Driving change in real estate through collaboration

APG on behalf of its clients uses its influence to improve companies’ sustainability and long-term performance. In this series, we explore how stewardship is applied in the different asset classes and strategies making up APG’s diversified portfolio. In this fifth installment, Robert-Jan Foortse (Head of European Real Estate) and Derk Welling (Senior Portfolio Manager Responsible Investment Real Estate) discuss how APG leverages its influence in real estate. “Pioneering efforts like GRESB contribute to driving change in the real estate industry through the investment chain.”

APG is one of the world’s largest investors in real estate; its roughly € 50 billion portfolio spans a broad range of real estate asset types, including residential, logistics, offices, retail and hotels. “APG has invested in real estate for more than twenty years,” says Foortse. “We were closely involved in establishing real estate sector associations, several of which have evolved into widely recognized organizations. Notable examples include the European Public Real Estate Association (EPRA) – where I currently hold a seat on the board – and the European Association for Investors in Non-Listed Real Estate (INREV).”

Setting industry standards

Welling emphasizes the significance of these real estate associations in promoting best practices and industry standards, especially in the context of sustainability. “With over a third of global energy-related carbon emissions attributed to the built environment, it is crucial to establish standards that advance responsible investing in real estate. APG is deeply committed to this cause, leveraging its experience in responsible investing and the substantial size of our real estate portfolio. We are well-positioned to take a leading role in standard-setting – and we have successfully done so. Notably, APG co-founded the Global Real Estate Sustainability Benchmark (GRESB)* in 2009 and, in 2018, co-funded the expansion of the geographical scope of the Carbon Risk Real Estate Monitor (CRREM)**. These CRREM pathways have also been recognized by the Science-Based Targets initiative (SBTi).”

Foortse explains that GRESB is now widely recognized as the industry standard for assessing and benchmarking the ESG (Environmental, Social and Governance) performance of real estate investments worldwide. “APG, together with likeminded investors, aimed to enhance transparency in the sustainability performance of real estate investments by adopting an objective and consistent approach to measuring performance in this area. GRESB allows for a more effective comparison of ESG performance among real estate companies and improved engagement with managers. Over the years, GRESB has seen increased participation from investors, encouraging their managers to report to the benchmark. Pioneering efforts like GRESB contribute to driving change in the real estate industry through the investment chain.”

Despite the growing adoption of GRESB and other industry standards, Welling recognizes that transparency on social issues like labor practices in the real estate supply chain needs to be improved. “The majority of the standards relate to environmental criteria like carbon emissions and energy efficiency. There is less focus on social dimensions, while there is limited data available. This makes measuring performance and engaging on social topics more challenging for investors.”

Scientific roots

Both GRESB and CRREM started as research projects in collaboration with academics, specifically from Maastricht University and the University of Regensburg, respectively. Welling emphasizes the critical role of a scientific foundation for credibility. “Data must be processed and validated in an objective and unbiased manner. For CRREM, an independent Scientific Advisory Committee has been established, consisting of accomplished scholars from universities and think tanks. They serve as independent, expert reviewers, ensuring the scientific and technical integrity of the methodology.”

More recently, APG has joined an initiative led by Delft University of Technology, which focuses on climate adaption: the Real Estate Development & Building in Low Urban Environments (Red&Blue) research program. The program seeks to establish a shared understanding of climate risks in areas at lower elevations and develop strategies to address them. “Like GRESB and CRREM, Red&Blue is a collaborative effort between academia and practice,” says Welling. “The initial focus is on the Netherlands, but, if possible, we seek to expand the geographical scope and arrive at global standards. The physical risks of climate change are a global issue, and we - on behalf of our pension fund clients - invest in real estate across the world.”

A catalyst for further improvements

At an individual investment level, standards like GRESB and CRREM not only serve as a starting point for engagement but also encourage further improvements, says Foortse. “For example, in one year, citizenM’s GRESB performance fell short of our expectations. In response, the hotel chain made a pivotal decision to appoint a dedicated executive responsible for ESG. This move prompted the hotel chain to identify and advance its ESG priorities, improve data accuracy, and establish meaningful performance targets. They also started reporting on ESG, a topic we had engaged with them about for an extended period. These steps exemplify their commitment to sustainability.”

Welling also emphasizes the importance of appointing a dedicated executive for whom ESG is the core responsibility. “You need someone who lives and breathes ESG, so to speak. This helps make ESG a corporate priority and embed it more strongly in business operations.” This is also consistently advocated in conversations with investee companies, such as VIA Outlets, a leading Premium Outlet operator in Europe. “With the appointment of a Sustainability Director, the dynamics of our conversations about ESG with VIA Outlets changed, and the topic gained more momentum within the company. Within three years, they improved their GRESB performance and made considerable progress on their on-site renewable energy strategy and mobility strategy.” For example, VIA Outlets implemented a rooftop solar panel installation plan across its portfolio and increased the number of EV charging stations from 152 in 2021 to 214 in 2022. The EV charging capacity is planned to rise to 390 chargers in 2024.

Foortse: “Investors, academic experts and businesses – we all have a role to play in contributing to a better future. APG remains committed to encouraging and initiating collaborative efforts in the real estate industry, seeking to contribute to society while achieving attractive investment returns for our clients.”

* GRESB collects and validates ESG data, utilizing it to assess and compare the ESG performance of real estate entities worldwide.

** CRREM serves as a global method for determining a building’s alignment with the Paris climate targets.