The Covid-19 crisis leads us to learn lessons about investment strategies and to reflect even more strongly on their ESG dimension, the application of which to the real estate sector is particularly sensible.
In this period of great uncertainty, is responsible investment the appropriate response to regain both financial performance and positive impact on the environment and society? Despite the slight decline to solidly demonstrate a positive correlation between resilience of funds during crises and funds engaged in an ESG approach (compliance with Environmental, Social and Governance criteria), this question should be looked into.
Indeed, ESG funds seem to behave better in downturns in the markets than conventional funds (a fact demonstrated in particular by Morningstar, the specialist in investment research). While waiting for the establishment of an SRI label for real estate funds which should be published soon, we can indeed estimate that in terms of real estate investment, players adopting an ESG approach are better equipped to withstand crises. The commitment of an investor in real estate must more than ever focus on the characteristics of the building, its capacity for development and its potential for adaptation to risks (climatic, health, safety, etc.). From the pre-acquisition phase, ESG analysis should be an opportunity not only to get to know the asset in question better, but also to agree collectively on the weight of ESG criteria in the investment decision.. For this, access to reliable data is crucial, and beyond the information specific to the asset (sometimes incomplete), many open data platforms are valuable sources of information that should be integrated. in the analysis. Tools like those developed by the Sustainable Real Estate Observatory are also benchmarks for the sector.
Beyond the pre-acquisition phase, knowledge of information related to assets, their operation and use is necessary to improve the ESG performance of a portfolio. First of all, monitoring and analyzing energy consumption data is a prerequisite, which is all the more reinforced with the recent publication of the “Tertiary Decree”, the legal decree relating to the obligation to improve performance. energy in tertiary buildings. But a major effort is still to be made for the other subjects: water, waste, biodiversity, carbon footprint etc. not to mention social and governance issues which are for the most part still poorly understood. This is why maintaining relationships of trust with tenants and operating teams is necessary.
Trust between investors and tenants, a key element of resilience
Beyond the intrinsic quality of the building, proximity to tenants makes it possible to create valuable long-term links. With the current crisis which is hitting whole areas of economic activity hard and putting many companies in difficulty, knowing your tenants and offering them tailor-made solutions allows them both to help them overcome their difficulties and to consider a post-crisis relationship more calmly.
These close ties are maintained throughout the year by raising awareness among tenants about sustainable development, which is promoted for example by the “green committees”, these meetings organized within the framework of the environmental annex to the lease. A privileged moment to anticipate regulatory changes and share best practices.
On the investor side, the expertise of the teams available to tenants is also key to aligning environmental performance and financial performance. Identifying effective actions with a high return on investment, adapted to the uses of tenants, while modulating the operating and maintenance conditions of buildings is a powerful lever. But its implementation requires real know-how in collecting and using useful data in order to make the most relevant investment decisions.
More generally, the current pandemic can also be an opportunity for professionals in the sector to question its foundations and to draw some lessons from it. Growing urbanization promotes the erosion and even destruction of natural habitats and biodiversity reserves, a subject that is still poorly understood today and which poses many questions.. Faced with this observation, how can investors in the real estate sector act? Start by understanding, knowing, protecting and improving biodiversity near its heritage sites.
Responsible investment is above all a process of humility: making decisions – by accepting to only partially know the present and even less the future – which aim to reduce negative impacts and create and then increase impacts positive effects of real estate on its ecosystem. Finally, it is a question of anticipating as much as possible the crises which have an increasing probability of occurring and of physically and financially affecting its assets.