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Real estate group rates Robeco fund highly for ESG

Real estate group rates Robeco fund highly for ESG

19-12-2018 | Insight

Robeco Property Equities has scored above average for sustainability in an industry survey for the fifth year in a row.

  • Folmer Pietersma
    Folmer
    Pietersma
    Portfolio Manager
  • Frank Onstwedder
    Frank
    Onstwedder
    Global Equity director

Speed read

  • Fund gets a GRESB score of 74 vs. industry benchmark of 69
  • Emission cuts by portfolio holdings equivalent to 140,000 cars
  • Real estate tenants are becoming more aware of their footprint
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The Global Real Estate Sustainability Benchmark (GRESB) assesses the sustainability performance of real estate portfolios throughout the world. The fund has a score of 74 against an industry benchmark average of 69, based on GRESB data.

Improving sustainability in real estate is important, since the sector accounts for nearly 40% of the world’s energy consumption, and over 30% of global greenhouse gas emissions. Robeco has striven to lower the carbon footprint of investee companies, and continues to see an improvement in carbon management disclosure in the sector.

Launched in 1998, Robeco Property Equities is managed by Folmer Pietersma and Frank Onstwedder, and had EUR 394 million in assets under management at the end of November 2018. Environmental, social and governance (ESG) considerations are integrated into the fund’s investment process as standard.

Participating in peer group surveys can help ascertain the fund’s sustainability credentials in an industry that is working hard to reduce its contribution to climate change. In total, 903 entities participated in the 2018 survey, of which 207 were publicly traded real estate companies. The GRESB Real Estate Assessment covers 79,000 assets with an aggregate value of over USD 3.5 trillion across 64 countries and six continents.

The overall score given to participants is derived from sub-scores for two dimensions: Management & Policy (30% weight) and Implementation & Measurement (70% weight). Entities were also ranked according to their progress in adopting sustainability as either a ‘green starter’, ‘green walk’, ‘green talk’ or ‘green star’. Almost 80% of entities benchmarked received a green star rating.

Different weightings

For the scoring itself, the GRESB survey includes seven sustainability aspects with different weightings. The Performance Indicators aspect includes data on energy, greenhouse gas emissions, water and waste. This aspect has one of the highest weights, which is roughly equal to that of stakeholder engagement (25%).

Robeco Property Equities scores on ESG aspects in the GRESB survey

Over the last three years, the real estate sector has seen continuous improvement in the scores for these seven sustainability aspects. The 2018 survey results also indicate that Performance Indicators not only vary by region, but also by property type. The hotel sector, for example, has an energy intensity that is almost five times higher than the industrial sector.

The average score for 2018 has improved on the previous year’s, rising to 66 out of 100 versus 63. And like last year, listed real estate received a higher overall score of 69 than non-listed or private real estate funds. A possible explanation might be the increased market scrutiny that listed companies face, and the longer investment horizon.

Average score of 74 vs. 69

The Robeco Property Equities fund achieved an average score of 74, compared with the listed benchmark average of 69 and the GRESB average of 68. Using weighted averages, the fund’s average score would have been 76. The fund was given high scores for both of the two underlying dimensions: for Implementation & Measurement, it scored 71 (versus 66 for the benchmark) and for Management & Policy it scored 83 (versus 78).

The number of holdings in Robeco Property equities that are included in the GRESB database was relatively stable at 33, versus 28 last year. Although the fund currently has a total of 61 holdings, these 33 names cover 63% of the fund’s assets under management, versus 53% last year. As more and more companies are participating in the GRESB survey, this percentage is expected to increase.

“We regard the Performance Indicators aspect as highly relevant for the real estate sector, as it includes energy consumption, which is a financially material issue,” says Pietersma. “On the one hand, energy consumption translates directly into energy costs; on the other hand, real estate tenants are becoming more aware of their environmental footprint, which will have a direct impact on the demand for high-quality buildings. Moreover, in the direct market, real estate pricing and cap rates will be impacted by the asset’s degree of sustainability.”

Change in Robeco Property Equities' greenhouse gas footprint

Allocation decisions

“GRESB’s scores, complemented by broader ESG considerations, are important determinants for Robeco Property Equities’ allocation decisions,” adds Onstwedder. “In general, we prefer companies with prudent management teams and strong business models, and companies with strong financial profiles that focus on high-quality assets.”

“Often, we find that companies with these characteristics also score well on ESG factors However, it’s worth mentioning that the score itself is not the sole criterion; the efforts that a company is making to improve its ESG profile are very relevant as well.”

“One particular aspect in that regard is the change in greenhouse gas emissions. On average, our holdings covered in the GRESB survey showed a 11% reduction in terms of GHG emissions. To put it differently, they reduced their CO2 footprint by an amount equal to the emissions of 140,000 cars.”

“In terms of energy reduction, water use and waste generation, the fund’s footprint also stands out favorably versus the real estate benchmark. We’re really pleased with our results.”

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