Pension funds team up to push for faster ESG progress in real estate

Article by Rachel Fixen, IPE Real Estate, 15 September 2021

IPE Real Assets

A new real estate sustainability engagement network open for institutional investors globally is being created with the backing of six Dutch pension funds. The Global Real Estate Engagement Network (GREEN) will be formally launched today at an investor roundtable at the IPE Real Estate Global Conference & Awards in Copenhagen, with a mission to accelerate sustainability in the real estate sector and reduce climate risks. The intention is to complement existing initiatives such as real assets sustainability benchmark GRESB. Vincent van Bijleveld, director of both GREEN and consultancy Finance Ideas, told IPE Real Assets: “Real estate is responsible for 30% to 40% of worldwide energy consumption and greenhouse gas emissions, but from research we started about a year ago we saw asset owners are not paying a lot of attention to this. “If you want to improve, engagement is probably the best tool, the literature shows you. It’s relatively hard to improve financial performance by active ESG management, and more effective to engage.”

Six mid-sized Dutch pension funds have backed GREEN as its founding members, and the network is now inviting investors from around the world to join, he said. The founding pension funds are Detailhandel, Philips, Nedlloyd, TNO, and Schilders pension funds, which GREEN said had €70bn of assets between them. Frans Dooren of Nedlloyd Pensioenfonds, said: “Our real estate managers are incorporating ESG in their investment processes. However, by joining GREEN together with other pension funds, we encourage them to take even bigger steps in reaching the Paris Agreement Goals.”

The network will use services from Finance Ideas, which, along with van Bijleveld, counts GRESB cofounder and Maastricht University professor Piet Eichholtz among its partners – as well as those of Almazara and VERT Asset Management.

The founders of GREEN argue that the real estate sector is not on track in decarbonising. “We are no longer in a period of incremental improvements,” said van Bijleveld: “We have to speed up the process now – real estate investors need to do a lot more than they have. “While the network is being announced publicly today, work on the project began a year and half ago, and the organisation has started its engagement efforts following its ‘soft launch’ in March.”

Although the founding members of GREEN are primarily mid-sized pension funds, van Bijleveld said the network could also be useful to larger pension funds and asset managers, despite them having greater resources and sometimes in-house ESG staff. “In all honesty, those operations are quite small – I don’t know any that has fulltime members of staff only working on engagement in the real estate sector,” he said.

GREEN aims to perform a very similar function for the real estate asset class as Climate Action 100+, another investor-led initiative that covers other asset classes. “One of our goals for the next year is to find the best way to cooperate with Climate Action 100+, and existing collaboration networks in the real estate industry,” van Bijleveld told IPE Real Assets.

Asked whether part of the rationale for GREEN’s formation was fill a role that real assets sustainability benchmark GRESB had originally been meant to play, van Bijleveld agreed, saying: “GRESB was originally founded to provide investors with data to be able to engage the sector, and has evolved to kind of rating agency. “Obviously, that has also been important for the sector, but we will now use the tremendous amounts of data GRESB and the funds have gathered to really engage in depth with the funds,” he said. Last November, GRESB – which was founded by a number of European pension funds about 10 years ago – was sold by its US parent, Green Business Certification Inc, as leading institutional investors moved to make it more independent.

Van Bijleveld will introduce GREEN to investors today at the IPE Quest roundtable. Henk Groot, CIO of Pensioenfonds Detailhandel, one of the founding pension funds of GREEN, will also be speaking during the main day of the conference on Thursday, as part of a panel discussion on carbon net zero