Real Estate Portfolio Emissions Considerations for Fund Managers  

Real estate is directly in the crosshairs of the war on climate change. The reasons why are very straightforward. Institutional asset owners are going net-zero, real estate is a significant source of Greenhouse Gas (GHG) emissions and net-zero is a fixed, definable target.

Real estate investors commit to reducing their portfolio emissions in support of the Paris Agreement. For example, 236 asset managers with $57.5 trillion in assets are signatories of the Net Zero Asset Managers Initiative1 and have committed to achieving net-zero alignment by 2050 or sooner. Firms like Allianz Real Estate have committed to reducing emissions by 25% by 2025 across their $85 billion global real estate portfolio. Fund managers who do not measure portfolio emissions may get excluded from more and more investor allocations.

In 2019, real estate accounted for 16% of GHG emissions in the United States, making it a primary target for institutional investors. Given its oversized contribution to climate change, real estate investors ask managers to reduce their emissions from utilities and HVAC sources (scopes 1 and 2 emissions). These investors also wanted to understand how buildings minimize energy usage if managers set emissions targets or favor “green” buildings, such as LEED-certified buildings or those that use renewable energy in their investment selection process.

Top 10 Allocators To Private Real Estate Formal Emission Target
Abu Dhabi Investment Authority Supporter
Allianz Real Estate Yes
Nuveen, a TIAA Company Yes
Temasek Holdings Yes
AXA Investment Managers Yes
Canada Pension Plan Yes
Qatar Investment Authority Targeted
Swiss Life Yes
Source: PERE Global Investor 50, November 2019

Commercial real estate energy usage is easily comparable from building to building. ENERGY STAR® is a government-backed Environmental Protection Agency (EPA) initiative widely used in the U.S. for rating a building’s energy performance. The Carbon Risk Real Estate Monitor (CRREM) and GRESB (Global Real Estate Sustainability Benchmark) are other benchmarks used to compare a property’s energy efficiency. Having readily accessible benchmark data makes it easy for investors to model portfolio investments and see which funds are best at managing energy usage and are most in line with their emissions targets.

In closing, real estate is an easy target for investors committed to reducing portfolio emissions. Fund managers that recognize the importance of emissions can make their funds more attractive to institutional investors by paying attention to emission data. By doing so, fund managers will attract institutional investors and reduce their energy costs, which is a win-win proposition.

1 The Net Zero Asset Managers Initiative – An international group of asset managers committed to supporting the goal of net-zero greenhouse gas emissions

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For more information on measuring your real estate portfolio’s emissions, please contact a member of Withum’s Environmental, Social and Governance Services Team.