Post Covid-19, impact investing will become even more important

Wednesday 13 May 2020

Impact Investing

Author: Maha Khan Phillips

Abigail Dean is Head of Sustainability at Nuveen Real Estate, the $125 billion real estate manager which is part of TIAA Investments. She talks to PI about the role of impact investing in a financial recovery, her concerns about climate risk, how technology is bringing innovations to real estate, and much more

PI: What are the implications of Covid-19 on ESG in your industry, both in the short, and the long term?

Dean: In the short term there are some immediate challenges – we can’t undertake site audits and there is a halt to some of the capital expenditure projects such as the installation of onsite renewable energy. The gathering of data is also challenging as it isn’t appropriate to be asking some tenants to provide energy data at the moment when they are focussed on Covid-19 crisis management.

However – these are short term interruptions and in the longer term, a focus on ESG in real estate investment becomes even more critical. Green buildings tend to have lower vacancy and be more attractive to tenants, so should perform better in a downturn. Climate risk also takes on greater significance as the underlying strength of the market cannot offset the negative impact of extreme weather events to the same extent.

As we look to what form an economic recovery might take, the role of impact investing to deliver long term sustainable growth that meets community needs becomes significant. I think we will see real growth in impact investing.

PI: You’ve been working in sustainability for over 15 years. How has the investment industry’s approach changed to sustainability changed during that period?

Dean: In the last few years, we have unfortunately seen the impact of climate change more and more. We’ve had successive years of flooding in Europe, wildfires in Australia, and more hurricanes in the US. The reality of climate change has been on people’s minds. The fact that the regulatory and investment community has started to lend some thought as to what it might mean for the global economy, with the release of the Task Force on Climate-Related Financial Disclosures for example, has had a significant impact. It has really catapulted this issue to the forefront, and that informs a lot of the interactions we have, and the decision-making of investors we work with.

PI: What role is technology playing in supporting the development of the ESG industry in real estate?

Dean: The technological innovation that we’ve seen in the last five to ten years has played a major role in our ability as an industry to focus on ESG. Solar panels, LED lights, for example, are so much more effective and less expensive than they were ten years ago. We’ve seen electric vehicles, batteries within buildings combining battery storage with solar, and automated smart building technology management systems which can monitor exactly what energy is being used at any time, and ensure that systems aren’t competing with one another. We are implementing that kind of technology in our buildings, and we’ve had significant energy savings as a result.

Standing back and looking at it from a Big Data perspective, the emergence of modelling platform services, which enable us to identify which assets are at risk from the physical impact of climate change is something that we are starting to use more and more.

PI: How challenging is it to integrate into ESG into the investment process?

Dean: We integrate ESG into everything. Our focus on ESG can add value and protect against risks. It just makes good asset management sense to incorporate across all our strategy areas. It means we have a specific ESG strategy associated with each individual vehicle or product or mandate that we work on. Some are more ambitious than others, but they all have certain minimum requirements. We would always be monitoring energy consumption and looking at ways to reduce that. We’ll always be analysing climate change vulnerability.

Some of our strategies go a lot further, and have more ambitious goals, for example we will develop net zero carbon pathways for all our buildings and will achieve net zero carbon by 2050 at the latest. But in some locations we will be doing it much more quickly.

PI: What are some of the challenges you’re facing as part of this goal?

Dean: The biggest challenge that we have is the availability of information when we are looking at a new building. We want to be able to identify, during the due diligence phase, what the cost will be of getting that building to net zero carbon. That’s quite difficult to do in some instances. Another challenge is the availability of energy consumption data when the tenants are procuring energy themselves. It means it is difficult to build up an accurate picture of the carbon footprint of the building.

When we look at climate change, the challenge is the uncertainty that goes with it. It is difficult to look at a specific location, and say that over a ten or twenty-year period a specific building will be impacted.

The other challenge in Europe is that we don’t have an operational energy performance rating. You have the energy performance certificate, but that’s theoretical, based on aspects of the building and types of heating and cooling and glazing systems. It does give you some information, but there is not a particularly strong correlation between the certificate and the energy consumption. Some other countries have better and more transparent rating systems, and as a global investor, we’d really like there to be better ratings in Europe. That would help us, when we were looking at levels of risk.

PI: If you could wave a magic wand, and change one thing in your industry, what would it be?

Dean: I would want to have an operational performance rating for every single building in every single country, which includes tenant data as well. That would give us a much better understanding of how much money we would need to invest.

PI: There has been a lot of discussion about ‘green washing’ in the industry. Is this a concern?

Dean: I think there is a real risk of green washing, particularly now that things like impact investing are getting so much attention, and we are seeing more and more focus on net zero carbon buildings. There is a risk that others will start to put a green or impact label on something that doesn’t meet the criteria. It is important that investors do their due diligence properly and make sure that the strategies they are investing in aren’t just green, or impact washing, but are delivering proper ESG management. 

PI: How did you become focused on sustainability in your own career?

Dean: I was always very interested in any form of ESG or corporate responsibility, and got a job working for a consultancy called Upstream Sustainability Services which provided advice to landlords on how to manage real estate in a sustainable way, and also focused on climate change. I became more and more interested in real estate, and in climate change. Upstream was acquired by JLL, and that gave me an opportunity to dive into more detail on real estate and understand the role of ESG specifically. I worked for JLL for more than ten years, initially giving strategic advice to real estate investors on sustainability, before moving to the property management side to lead the integration of sustainability to property management practices.  I was there for three years, and then there was the opportunity to come and work for Nuveen, and to work with an investor on sustainability has been really interesting.

 

Abigail Dean, Head of Sustainability at Nuveen Real EstateAbigail Dean is Head of Sustainability at Nuveen Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

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