20 Mar 2017
We joined forces with PropertyEU on 16 March at MIPIM by hosting a panel session on sustainability and the need for consistent and comparable data for valuers, property professionals, investors and occupiers across Europe.
Sustainability is a fact
The discussion started with recognising that the investment case for sustainable real estate is no longer a question. We heard from an excellent range of experts from the property industry as well as from the European Commission and the European Bank of Reconstruction and Development (EBRD) that sustainability is a fact but there is still a pending question on how to improve trust in the sustainability performance assessment of buildings.
Vlaho Kojakovic from the EBRD outlined the intention of the bank to allocate 40% of its funds to green buildings; but to be sure of the return on investment, it is very important to know there are right metrics in place to assess the green value.
What are investors' needs?
Environmental performance and sustainability metrics are increasingly considered crucial in the property investment decision-making process.
Investors require information on the costs and benefits associated with developing, managing and investing in buildings with high environmental performance. Hence, to seize the green value of a building requires to link the building performance to financial return and risk.
However, consistency, comparability and reliability are key concerns in today’s building environmental assessment tools. At the same time, many real estate companies are increasing their focus and developing new strategies related to sustainability.
What's the European approach?
Representing the European Commission, Josefina Lindblom from the Directorate General Environment explained that “today different tools with different scopes (such BREEAM, LEEDS) are being used and it is rare that results can be compared. This situation hampers the transfer of good practice and making the business case. This is why the European Commission is developing a framework with core quality indicators to assess buildings and bring trust across markets and actors.”
This common European approach will not replace the current methodologies but will tackle shortcomings by building on the needs of the wider real estate community such as owners, valuers, users, investors, lenders and insurers, with simple indicators to use as a module. Importantly, it aims to link building performance, financial performance and risk management and to present the results of the assessments in such a way that it can be easily understood by its users.
The idea is to have a voluntary and fairly simple tool ready, which actors in the building sector will be able to use for reporting and communicating the environmental performance of buildings, beyond the energy efficiency which of course it is common practice already.
Our objective with this common framework is to encourage life cycle thinking at a whole building level. To help those who wish to optimise building design and operation and to support meaningful comparisons of building performance, both at a portfolio and at a defined geographical level. The scope of the framework is office and residential buildings, new build and at the point of renovation.
To develop this initiative the European Commission has set up several stakeholder groups to guide it on this work, including RICS, who has been playing a major role in advising on the importance of consistent, reliable and comparable data for risk assessment in the last three years to be used by different actors on different levels when taking decisions, both on the demand and supply side.
Enhancing the asset value
Maarten Vermeulen FRICS, RICS Regional Managing Director in Europe, explained the importance of an integrated and common metrics that collect and share consistent and comparable metrics.
As part of our mission to develop and implement global standards across markets, RICS is clearly supporting this EU framework. We are convinced that a common and holistic approach to collect, assess and share the environmental performance of buildings will be a win-win solution and will bring confidence and transparency to the market.
Maarten also pointed out that environmental assessment is clearly linked to valuation and risk appraisals. The main reasons for going green include reducing cost, enhancing asset value and mitigating risks. A major challenge is of course to deliver something which is easy enough to use so that it becomes attractive to the sector, and at the same time be sure to cover the most important environmental aspects during a building’s life cycle.
One of this important aspects is related to quality and “value” of buildings advocated by RICS as part of its mission to bring transparency to the market in line with its Red Book (RICS Valuation - Professional Standards), which required RICS valuers to collect and display sustainability data. The absence of data/reporting means potential risk for investors. This is because it would reflect an absence of information about a potential risk that could have an adverse effect on valuation.
If this framework with quality indicators works efficiently, it will certainly help to get an accurate valuation and therefore reduce risk. Therefore we certainly welcome the initiative and it would be great if the information can be shared at an early stage of the project, in order to save money.
Log4Real even recommended to take the regulatory framework that the European Commission is working on to the next level, making it compulsory rather than a voluntary initiative.
From the point of view of a valuer, Rüdiger Hornung FRICS, Managing Director of TÜV SÜD ImmoWert GmbH and active member of the RICS Board in Germany, added:
To reward investors who decide to invest in sustainability features is fundamental to provide accurate information about the environmental performance of buildings on our valuation reports. This is normal practice for an RICS valuer and for TÜV, but not everywhere. If the EU framework becomes normal practice it will definitely create a virtuous circle in real estate markets to reward those who decide to invest in sustainability features and safe tenants’ costs.
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