Climate change policy: When will Europe’s real estate investors come under real pressure to act?
Union Investment questioned institutional real estate investors in the three largest European economies about their views on international climate change policy and the role of the real estate industry. The survey was conducted in response to the new set of rules for implementing the Paris Agreement, which were adopted at the end of 2018 at the Climate Change Conference in Katowice. They require all nations to adhere to common standards for reporting on their greenhouse gas emissions to the United Nations. For industrialized nations, the new standards will apply from 2022.
Against this backdrop, the survey investigated when real estate companies expect the sector to come under increasing public pressure to act. The result reveals a clear trend. Only 37 percent of the 150 respondents expect public pressure to increase significantly over the next two years. If the time frame is extended to five years, 49 percent of institutional investors believe that the real estate industry will come under growing pressure to take action. Compared with other areas of the economy, such as the automotive industry and the energy sector, the real estate sector has rarely been the focus of public debate up to now. This is despite the fact that real estate is responsible for approximately 40 percent of all carbon dioxide emissions.
Broad consensus among European real estate investors
One striking factor is that professional investors from Germany, France and the United Kingdom spoke almost with one voice in the survey, in most cases sharing the same assessment. The only exception was that investors in the United Kingdom were least worried about climate policy in the short term. Only 29 percent of this group expect there to be an increase in public pressure to act over the next two years.
“The real estate business has a long-term focus. This means that the sooner major real estate investors incorporate climate targets into their business strategies, the lower the risk will be if public debate around eco-friendly real estate gains traction in the future. We are operating in accordance with this maxim,” said Jens Wilhelm, a member of the management board at Union Asset Management Holding AG.
Among those surveyed, only developers and construction companies deviate from the general market trend, with 55 percent of this group expecting an increase in public pressure within the next two years. This finding is not hugely surprising given that developers are working on the building stock of the future and through their engagement with official bodies are already more exposed to sustainability issues than other market players.
72 percent criticize data quality for sustainability reporting
In addition, the survey revealed a strong need for greater transparency with regard to real estate consumption data. Only 28 percent of those surveyed think that good sustainability reporting is possible with the data currently available. Real estate investment companies, real estate funds and insurance companies/pension schemes seem to be particularly aware of a need for improvement in this regard, as reflected in below-average agreement rates of between 20 and 25 percent.
“Institutional investors in particular have a strong requirement for meaningful sustainability reporting. Tighter interlinking of digitization and sustainability is key to improving reporting quality and enabling real estate to compete effectively with other asset classes over the long term,” said Wilhelm.
