Still, Dean stressed that TH Real Estate are placing more and more emphasis on ESG.  Climate change is a particular concern for real estate, given that as much as 45% of total market value globally could be at risk of loss due to climate-related events.  TH treat climate risks as one of the key ‘megatrends’ that feed into their global city framework, which they use to identify the most favourable locations for investing worldwide.  The model also takes account of air quality and the amount of electricity used in power generation.  TH believe this analysis should help them meet the target they have set to reduce energy intensity by 30% across all their portfolios between 2015 and 2030.  This objective is intended as a contribution to meeting the Paris Agreement to limit global temperature rises.

Andrew Young, Senior Associate, ESG Research at MSCI presented their sophisticated scoring system for assessing equities’ ESG qualities, based on key issues under each of the environmental, social and governance headings. In the case of real estate securities, green building, health & safety and corruption – to which he suggested real estate firms are more prone than others – are the most heavily weighted issues. Young cited the French company Gecina as one with a particularly high ESG score due to its strong office space dynamics and corporate governance.  In contrast, Riocan REIT in Canada was one of the worst, with weak green building credentials and high water consumption.

Tim Horsey