HOW NEW SUSTAINABLE COMMITMENTS ARE BEING INTEGRATED INTO REAL ESTATE FUNDS
Across the European Union (EU), ambitious targets have been set in order to encourage sustainable growth and investment. Driven in part by the Paris Agreement’s goal of carbon neutrality by 2050, but also by increased demand within the sector, these regulations aim to provoke significant changes in the real estate industry, changing how it is managed, invested in and understood.
The Sustainable Finance Disclosure Regulation and the Taxonomy Regulation have both been put in place in order to prevent greenwashing and ensure that sustainable, impact or ESG (Environmental Social Governance) funds deliver what they have set out to do. With financial products thus becoming more aware of external risks and working towards specific actions, such as the reduction of greenhouse gases, the appetite for these kinds of products continues to grow.
BNP Paribas REIM’s response to the changing environment
For BNP Paribas Real Estate Investment Management (REIM), a number of funds have been created, with the aim of responding to both EU regulations, a marked demand from investors, as well as BNP Paribas REIM’s own values and commitments. Such funds include impact funds which make legal commitments to making a positive impact (such as the European Investment Property Fund), ESG funds such as BNP Paribas Diversipierre, BNP Paribas Macstone or NEIF 3 which commit to respecting ambitious ESG objectives and follow specific performance indicators.
As ESG and impact funds become a more present part of the real estate investment sector, it is encouraging to see that with it comes the improvement to the environmental quality of assets. By incorporating ESG criteria into the technical monitoring of a building, such as climate change resilience for example, the building becomes more able to withstand future risks and respond to the demands of tenant well-being and comfort. These factors make an ESG driven building more attractive, and in the long term potentially more profitable. For this reason, investors from across the continent, and beyond are asking their Investment Managers to make ESG driven strategies a significant part of their portfolio.
As Nehla Krir, Head of Sustainability & CSR at BNP Paribas REIM points out, “In their search for meaning, investors are embracing responsible products and increasingly integrating them into their investment strategy. In June 2020, 85% of investors said that they either wanted to direct their portfolios more towards ESG funds or that this was already a large part of their strategy.”
A reason for change
With the building and construction sector currently accounting for 36% of final energy consumption worldwide and 39% of direct and indirect greenhouse gas emissions, there is much to do in order to comply with the Paris Agreement. At the present time, only 0.01% of buildings can be considered carbon neutral and the building sector must reduce its emissions by 91% by 2050.
As Nehla Krir concurs, “Real estate, which has a strong impact on the environment and an important societal role, must contribute to this movement whereby the management and transparent reporting of ESG actions will reinforce investor confidence.”
Across Europe, whilst regulations may be different and approaches staggered, there is a general consensus that a lot must be done in this field in order to have a real impact. Fund labels such as SRI Real Estate in France, Towards Sustainability in Belgium and FNG Siegel in Germany, Austria and Switzerland all contribute to this new dynamic and are set to change the way buildings are constructed, managed and refurbished in the future.
Find out more about ESG and real estate investment and what’s being done across Europe in the latest Buzzwords: integrating ESG into real estate funds.
 PMG study, Real Estate in the new reality, June 2020
 International Energy Agency, Tracking Buildings, 2020
 IIGCC and the World Green Building Council, 2019
 CRREM, Report Stranding Risk & Carbon, 2019