RI good practice in property and real estate (also referred to as ‘Responsible Property Investment’ (RPI) or, at the asset level, ‘Green Building Design’ has gained increasing prominence over the past 10 years, both globally and in South Africa.
Buildings are large consumers of energy and producers of greenhouse gas emissions, with potential rapid increase due to urbanisation, thus presenting great potential to improve performance in terms of sustainability issues. In markets such as the United Kingdom, policymakers have already mandated that new buildings be net zero carbon emitters by 2030 and existing ones by 2050.
This can be seen as an indication of impending policy interventions in the property sector globally. On the African continent, resource efficient, climate resilient and healthy buildings is also increasingly a response to the goal of affordability, resource scarcity, population growth and urbanisation trends.
There is increasing data to support that RPI and green building designs act as a profit driver by reducing costs through energy and other resource efficiency upgrades and retrofits, increasing reliability of services and contributing to a healthier and more amenable indoor environment.
This may in turn affect the market value of a property or portfolio through higher occupancy rates, a price premium or faster sale, a lower default risk, lower volatility and slower rate of depreciation.
As with other asset classes, ESG factors can be integrated alongside traditional measures of financial risk as part of asset allocation and portfolio risk analysis and to enhance the existing analysis that customarily lies behind investment decision-making.
The results obtained from such analysis can contribute to specific decisions about whether to acquire or dispose of a property, or identify which properties would benefit from specific RPI interventions to improve their operational efficiency.
Standards can be applied include certification schemes such as the internationally-used Leadership in Energy and Environmental Design (LEED) and the Building Research Establishment Environmental Assessment Method (BREEAM) rating systems, Green Star or Excellence in Design for Greater Efficiencies (EDGE).
According to the South African Green Building Council data published in 2019, there are 400 buildings that had an external green certification in South Africa.
Investors that do not directly invest in property assets and wish to integrate RPI have sought to make an assessment of the RPI performance of the property company, the fund or the Real Estate Investment Trusts (REITs) in order to inform their buy or hold decisions.
Benchmarks such as the Global Real Estate Sustainability Benchmark (GRESB) provide such information. South African institutional investors who have signed on to GRESB include the GEPF.
- PRI investor tools, real-estate: https://www.unpri.org/investor-tools/real-estate)
- UNEP FI (2016): Sustainable real estate investment implementing the Paris climate agreement: an action framework
- IFC (2020): Green Buildings—A Finance and Policy Blueprint for Emerging Markets
- World Green Building Council (2013): The business case for green building: a review of the costs and benefits for developers, investors and occupants
- Green Building Council of South Africa (www.gbcsa.org.za)
- Global Real Estate Sustainability Benchmark (www.gresb.net)
- EDGE Green Building Tool (https://www.edgebuildings.com/)