Green Real Estate Investment Funds – Waiting is not a realistic option

Newsletter Posts / Contributions

Christian Paul, Co-founder and CEO, Fundamenta Group Deutschland AG

For the good of mankind as a whole, we all need to pick up the pace when it comes to protecting the environment. Unfortunately, the real estate fund industry has so far proved itself reluctant to make binding commitments. To date, companies across the industry have declared only about one-fifth of their funds as products under Articles 8 or 9 of the EU Disclosure Regulation.

We urgently need a binding commitment from funds to prove that they are taking sustainability criteria into account. After all, the real estate sector is responsible for around one third of greenhouse gas emissions. Classifying funds as “dark green” or, at a minimum as “light green”, in the sense of the regulation, would provide investors with a valuable point of orientation, more capital would flow into ESG-compliant products, and the decarbonisation of the industry would be given a welcome boost.

Many fund companies justify their reluctance to commit themselves by pointing to the fact that the current criteria are so “fuzzy”. In my mind, that is a weak argument. It will be years before regulators have come up with water-tight definitions of sustainability for the widest possible range of economic activities. Meanwhile, technological advances will mean that previously defined criteria need to be revised. Waiting for a “finished” set of rules that will never exist would be fatal in our fight against climate change.

And the same applies to the fund companies themselves. Because while they are twiddling their thumbs, the market is creating facts. More and more investors are already demanding that investment products identify themselves as sustainable – and are allocating billions to these products. Fund companies that fail to commit are already increasingly being left out in the cold.

If you want a job done properly, do it yourself

Fund companies should really be in the best position to develop their own criteria for the sustainability of their investments. These would involve energy efficiency standards for buildings and the use of renewable energy sources. They should also include criteria for social sustainability, which are currently less bindingly defined than their environmental counterparts. And social sustainability is what the real estate industry is all about anyway, because buildings have such a strong influence on the well-being of the people who live and work in them and have such a significant impact on the urban environment – in both positive and negative terms. It is also important to determine how ESG screening will be integrated into the real estate acquisition process and how it will be applied to property portfolios. If a fund identifies properties in its portfolio that do not meet the criteria, we need rules on how they can be made sustainable or whether they should be sold.

A well-developed ESG strategy is also the basis for meaningful ESG reporting. This not only enhances investors’ perceptions of a company, it also reduces the risk of not being able to live up to the sustainability promises the company has made.

In any case, fund companies can’t afford to wait for regulators to lead them by the hand. Change is coming one way or another – and it would be far better to help create the rules than to be overtaken by reality.

Attractive historic building in Berlin-Kreuzberg
Real Estate Offerings
Price: EUR 3,448,000 plus 7.14% commission (incl. VAT) Lettable space: 1,026 sqm Net annual rent (current): EUR 144,000Read More...
Read more

5. March 2024
Subdivided corner building close to Tempelhofer Feld
Real Estate Offerings
Price: EUR 5,400,000 plus 7.14% commission (incl. VAT) Lettable space: 1,835 sqm Net annual rent (current): EUR 287,821 Price-to-rent ratio: 18.7Read More...
Read more

5. March 2024
Subdivided historic building in Berlin-Wedding
Real Estate Offerings
Price: EUR 4,800,000 plus 7.14% commission (incl. VAT) Lettable space: 1,550 sqm Net annual rent (current): EUR 167,000Read More...
Read more

5. March 2024