verantwoord beleggen nederlandse pensioenfondsen: 2017 dutch gresb event
TRANSCRIPT
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Sustainable InvestmentLessons from the Field
Piet EichholtzMaastricht University
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Investors in real estate can make a differenceThe economics of sustainable buildings
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Learning
ProductivityProperty industry consumes resources and pollutes• 40% of global consumption raw materials (even 55% of wood)• 80% of electricity consumption• At least 30% of global CO2 emissions
Energy represents 7–9% of occupancy cost in commercial real estate
Many energy-efficiency investments in property have positive net present value
• Better insulation, technology, and building management all create shareholder value at current energy prices (McKinsey, 2009, 2013)
Solid academic research shows that green property investments create financial value, especially in office and residential
• Higher rents, higher values, less risk
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ESG instruments used by Dutch pension fundsExclusion, reporting, engagement and voting are most common
Percentage of 171 funds reporting responsible investment instruments
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Size matters in ESGDutch pension fund size and ESG instrument use
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Let’s put this into perspectiveWhy is this happening and is it a problem?
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Learning
ProductivityDo the large funds do the right thing?
Small funds face less public and media pressure
Small funds don’t have the resources
Small funds are more likely to opt for passive investments
Small funds make less of a difference, so why bother?
What to do about it?
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(International) examples and solutions1. Exclusion’s unintended consequences: Bpf Landbouw (and many others)
• Bpf Landbouw excludes arms producers from its investment universe
• This excludes direct arms producers but also related “platform” firms • Rolls Royce maintains UK nuclear
weapons facilities• Airbus produces / maintains French navy
nuclear weapon• Bombardier
• Result is 90% reduction in exposure to aircraft/space industry• Reduces portfolio diversification
US$ 555 bn US$ 57 bn
Boeing Airbus United Technology
Lockheed Martin Honeywell General Dynamics
BAE systems Nothrup Grumman Raytheon
Safran Rolls Royce Bombardier
Thales Finmeccanica Textron
Spirit AerpSystems Rheinmetall Zodiac
MTU Dassault Smiths
Gamesa Triumph Orbital
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International examples and solutions2. Combining passive investment and ESG: Fjärde AP Fonden
• Fjärde AP Fonden has created a tailor-made low CO2 index-tracking portfolio
• Goal is to minimize tracking error with MSCI Europe, and to reduce carbon footprint by 50%
• Exclusion approach• Top CO2 producers per sector• Retain sector weights of MSCI Europe index
as much as possible
• Result is passive portfolio with performance comparable to MSCI Europe• AP expects superior future performance
MSCI Europe Index
MSCI Europe
Low Carbon Leaders index
Annual return since 2012 7.8% 8.7%Sharpe ratio 0.57 0.63Tracking Error 0% 0.7%Securities excluded 93Market cap excluded 21.4%Reduction in carbon emissions intensity 52%
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International examples and solutions3. Cooperation: The Nordic Engagement Cooperation
Corporation UN Global compact breach PeriodAES corp. Local population chased /
dam2009 -
Alstom Local population chased / dam
2009 -
Barrick gold corp. Waste spills, human rights violations
2009 -
BP plc Deepwater Horizon 2010 - 2015
Deutsche Post Forbid union membership 2015 -Glencore Mining in Western Sahara - 2015 Nestlé Child labor cocoa
plantation2013 -
Royal Dutch Shell Oli spills Niger delta 2013 -Total Oil drilling Western Sahara - 2015Transocean Deepwater Horizon 2011 -
2015Vinci Labor rights violations
Qatar2015 -
Volkswagen Emission fraude 2015 -
• Pension funds Ilmarinen (€36 bn), Folksam (€35 bn) and Kommunal Landspensjonskasse (€61 bn) founded the Nordic Engagement Cooperation (NEC) in 2009• NEC is complementary to fund-level
engagement: only outside the Nordics
• Criteria for engagement• Likelihood of real influence• NEC’s potential to get deep
knowledge of subject• Subject matter should be material• All three participants hold stake in
target firm
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Translate this to real estate (and GRESB)GRESB can provide instruments and/or platform for action
• Saving the planet through real estate• Small pension funds should make choices, and GRESB data allows them to implement these
• Exclusion’s unintended consequences in real estate• Exclusion policy on GRESB score would overweigh office and underweigh industrial, Asia• It would likely exclude storage, healthcare, hotel real estate
• Passive investment and sustainability goals• Northern Trust index fund uses GRESB universe and selects 80% best in class overall• Use other GRESB performance data for more specific ESG-performance indices
• Cooperation• GRESB is designed for engagement • GRESB data can provide deeper understanding and criteria for success • Members can join forces to do this effectively
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People: next step in real estate ESG researchThe economics of (un)healthy buildings
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• Outdoor air pollution leads to premature deaths, school absences, productivity loses…
• But …• Average individual spends 90% time indoors • Indoor concentrations up to five times higher than outdoors
• Not much known about health/productivity effects in “normal” buildings
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Individuals living in bad housing conditions report
