10 Jan 2019 - 09:48 CET
Striving for more sustainability within the real estate value chain
Nathalie van Toren (left) and Marieke van Kamp
The Global Real Estate Sustainability Benchmark (GRESB) is the leading organisation in measuring sustainability within the international real estate investment sector. A large part of the global property market participates: some 900 real estate investors and funds, including NN Group. 'The GRESB survey is a good way of seeing how our property investments take environmental, social and governance (ESG) considerations into account. It provides a benchmark to which we can compare the performance of funds or assets in our real estate portfolio,’ says Nathalie van Toren, Senior Advisor Responsible Investment within NN Group's Corporate Citizenship team.
International real estate portfolio
By comparing performance, real estate managers know which ESG aspects they need to further improve in their buildings. 'With that, we are raising our entire portfolio in terms of sustainability to an ever higher level,' adds Marieke van Kamp. Van Kamp is Head of Private Markets within NN Group's Investment Office and, among other things, responsible for the international real estate portfolio. 'We invest in European real estate funds and in partnerships such as joint ventures with other institutional investors. Furthermore, in Europe we have about 60 buildings in full ownership. We call this our direct real estate portfolio.'
ESG criteria play an important role in the management of our portfolio. 'We are convinced that ESG conscious management not only increases the sustainability of the portfolio, but also helps to achieve solid long-term financial returns whilst mitigating risks,' says Van Toren. 'Furthermore, we believe that NN, as a major investor, has a social responsibility. We explicitly include our corporate values - care, clear, commit - and ESG considerations in our investment policy.’
This is shown in the upward trend of NN Group's GRESB scores in recent years. 'We now have a score of 80 (out of 100). This is well above the benchmark average (66) for European private real estate. But we do not take a step back now. We buy new funds and buildings every year,' explains Van Kamp. 'And for new investments, we are not so much interested in whether they already participate in GRESB and achieve high scores. We believe that especially through improving the sustainability of existing buildings, we can have a positive impact. We offer help to the real estate managers of the purchased buildings to integrate ESG into their way of working, and to improve the sustainability of the buildings. Moreover, we ask them to participate in GRESB from that point on, so that they themselves will also be more aware of ESG criteria and remain alert to continuous opportunities for improvements.'
We collect environmental data regarding energy and water consumption, greenhouse gas (GHG) emissions, and waste from our real estate portfolio to assess and monitor sustainability performance. One of the biggest challenges is to gain insight into tenants' energy consumption data and to encourage them to use energy more efficiently. That is also in their own interest.
In an office building with several tenants – where the owner of the building is in charge of his or her energy consumption and the costs are subsequently charged to tenants as service costs - it is relatively easy to gain insight into energy consumption. But in a so-called logistics building, this is more complex. Here tenants often buy their own energy. They do not always understand why we – as an owner – are interested in their consumption data. They are not always willing to provide the data.
The same applies to retail shopping centres. ‘At shopping centres, retailers have their own energy connection. Sometimes the reaction we get – after our request for insights into their consumption data – is whether we want to supply them with energy from now on. Their concern is that they would then receive a higher energy bill. But NN does not want to become an energy supplier at all,' says Van Kamp. 'So we have to explain clearly where we feel the responsibility of a property owner in the area of sustainability, and why we want to work together on efficiency improvements.'
NN does several things to obtain more consumption data from tenants. Van Toren: 'Our real estate manager uses a third party company to collect environmental performance data. This company has a special online platform to which tenants can easily upload energy bills. This third party guarantees that the owner – NN – can only see the energy consumption, not the energy purchase prices.'
The rental contracts we have in place usually have a clause with the condition to share consumption data with NN. Van Kamp: 'Unfortunately, that often remains a best efforts basis, and not a firm obligation. A good dialogue to explain the advantages of efficient energy use to the tenant is therefore very important. Raising sustainability awareness already starts in the first discussions with the new tenant. For example, we can offer an incentive package for LED lighting to keep power consumption low. The tenant benefits directly from this.'
NN conducts tenant satisfaction surveys to facilitate the dialogue with tenants and to know what improvements can be made. Through the surveys we can also create more awareness of energy-saving measures, waste separation and green electricity. Van Toren: 'We aim to increase our awareness not only among tenants, but within the entire real estate value chain. So with real estate managers, suppliers, appraisers and others. Everyone can play a role in improving the sustainability of real estate. And everyone ultimately benefits from it.'
Paris climate agreement
Van Kamp indicates that an important topic on the agenda of meetings with real estate managers is how we can contribute to the objectives of the Paris Agreement. 'To achieve the goals, we must continue with our initiatives to decrease the energy use of our buildings,' says Van Kamp. 'For example by placing solar panels on the roofs of buildings in our portfolio. We have placed the near equivalent of ten Champions League football fields of solar panels on our buildings in Belgium and the Netherlands, and are working to realise this as well on some of our German real estate assets.’
Van Toren: 'You can achieve CO2 reductions relatively quickly by purchasing green electricity only. But the supply is too limited for everyone to suddenly switch to green electricity. So the real challenge is to make all aspects within our real estate portfolio more energy efficient. That is why data collection is so important. Then we can measure in concrete terms what and where further improvements can be achieved.'