PGGM played a role as one of the ‘founding fathers’ of the Global Real Estate Sustainability Benchmark, abbreviated GRESB, in 2009. The ambition at the time was to develop a global standard that would be joined by as many property funds as possible. The GRESB standard measures the sustainability performance of real estate investments at the level of a property fund.
So, this is not about how ‘green’ a building is, but how sustainable the surrounding organisation is. This is motivated by the conviction that to make real estate more sustainable, the right policy, qualified people, transparency, systems and measurement data are needed. It is our belief that sustainability factors materially influence the risk-return profile of the investments..
The ambition to develop GRESB into a global standard has been achieved. Now, in 2017, almost nine hundred real estate funds worldwide participate, mainly in Europe, but also more and more in North America and Asia – representing a collective property value of 2800 billion dollars. With the scores that GRESB gives to real estate managers, PGGM gains insight into the way in which these managers implement sustainability in the real estate portfolios of PGGM’s clients.
These scores are also a way to compare ourselves with other real estate investors, as long as they also publish their scores. In addition, GRESB scores have an influence on the valuation of the real estate in the portfolios. The rapidly increasing acceptance of GRESB indicates that real estate managers worldwide realise that they become attractive to investors if they participate in this standard.
Last year, almost 96 percent of the real estate managers with whom PGGM Private Real Estate was invested participated in the study – the last four percent involves expiring investments. In doing so, the real estate funds we selected satisfied our requirement that they must report in GRESB terms, so that we have good insight into the degree to which they integrate sustainability into their operation.
Eighty-six percent of our real estate managers (with a property value of nine billion euro) get a 'green star’ in the GRESB methodology. Such a green star means that policy and management with regard to sustainability are in good order and are implemented, and that the results are measured in terms of energy consumption, CO2 emission, water consumption and waste management.
Thirty percent of our portfolio (22 percent a year earlier) performs in the highest category that GRESB applies. These property funds are in the top twenty percent of the relative GRESB ranking. Our aim is that this percentage should go even higher.
We are not alone in our conviction that this sustainability pays and has a material impact on the risk-return profile of our real estate investments. Regulators such as DNB [Dutch central bank] are also explicitly devoting more attention to this. DNB sees risks for the financial sector in the necessary transition to a climate-neutral economy, and earlier this year the bank stipulated in a report that financial institutions must take more account of this.
The most recent GRESB scores make it clear that the PGGM Private Real Estate investment portfolio is beating the benchmark structurally. While the rest of the real estate sector is taking steps toward greater sustainability - GRESB has been making this clear for years too - we are moving faster.
At the same time, the real estate portfolio managed by PGGM also shows a structural financial outperformance relative to the index. So our real estate gives a relatively higher financial return and has a relatively high degree of sustainability.
We need a more extensive dataset to establish that sustainability pays off financially here, but for us this is in any event proof that financial return and sustainability return (CO2 production prevented) can go hand in hand. We are entering into discussions with our real estate managers worldwide with these messages; our GRESB scores can and must be even higher across the board.