Sustainable investing in real estate: Key trends
Despite the changing political mood music of late, and the backlash in parts of the market, the world of real estate as a whole still loves an ESG commitment.
For instance, according to GRESB’s real estate benchmark’s 2024 figures, there has been a 15 percent year-on-year increase in the share of benchmark participants setting net-zero targets, taking this metric to 65 percent overall and 66 percent for non-listed participants specifically. And while this only reflects a particular subset of the market as a whole – and is likely skewed toward those already adhering to best practice on sustainability – it is still indicative of the direction of travel.
But net zero is just one part of the sustainability story. So, where else are real estate investors focusing when it comes to ESG improvements? And are these efforts translating into tangible progress?
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More to do on net zero
That 15 percent increase in the setting of net-zero targets may suggest plain sailing, but progress toward these ambitious goals is often patchier beneath the surface.
For example, a breakdown of the sectoral compositions of GRESB-participating real estate funds reveals that residential, healthcare and technology/science portfolios are less likely to have net-zero targets in place, relative to the 65 percent overall figure. By contrast, funds that own commercial buildings – particularly those specializing in offices and retail – are more likely than average to be working toward net-zero targets.
There is also a split by strategy type, with value-add (56 percent) and opportunistic funds (39 percent) being far less likely than core funds (76 percent) to have established net-zero targets for their properties.
When it comes to real-world change in the underlying assets, there is evidence of gradual progress being made toward certain aspects of net zero. Among GRESB participants, for instance, energy use and greenhouse gas (GHG) emissions are both down by nearly 2 percent over the past year. However, whether that kind of pace of reduction will be sufficient to reach some of the ambitious targets that governments have set for the real estate industry – especially given rises in these metrics in previous years – remains to be seen.
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Green thinking beyond GHGs
Looking beyond net zero, data is increasingly being collected around a host of other environmental factors, too. Nearly three-quarters (72.8 percent) of participants in GRESB’s real estate benchmark now collect data on their buildings’ water use, and more than half (52.3 percent) monitor the share of their waste that gets diverted from landfill.
Data collection does not necessarily translate into immediate progress, though. Among those reporting their buildings’ water use, overall consumption increased by 0.53 percent year-on-year, and the share of waste being diverted from landfill dipped by 20 percent in 2024, suggesting there is more work to be done to get the needle moving in the right direction on some of these metrics.
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Social impact rises up the agenda
It is not just environmental considerations that are attracting more interest among real estate investors. Social impact is increasingly emerging as a way for managers to differentiate their portfolios on the ESG front.
Some private real estate firms are taking this to great lengths. For example, Henley Investment Management’s Secure Income Property Unit Trust II (SIPUT II) focuses on local government-funded social housing in the UK, with the explicit goal of “moving vulnerable people from unsuitable accommodation into more settled and supported accommodation,” according to fund managing director Stuart Savidge. Collectively, the firm’s SIPUT funds have deployed more than £500 million ($649 million; €596 million) in this area since 2017.
Social considerations are also creeping into more mainstream real estate funds, too. In multifamily residential settings, for instance, the share of participants in the Fitwel certification engaging closely with tenants has doubled since 2022. Meanwhile, a 43 percent increase in that same engagement measure has been recorded in the office segment.
According to Sara Karerat, managing director of the Center for Active Design, which runs the Fitwel certification, this shows that the real estate sector is now making “promising strides toward creating environments that address loneliness and promote meaningful social bonds.”
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