11/19/2015 | By Sarah Borchersen-Keto
As environmental, social and governance (ESG) issues become increasingly important for real estate investors, companies that fall short in these areas are likely to be left behind, according to a panel of sustainability professionals at REITWorld 2015: NAREIT’s Annual Convention for All Things REIT.
Nils Kok, CEO of the Global Real Estate Sustainability Benchmark (GRESB), moderated the panel.
Bradford Stoesser, managing director and global industry analyst at Wellington Management Company, said ESG is playing an increasingly important role as Wellington considers where to invest.
“We’re becoming much more activist with companies we invest in. We vote down (companies) a lot more often and will sell positions if we don’t see improvement,” he said.
Stoesser said Wellington, which has about $900 billion of assets under management, uses ESG performance as a risk mitigation tool as it considers potential investments. “It helps generate better returns over the long term,” he said. Stoesser added that Wellington has set a goal to have almost all of its equity positions rated for ESG performance within five years.
David Stanford, executive managing director at management consultancy firm RealFoundations, noted that investors are pushing to see relative and consistent progress on ESG issues.
Eliott Trencher, research analyst at Cohen & Steers Capital Management, noted that the company’s clients have been the catalyst for the increased focus on ESG. Trencher described ESG as “a real tool to figure out how to create alpha.”
Hans Op ‘t Veld, head of listed real estate at Dutch pension fund PGGM, said he is encouraged by the fact that most U.S. REITs talk about their ESG initiatives in terms of value-enhancement.
“That economic sense of it is quite important. It becomes a hard, not a soft, topic,” he said. PGGM has about $5.5 billion invested in U.S. REITs, according to Op ‘t Veld.
Meanwhile, Stoesser stressed that real estate companies need to think more about potential changes to the landscape, such as rising sea levels, and the impact that could have on their assets. “There are a lot more potential stranded assets in portfolios that companies don’t realize,” he said.
“Now is a good time to trade out of assets that may get stranded,” Op ‘t Veld added.