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The evolution of ESG in real estate investment
Nuveen Real Estate has put environmental, social and governance (ESG) issues front and center in the development and implementation of its flagship series of investment strategies–the Global Resilient Series–which offers institutional investors custom allocations to core strategies, both by sector and region. ESG factors are incorporated as part of city-selection, individual asset-selection and asset management decisions. And while climate change remains the most pressing focus, social issues such as health and wellness are gaining momentum and require increasing attention from real estate managers.
Today, it’s a given that savvy investors expect asset managers to include material ESG factors in their investment process but championing sustainability in the real estate industry is not new for Nuveen Real Estate. In 2010 we partnered with the U.S. Department of Energy (DOE) Better Buildings Alliance to promote industry best practices and we were recently named a Goal Achiever in the Better Buildings Challenge program having reduced energy use intensity of our portfolio by over 2% per year for 10 years. We have also participated in the Global Real Estate Sustainability Benchmark (GRESB) and the UN Principles for Responsible Investing (UNPRI) since their inception and achieve the highest ratings in these benchmarks. In addition to participating in such programs, we customize our sustainability approach at the strategy, sector and region levels. For instance, our Global Resilient Series which is comprised of six, open-ended core strategies—four sector-specific strategies in the U.S. and two diversified strategies in Europe and Asia Pacific – is designed to provide investors with diversification, income and long-term capital growth via investments in resilient assets in leading cities that are well positioned in terms of long-term structural trends -- including social and environmental factors such as climate change.
Increasingly, institutional investors want to know that their investments are aligned with climate science and their own targets for carbon reduction. Many require that their managers meet high standards at the firm level to even qualify for investment consideration, and then conduct detailed due diligence around the implementation and management of ESG at the strategy level. Thus, we have frequent opportunities to engage in in-depth interactions with investors and their consultants to discuss our practices and a long term view on issues such as climate change, net-zero carbon and related factors. We value and encourage this interaction and view it as an opportunity to partner together to advance these critical issues that impact the economy and viability of our societies at a global level.
At the strategy and sector level, the Global Resilient Series’ Multifamily strategy is an example of how we set and measure clear objectives for integrating E, S and G:
While the real estate industry has been at the forefront of adopting sustainable practices for well over a decade, we can never stop innovating and adapting our goals to current and potential future circumstances. Today’s public health crisis highlights how the buildings in which we live, work and spend our time have an impact on our health and productivity and how environmental and societal factors can influence the way we interact with buildings. We understand the importance of engaging with our tenants to better serve their needs, which includes ensuring that we are providing healthy and safe indoor environments. Prior to the pandemic we were conducting tests of sensor technology to monitor environmental quality and prioritizing health and well-being certifications in our office buildings, achieving our first Fitwel certification earlier this year and more recently formalizing the commitment by becoming a Fitwel Champion. Our wellness-focused initiatives have never been more relevant and we will continue to roll out new technology and certification strategies to ensure the safety of tenants and the relevancy of our investment portfolio in uncertain times. We aim to ensure that all of our actions in the critical and ever-evolving ESG arena reflect our values and that as long term investors, our efforts positively impact both our clients and society.
ESG in real estate, no longer a nice to have
Today, it’s a given that savvy investors expect asset managers to include material ESG factors in their investment process but championing sustainability in the real estate industry is not new for Nuveen Real Estate. In 2010 we partnered with the U.S. Department of Energy (DOE) Better Buildings Alliance to promote industry best practices and we were recently named a Goal Achiever in the Better Buildings Challenge program having reduced energy use intensity of our portfolio by over 2% per year for 10 years. We have also participated in the Global Real Estate Sustainability Benchmark (GRESB) and the UN Principles for Responsible Investing (UNPRI) since their inception and achieve the highest ratings in these benchmarks. In addition to participating in such programs, we customize our sustainability approach at the strategy, sector and region levels. For instance, our Global Resilient Series which is comprised of six, open-ended core strategies—four sector-specific strategies in the U.S. and two diversified strategies in Europe and Asia Pacific – is designed to provide investors with diversification, income and long-term capital growth via investments in resilient assets in leading cities that are well positioned in terms of long-term structural trends -- including social and environmental factors such as climate change.
Through a research-focused approach, we embed ESG considerations into the real estate management process at every level for every investment, knowing that this protects value for our clients and creates innovative and sustainable spaces in the communities where we invest. But with the $3.5 billion Global Resilient portfolio of properties, we sought to embody this integrated ESG approach at the strategy level – it was a key structural trend considered during the inception of the series.
The investable universe was developed from a top down perspective, with our proprietary screening and selection process evaluating 4,000 cities based on scale, transparency, stability, quality of life and sustainability factors (including climate change vulnerability, air quality and electricity grid carbon intensity) and identifying the top 2% that are best positioned for the long term. Then, at the time of sourcing, using both public and privately sourced data, each individual investment is reviewed and evaluated for financial exposure to the impacts of climate change. The initial identification of risk is completed by our dedicated sustainability team and in coordination with the investment, portfolio management, risk and research teams. The potential deal is also stress-tested to ensure that it can achieve the desired returns in future climate scenarios looking at a time horizon which includes both our anticipated hold period and that of a potential future buyer. This synchronized effort continues through the life of the investment in the development of the asset management plan, which includes alignment with our tomorrow’s world outlook from an overall sector perspective, and identification of specific and actionable priorities at the strategy level which are implemented as part of individual property business plans.
