Responsible investing: Union Investment extends exclusion criteria to real estate funds
The Union Investment Group follows a responsible investment policy that incorporates various national and international regulations, such as the UN Global Compact and the BVI Rules of Conduct. Standards-based and values-based exclusion criteria have been used in Union Investment’s securities business for around 30 years, alongside other sustainability strategies. This enables private and institutional investors to choose a product that takes sustainability aspects into account while generating returns.
The company’s real estate business has joined the responsible investment initiative and is now applying standards-based and values-based exclusion criteria to its actively managed property holdings, which are currently worth around EUR 35 billion. As a first step, transaction partners and tenants who are securities issuers will be assessed for compliance with minimum ESG standards. These make up some 20 per cent of the commercial tenants in the current portfolio. Going forward, the aim is to include the other 80 per cent of tenants as well.
“Responsible investing is part of Union Investment’s DNA. As such, considering the business conduct of our partners in the real estate sector has long been part of our compliance processes. Laying down these exclusion criteria is a further step towards demonstrating the sustainability of our real estate business when it comes to choosing our business partners. Taking ESG into consideration is also crucial for our customers, given its increasing economic significance. Applying exclusion criteria to our real estate activities is therefore an important step. Further steps that go beyond securities issuers will follow.”
Jens Wilhelm, the Management Board member at Union Investment responsible for portfolio management, real estate and infrastructure
What will be assessed?
Union Investment’s research department will review the business conduct of securities issuers. The defined test criteria serve to exclude controversial business practices such as disregarding human rights, environmental issues or labour standards. Also affected are contentious activities such as direct involvement in internationally banned weapons.
“By applying standards-based and values-based exclusion criteria, Union Investment is among the true pioneers in the real estate industry. Having said that, we are aware that these initial assessments are based on minimum standards. This is the start of a journey, and compliance with new standards will become a fact of life for our actively managed property portfolio.”
Who will be assessed?
In the real estate industry, there are multiple dimensions to investing based on sustainability considerations. Firstly, it is necessary to scrutinise possible transactions in detail. The transaction partner (buyer or seller) needs to comply with responsible investment policies, as should the tenants of any newly acquired commercial property. Existing tenants in Union Investment’s actively managed real estate portfolio also have to be assessed, across all commercial property types: office, retail, hotel and logistics.
Initial impact on real estate funds
A review of the current tenant base in Union Investment’s property portfolio shows that the economic impact of applying the sustainability filter is low and can easily be absorbed by the funds. Only two leases covering total rental space of around 6,200 sq m fail the test. Relative to the total portfolio of 7.4 million sq m of commercial rental space, that is not a major problem. The intention is to allow the two existing leases to expire and then let the space to other companies that meet the relevant sustainability criteria.