(Bloomberg)—Real estate investors might have more reason to care about the air conditioning in your office than you do.
As energy-related emissions from buildings creep higher, property investors are starting to worry that regulators and politicians will come down hard on the sector for its contribution to climate change.
PGGM, the second-largest Dutch pension fund manager, said it’s working to cut in half the carbon footprint of the $22 billion euros ($25 billion) in real-estate investments it manages before 2020. “Our pension is worth more in the future in a liveable world,” said Mathieu Elshout, director of private real estate at PGGM Investments. “The sooner we start with it, the better.”
Studies have shown energy-efficient buildings also make for good investments. Real estate investment trusts that rank better in a measure of sustainability generally have better financial performance, according to a 2015 University of Cambridge paper.
But how do you determine the relative carbon impact of a real-estate portfolio, which could include properties as diverse as low-energy (and low-earning) warehouses and energy-guzzling data centers?
GeoPhy, a property data-analytics firm, does it by directly comparing how much carbon a property produces per dollar of rent revenue it generates. GeoPhy calculated the carbon footprint of 50 of the largest REITs by market cap in its database of 900 listed companies in the sector worldwide, exclusively for Bloomberg.
The top five best performers own newer, better-designed buildings, GeoPhy founder and CEO Teun van den Dries said. And green buildings tend to be in better locations, which could explain the higher rents, he said.
“What we do see is a strong brown discount, showing a steep drop in value for older and poorer buildings,” he said.
At the bottom of the barrel was Digital Realty Trust, a San Francisco-based owner and operator of data centers—an industry where the emissions footprint is growing. The company said it was working on its environmental performance and had reduced the carbon footprint of its data centers by 6 percent in 2015, despite its customers’ energy use growing by 16 percent.
REITs with properties in areas where coal still plays a large role in energy generation had a relatively high footprint, van den Dries said. “The location of the building is actually a key driver,” he said. “If you’re in Texas, the carbon intensity is completely different than if you’re in New York state.”
Buildings accounted for 32 percent of final global energy use and 19 percent of energy-related greenhouse gas emissions in 2010, according to the Intergovernmental Panel on Climate Change’s latest global warming assessment report, published in 2014. That’s thanks to a lot of air conditioning, heating, lighting and electrical equipment.
The panel’s report—which is used as the scientific basis for international climate negotiations—says those figures may double or even triple by the middle of the century as global standards of living improve and the world population increases.
REITs face major challenges. One of the biggest obstacles: They often don’t have a lot of control over how much power a building consumes. In a shopping mall, for instance, a landlord may manage the energy use of common areas but tenant retailers are in charge of their own electricity consumption.
Tenants are responsible for about 80 percent of emissions linked to properties owned by Kimco Realty Corp., the biggest U.S. owner of shopping centers, said Will Teichman, who is responsible for the company’s sustainability efforts.
To contact the author of this story: Siobhan Wagner in London at [email protected] To contact the editor responsible for this story: Lisa Fleisher at [email protected]
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