Investors are waking up to the fact that sustainable investing isn’t just good for the planet – it can be good for investment performance too. This is particularly true for real estate investment.
Buildings account for 36 per cent of global energy use through their construction and operation. They are also responsible for nearly 40 per cent of energy-related carbon dioxide emissions1. The ecological footprint becomes even bigger when you consider how much water and raw materials they use up.
Yet, while some climate activists want society to give up flying or eating meat, buildings are more difficult to do without. It’s impossible to imagine a world without houses, offices, factories, warehouses and data centres. The onus, therefore, is on making buildings more efficient.
The United Nations estimates that, in order to limit the rise in global temperatures to less than 2 degrees centigrade by 2030, the property industry needs to reduce the average energy intensity of buildings by at least 30 per cent.
Source: UN Environment Programme
Environmentally-friendly buildings make for better real estate investments, too. Research shows that buildings with stronger environmental credentials generate higher rents, lower rates of obsolescence, improved tenant satisfaction, lower voids and lower incentives2. With the environment becoming a priority for those who construct, manage and live and work in buildings, the performance gap between green buildings and their less efficient peers should widen further over the coming years. This has important implications – not least for the millions of investors who, together have poured USD3.4 trillion of their capital into real estate over the past two years3.
As active managers of real assets, we have made sustainability criteria a key part of our investment and asset management processes.
Crucially, progress needs to be made not just on new buildings, but on existing ones as well. Given that more than 70 per cent of all buildings in the world are 20 years old or more4, we believe that all types of property assets offer opportunities for significant environmental improvements. Such initiatives can add substantial value to the assets’ bottom line, and thus are an integral component of our active asset management strategy.
When it comes to sustainable investment, real estate is arguably ahead of other asset classes.
Listed and private companies, for instance, struggle to provide accurate data on their environmental, social and governance (ESG) impact. That’s partly down to a lack of universally-accepted standards for measuring and reporting ESG.
The real estate industry doesn’t have this problem. The Building Research Establishment Environmental Assessment Method (BREEAM) certification – first created in 1990 – is one of the globally acknowledged ways of assessing and certifying the sustainability of the most technically advanced buildings.
Additionally, the WELL certification – based on seven years of rigorous research by doctors, scientists and property industry professionals – offers guidelines to create a healthy environment in buildings.
This system extends the concept of sustainability beyond the best environmental practices to consider people’s health and wellbeing. After all the air we breathe, and how we feel in a workplace are increasingly linked to productivity levels.
Source: GRESB, 2019
As investors, our goal is to make every building we own as environmentally efficient as possible. In our newly-acquired multi-use building in the heart of Madrid, for example, we are looking to install reduced flow water taps that decrease water consumption by up to 40 percent, provide bicycle parking for employees, and put in a circadian lighting system.
The rise of the Internet of Things – fuelled by faster 5G internet connections – will open up even more possibilities to control building environments for optimal efficiency and wellbeing.
We believe that investing in making buildings sustainable is not only the responsible thing to do for our planet but also a way to add value for investors.
Important legal information
This marketing document is issued by Pictet Asset Management. It is neither directed to, nor intended for distribution or use by any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund’s prospectus, the KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on assetmanagement.pictet.
This document is used for informational purposes only and does not constitute, on Pictet Asset Management part, an offer to buy or sell solicitation or investment advice. It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. The effective evolution of the economic variables and values of the financial markets could be significantly different from the indications communicated in this document.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk factors are listed in the fund’s prospectus and are not intended to be reproduced in full in this document.
Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund’s full documentation or for any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document.
EU countries: the relevant entity is Pictet Asset Management (Europe) S.A., 15, avenue J. F. Kennedy, L-1855 Luxembourg
Switzerland: the relevant entity is Pictet Asset Management SA , 60 Route des Acacias – 1211 Geneva 73
Hong Kong: this material has not been reviewed by the Securities and Futures Commission or any other regulatory authority. The issuer of this material is Pictet Asset Management (Hong Kong) Limited.
Singapore: this material is issued by Pictet Asset Management (Singapore) Pte Ltd. This material is intended only for institutional and accredited investors and it has not been reviewed by the Monetary Authority of Singapore.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
In Canada Pictet AM Inc. is registered as Portfolio Manager authorised to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.