The investable universe was developed from a top down perspective, with our proprietary screening and selection process evaluating 4,000 cities based on scale, transparency, stability, quality of life and sustainability factors (including climate change vulnerability, air quality and electricity grid carbon intensity) and identifying the top 2% that are best positioned for the long term. Then, at the time of sourcing, using both public and privately sourced data, each individual investment is reviewed and evaluated for financial exposure to the impacts of climate change. The initial identification of risk is completed by our dedicated sustainability team and in coordination with the investment, portfolio management, risk and research teams. The potential deal is also stress-tested to ensure that it can achieve the desired returns in future climate scenarios looking at a time horizon which includes both our anticipated hold period and that of a potential future buyer. This synchronized effort continues through the life of the investment in the development of the asset management plan, which includes alignment with our tomorrow’s world outlook from an overall sector perspective, and identification of specific and actionable priorities at the strategy level which are implemented as part of individual property business plans.
Sector Sustainability priorities
|
Office |
Housing |
Industrial/logistics |
Retail |
|---|---|---|---|
|
Health and wellness certifications |
Solar |
Solar |
Solar |
|
Remote diagnostics/ Controls optimization |
Green maintenance plan |
Common area LEDs |
Green certifications |
|
Common area LEDs |
Common area LEDs |
Tenant data collection |
Tenant education and outreach |
|
|
Resident engagement |
|
Common area LEDs |
Increasingly, institutional investors want to know that their investments are aligned with climate science and their own targets for carbon reduction. Many require that their managers meet high standards at the firm level to even qualify for investment consideration, and then conduct detailed due diligence around the implementation and management of ESG at the strategy level. Thus, we have frequent opportunities to engage in in-depth interactions with investors and their consultants to discuss our practices and a long term view on issues such as climate change, net-zero carbon and related factors. We value and encourage this interaction and view it as an opportunity to partner together to advance these critical issues that impact the economy and viability of our societies at a global level.
We believe sustainable investment, including the integration of ESG metrics, effective stewardship, long-term investing and managing real-world impacts, is central to successful investment outcomes and should therefore be integrated throughout all investment processes. It enhances returns, reduces risk, and crucially helps us serve people and the planet better, helping to create a sustainable economy and society.”
Firm-wide objectives
We recognize the physical impacts of climate change will affect real estate values and it is critical to develop an understanding of how, where and when these physical impacts will become financially material to an investment’s financial performance. We are also conscious that the transition to the low carbon economy presents both financial opportunities and risks. Effectively managing building efficiency and carbon intensity throughout this transition is a key factor in creating and protecting value in the assets we manage. To demonstrate this commitment to internal and external stakeholders we have set strategic firm-wide targets, rooted in climate science, that address both the physical and transitional risks associated with climate change. The sustainability team provides training, guidance and resources to our investment professionals to ensure the best available data is utilized when considering how climate change may impact a specific investment or region.
Multifamily strategy: measurement and case study
At the strategy and sector level, the Global Resilient Series’ Multifamily strategy is an example of how we set and measure clear objectives for integrating E, S and G:
- E Review of climate risk and resource efficiency data by portfolio and investment management teams for all new and existing investments.
- S Targeting middle income renters and providing quality housing options for local community.
- G Providing transparency to investors around management, strategy and performance.
Gramercy at Buckhead, Atlanta, U.S.
- 15% reduction in energy intensity since 2018 with and ENERGY STAR score of 98 out of 100.
- Upgraded seven (7) HVAC units to run more efficiently and eliminate ozone depleting refrigerant.
- Green maintenance plan which including the installation of LED track lighting during every unit turnover.
- Resident engagement programs which includes maintaining and distributing a monthly resident event calendar filled with a variety of engagement activities.
Continuous assessment of material ESG factors
While the real estate industry has been at the forefront of adopting sustainable practices for well over a decade, we can never stop innovating and adapting our goals to current and potential future circumstances. Today’s public health crisis highlights how the buildings in which we live, work and spend our time have an impact on our health and productivity and how environmental and societal factors can influence the way we interact with buildings. We understand the importance of engaging with our tenants to better serve their needs, which includes ensuring that we are providing healthy and safe indoor environments. Prior to the pandemic we were conducting tests of sensor technology to monitor environmental quality and prioritizing health and well-being certifications in our office buildings, achieving our first Fitwel certification earlier this year and more recently formalizing the commitment by becoming a Fitwel Champion. Our wellness-focused initiatives have never been more relevant and we will continue to roll out new technology and certification strategies to ensure the safety of tenants and the relevancy of our investment portfolio in uncertain times. We aim to ensure that all of our actions in the critical and ever-evolving ESG arena reflect our values and that as long term investors, our efforts positively impact both our clients and society.
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