Real estate physically and metaphorically houses the economy. As a real asset, contributing to over a third of GHG emissions globally, there are countless measurable and tangible opportunities to be explored with green real estate for nearly all relevant stakeholders, from occupiers to governments implementing regulatory changes. The occupier demand curve has increased exponentially in recent years with corporates setting environmental targets and seeking more sustainable, green, healthy buildings to occupy. Residential tenants also have a heightened awareness of rising utility costs and increased needs for spaces that provide more sustainability features and comfort for wellbeing. Governments across the globe have been developing, and continue to develop requirements that not only provide greater levels of transparency, but set expectations to how buildings should perform from an environmental perspective. These requirements enable us as managers to consider short, medium and long term action plans to enhance performance and mitigate risk from associated challenges that may incur financially material risks. Looking towards the future with the opportunity set and technological developments that include smart building solutions, reduced embodied carbon and sustainable building practices, its clear that green buildings provide significant potential to measure the impact not only on our ecosystem, but for the people that occupy those buildings and the performance that is delivered on behalf of clients.

Humans spend 90% of their time in buildings and real estate is the world’s greatest asset class, meanwhile real estate is also causing a third of the world’s green house gas emissions. Aside from being responsible business, the opportunity of green real estate is driven by a long-term view, innovative thinking, and risk-mindedness, and should be taking both physical climate risk and transition risks into consideration. We also see drivers in tenant demand, and new regulatory demands. Regulation from the EU, governments, cities and municipalities proves the demand for decarbonization and transparency. We welcome regulatory frameworks and requirements that drive impact, and intend to stay ahead of the regulatory requirements and will continue to work actively with NGO’s and academia to align our approach and efforts with climate science. Understanding the regulatory changes is key to maintain our license to operate and mitigate climate related risks.

We believe that the integration of ESG in real estate and decarbonization of the sector can not only enhance value but mitigate risk for a more resilient portfolio for the benefit of investors. From an income perspective, both through market studies and existing portfolios, clear evidence demonstrates that this forward-looking approach results in higher rents achieved in buildings with leading sustainability credentials that demonstrate reduced operating costs and healthier environments, lower vacancy rates and downtime between tenants for buildings meeting desired criteria, and consistently lower cap rates for buildings that are energy efficient and less need for tenant incentives. As for expenditure, reduced opex from strategic asset plans and lower cost of debt are beneficial for investors when implementing these solutions for a future proofed portfolio. Additionally, some jurisdictions provide tax breaks and incentives for green buildings, which provide additional benefits to investors. Finally, as a means to manage risk, decarbonizing real estate reduces the potential obsolescence of older building stock to meet the increasing market and tenant demand, improved insurability of resilient buildings and reduced liabilities from regulations imposed by governments as a result of stricter building environmental performance standards. Increasing income by providing sustainable and efficient assets, decreasing costs through strategic asset plans, lead to better net operating income and ultimately enhancing value of properties to improve returns for clients. 

We believe decarbonizing real estate assets will create value both directly and indirectly. We expect direct value creation from cost savings due to more efficient use of resources, such as energy and building materials. We see strong indications of value creation across our value chain from wider access to investment opportunities, lower vacancy, increased leasing velocity, higher rent, higher exit valuation, better access to financing and more attractive financing terms. We believe decarbonization is good business and that it will increasingly become a license to operate in the urban environment.