3.6% more often bad or poor health status4.6% worse score on mental health scale12.5% higher number of doctor visitscomparable sick leave
Older respondents (above 64)28% more doctor visits than average individual
Health in homesEstimation results include individual fixed effects, socio economic controls and movers
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Summer 2016Opening of new city office70% of 1500 civil servants moved
We employ surveys and personnel dataSurvey before (n=630) and after (n=670) moving
Perception indoor climate Job satisfactionHealth
Individual administrative dataSick leaveProductivity measures
Moving to productivityQuasi-natural experiment in Venlo
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Moving to productivitySick building syndrome
Percentage of individuals reporting symptoms related to sick building syndrome
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About GRESB Real Estate
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MISSION
Enhance and protect shareholder value by assessing and empowering sustainability practices in the real asset sector
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2009
Assesses the ESG performance of property companies, funds and developers
2015
Assesses ESG performance of real estate lenders
2016
Assesses the ESG performance of infrastructure assets and portfolios
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Institutional Investor MembersIntegrate ESG data | utilize GRESB analytic tools
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TRANSPARENCY
RISKOPPORTUNITY
Institutional InvestorsAssessing companies and private equity funds
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Efficient Capital Markets
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Sustainability Performance
LeadershipRegulation
Market BehaviorDistribution of activity | all economic sectors
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Sustainability Performance
LeadershipRegulation
Real Estate MarketEconomic signaling
Buildings
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ESG Performance Leaders
Engagement
GRESB Real Estate AssessmentPrivate equity funds | separate accounts | private + public REITs | JVs & club deals
Portfolios
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ESG Engagement DriversTop down, bottom up
CapitalMarket
Company
Portfolio
Building
Institutional InvestorsCAPITAL REITs
Private Equity
Portfolio Manager/Asset Manager
Property Manager/Facility Manager
COMM
ITMENT
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Strong Industry SupportAll major industry associations globally
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CompetenciesUnderstanding and improving ESG performance
Systematic assessment companies | funds | separate accounts | JVs
Objective scoring ESG performance – environmental | social | governance
Peer benchmarking differentiate market participants
0 - 100
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The Assessment
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PORTFOLIO OWNERS
REAL ESTATE DEVELOPERS
INSTITUTIONALINVESTORSSTRUCTURED
COMMUNICATION
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PLAN
DO
CHECK
ACT
INDICATOR
ISO-approachSystematic
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Policy & Disclosure
Building Certification
Monitoring & EMS
Management
Performance Indicators
Risks & Opportunities
Stakeholder Engagement
Assessment AspectsNumber of indicators
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8.8%
9.5%
12.4%
8.8%
10.9%
25.2%
24.5%
Assessment AspectsNumber of indicators
Policy & Disclosure
Building Certification
Monitoring & EMS
Management
Performance Indicators
Risks & Opportunities
Stakeholder Engagement
GRESB SCORE
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8.8%
9.5%
12.4%
8.8%
10.9%
25.2%
24.5%
GRESB SCORE
Policy & Disclosure
Building Certification
Monitoring & EMS
Management
Performance Indicators
Risks & Opportunities
Stakeholder Engagement
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Scoring of PerformanceTwo dimensions
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The GRESB ScorecardAggregated business intelligence into market advances
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Participant Information ToolsAggregated business intelligence into market advances
ScorecardFree to all participants
Comparative Intelligence
Benchmark ReportGRESB Member benefit [available ala carte]
Management Introspection
Portfolio AnalysisGRESB Members only
Advanced Analytics
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2016 Results
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2016 GRESB Participants≈200 listed property companies | ≈ 560 private property companies
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Participation Learning CurveLeadership through consistency
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Global Scope2016 industry coverage
759 Entities | 63 Countries | 66,000 Assets
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Geographic Distribution2016 Global response rate
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Investment CapitalAssets under management [$B]
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2016 Global ResultsScoring and benchmarking ESG performance
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Performance IndicatorsLike-for-like consumption 2014-2015
73,988 Homes
Energy
90,197 passenger
cars
Carbon
1,200 Olympic pools
Water
14,963 truck loads
Waste
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ESG Performance Leaders
ESG Engagement | DisclosureManagement quality / investment risk profile
Portfolios
3.9xThe difference in
overall GRESB score between the Top 10%
and Bottom 10% entities in 2016
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Questions?
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