Asset owners outline challenges in making properties 'green'
The chief sustainability officer at Allianz Real Estate has said that the cost of reducing a building’s emissions was low when done as part of routine refits and should not provide grounds for delay.
“[ESG refits] are usually done when we have to upgrade or refurbish a building anyway. The additional cost of the ESG upgrade is minimal. Sometimes there is no additional cost,” said Dr Raphael Mertens, chief sustainability officer at Allianz Real Estate, the company managing the property investments of the Allianz Group, among other institutions.
Mertens said that reducing a building’s emissions in this way typically added between 5% and 10% to the cost of routine refits for most commercial buildings, although he noted that such refits typically take place only once every 20 years.
Mertens said that in the last year, the company has completed the first 10 major refits of this type — with one residential building and the remainder offices — all of them in Europe.
He added that the process of an eco-refit, from creating the program to getting the expenditure approved internally and from co-investors, and then carrying out the work, typically took two to three years. He noted that the replacement of windows to reduce heat loss and the installation of heat pumps was now standard.
Refits in Asia were progressing slower because of the relative paucity of relevant data and the more complex demands of major refit projects, he said, adding that the firm’s assets in the region are usually modern and of prime quality, meaning there is not too much retrofitting required currently.
In a January interview with AsianInvestor, said the global property sector was making slow progress towards reducing emissions, adding that stakeholders, including regulators, were wasting time with debates over reporting, auditable data, and standardisation when they should be acting to reduce emissions instead.
But Kamya Miglani, JLL head of ESG research Asia Pacific in Singapore, said that many investors remained reluctant to spend what was required, adding that updating older buildings with current technology was the biggest obstacle in Asia to building owners collecting better data about emissions.
“If you have a 20-year-old building, you need a full retrofit before you are ready to collect that data. And that is expensive: it takes a landlord that has insight on the benefits and the appetite for the investment,” she said, adding that collecting the data was a prerequisite for improving a building’s performance.
Given the high cost of retrofits, many sectors in Asia should be at an advantage over those in more established markets, she added, because Asia has a large proportion of new buildings and will see a higher rate of newer buildings relative to existing stock.
“Across the world, 80% of the buildings that will be standing in 2050 are already built, but that figure is lower for Asia. Retrofitting is going to become a much bigger issue to bring buildings under the green umbrella in Europe and the US,” she said.
Miglani said that the biggest area of improvement when it came to collecting ESG data about properties in PGGM’s portfolio was around energy use, adding that regulators had provided an important role.
Stan Bertram, ESG and private real estate associate director at PGGM Investments, the investment manager for the €277 billion ($302 billion) Dutch pension fund, told AsianInvestor that a major ESG challenge it faced across its portfolio was in collecting accurate data.
He singled out the fund’s portfolio of multi-family properties, where a combination of multiple leases and the requirement for tenant privacy make the collection of data particularly challenging.
“Here, gathering energy usage data from individual tenants takes time and effort. Sometimes progress has come from regulation, and in other cases from specific initiatives by managers,” he added.
Between 2020 and 2025, PGGM aims to double the amount of renewable energy that is generated on- and off-site in the real estate assets in the PGGM Private Real Estate Fund. Due to their large rooftop areas, logistics and shopping centre assets can play a significant role in achieving this target.
Bertram said the fund is cooperating with the Global Real Estate Sustainability Benchmark (GRESB), to help improve the quality and scope of energy, greenhouse gas, water, and waste data.
“We are encouraging our partners to develop science-based targets to align their portfolio with the Paris agreement to limit global temperature warming to a level well below 2 degrees by 2050,” he said.
PGGM was one of three founders of GRESB, alongside APG and the UK’s Universities Superannuation Scheme Limited (USS), and requires all of PGGM’s partners to report to GRESB.
This story has been updated with changes to para 1 and para 7.