Last week, the European Centre for Corporate Engagement (ECCE) announced that it has created a new index, the Environmental Real Estate Index (EREI), to use in evaluating property companies and fund managers on how well they manage environmental issues in their portfolios. It is hoped, the authors of the report write, that the benchmarks created by the index "can serve as a catalyst for environmental engagement in real estate investments."
In the first ever Environmental Real Estate Index rankings, a self storage company, the UK's Big Yellow Group, was one of the highest-ranked companies, second only to Australia's GPT. The Big Yellow Group scored 83 out of a possible 100 overall, while GPT scored 86. The U.S. leader of the EREI, Vornado Real Estate Trust, scored 55.
As part of the process of creating the index, three European pension funds (APG Asset Management, PGGM Investments, and the Universities Superannuation Scheme) combined forces with Maastricht University to survey property companies and fund managers on their environmental policies and implementation of those policies. Environmental issues are important, the ECCE points out, both from the perspective of the public welfare, and from the point of view of the individual investor, who wants to see capital used efficiently. The survey included questions about energy and water consumption, waste collection and recycling, carbon emissions, environmental training programs for employees, and remuneration policies.
Although the undertaking of the survey was closely watched in the industry -- it was endorsed by the Australian Council of Superannuation Investors (ACSI), the European Public Real Estate Association (EPRA), and the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) -- only 126 private funds and 72 listed companies responded. Respondents represented a little less than 30 percent of the initial sample. European and Australian property companies were the most responsive. Twenty percent of U.S. companies surveyed responded, while no Asian companies did. Analysts noted that the response rate was connected to the transparency of the local real estate market.
Of the 198 companies that responded to the survey, only 19 percent were able to report statistics related to energy consumption. Sixteen percent reported water consumption numbers, and 14 percent reported carbon emissions.
Most companies scored better on environmental policies than they did on implementation of those policies. The ECCE authors write that they found a lot more "green talk" than "green walk." Expressing their disappointment, the authors go on to say that "Clearly, property companies do not necessarily practice what they preach when it comes to environmental management." They characterized property companies that had the worst performance as "green laggards," and those that did the best as "green stars." Regionally, Australia led the way with its "green stars." The ECCE's Piel Eichholtz later commented, "Australia's the world's benchmark when it comes to green performance." Sweden and the United Kingdom also did very well in the index. The worst companies, environmentally, were located in Asia, the United States, and southern Europe.
However, American self-storage owners, developers, and investors are beginning to take a keen interest in green facility development. It is likely that a year from now, U.S. real estate investment companies will score higher on the EREI index than they did this time. Property developers in the U.S. are just beginning to take advantage of federal tax breaks and subsidies aimed at encouraging the installation of energy-efficient solar paneling and other energy-conserving and water-conserving features.