Ratings: The performance of sustainability

Fund ratings serve as a crucial guide for both private and institutional investors. Alongside supplying information on a fund’s financial performance and risk profile, they increasingly also take account of sustainability aspects.

Extra points for sustainability

Rating agencies increasingly recognise that sustainability factors can be relevant to their assessments. That also applies to real estate investment. Sustainable properties can earn extra points here due to their enhanced long-term value. They stand for efficient use of resources and respect for the environment, as well as meeting the social needs of those who live and work in them. In addition, they offer peace of mind with regard to ever more stringent legislative requirements.

Furthermore, sustainable design can reduce risk. A flexible building that considers tenant requirements with regard to space division or a building which is not dependent on energy suppliers and meets part of its energy needs from renewable resources will have a lower vacancy risk than a more traditional building.

From Green Starters to Green Stars

Leading independent ratings agency Scope was quick to respond to these developments. Since 2013, sustainability criteria have been a relevant part of its risk analysis of open-ended real estate funds. Scope not only looks at the number of certificates a building holds, the assessment also considers the number of green leases and additional aspects, such as barrier-free access and space efficiency, as well as the building’s CO2 emissions. Sustainability management is likewise evaluated, as is the associated strategy and whether there are clear criteria in place for planning acquisitions and disposals. In 2015, Scope found that Union Investment had the “most fully developed sustainability strategy in the industry”.The Global Real Estate Sustainability Benchmark (GRESB) meanwhile, which was created by investors, was established back in 2009. Its sole focus is to analyse the sustainability performance of real estate funds.

In the GRESB system, questions around management and other factors are broken down into even greater detail. Even the process used when hiring external service providers is examined. As one would expect, the ranking also takes into account aspects such as water consumption and waste volumes, as well as greenhouse gas emissions. Documented evidence of attempts to improve these values has a positive impact on ranking performance, as does employee training and communication. GRESB analyses real estate funds annually and makes the results transparent via a scoring model which splits funds into four quadrants. The categories range from Green Starters, which are just beginning their sustainability journey, to Green Stars, which can demonstrate fully integrated sustainability management.

Union Investment regularly enters its own funds in the Scope and GRESB rankings. In 2015, the five participating Union Investment funds were ranked either above average or best in sector by Scope for sustainability and financial structure. Six Union Investment funds were entered in the GRESB ranking in 2015, with all of them being categorised as Green Stars.

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