Toby Mitchenall, New Private Markets; Pooja Patel, StepStone; Derk Welling, APG; Anna Shiel, Big Society Capital; Tim Barlow; CPP Investments
(From left) Toby Mitchenall, New Private Markets; Pooja Patel, StepStone; Derk Welling, APG; Anna Shiel, Big Society Capital; Tim Barlow, CPP Investments

To open the PERE ESG & Impact Forum last week, four influential investors took to the stage to give their views on how they see the world of sustainability. Three topics stood out:

Asset level data is an investor priority

“We are seeing a shift in what our clients are requiring because of their own net-zero targets,” said Pooja Patel, managing director at investment adviser StrepStone Group, who noted that the first port of call on clients’ net-zero journey is capturing asset-level emissions data. “That’s the key metric we are focused on… we are trying to dig into the asset-level to figure out where the status quo is today.”

“Asset level data will become key,” said Derk Welling, senior responsible investment and governance manager for real estate at APG Asset Management. Welling noted that the giant manager of Dutch pension assets has established a global asset-level database of more than 100,000 assets, fed by a number of different sources. The organisation has hired its own climate scientist to verify often contradictory publicly available data sets, said Welling, and is currently working with one of its managers on a way to directly tap into the BREEAM certification database to “enrich” APG’s asset level data. “We want to future-proof our data,” said Welling.

Regulation is spurring engagement, but raising complications

“Our risk and data management teams are envious of me,” said Tim Barlow, managing director at CPP Investments, “because the engagement on sustainability has gone up 10-fold in the last 12 months.” Being able to have sustainability-related conversations with managers is “that much easier,” he said, in part because “regulation is a great stick.”

Arguably the most salient regulatory evolution is in Europe, where the EU Sustainable Finance Disclosure Regime has come into force but still represents a moving target for managers and investors. As an investor in private real estate funds, Big Society Capital has not yet determined what it wants to ask of its managers in relation to EU SFDR, but “continues to monitor the situation,” said Anna Shiel, head of origination at the investor.

StepStone, similarly, has yet to make any decisions about how or whether SFDR classification will affect its manager selection process. “We are trying to form a house view on requirements; at this point we don’t have any hard lines in terms of [Articles] eight or nine,” said Patel, referring to two EU SFDR classifications that determine what disclosures a fund manager should make, and whether a fund has sustainability as a stated objective.

APG’s Welling noted an additional complication: that the regulation may steer capital away from the impactful strategy of “greening” old real estate stock. Within the most stringent classification – Article 9 – a fund would not be able to acquire an old “dirty” asset and upgrade it to improve its sustainability. “There is risk that when everyone moves towards Article 9 funds… less money will go to activity where you really have an impact.”

The ESG focus will move from planet to people

While climate continues to dominate the ESG conference agenda, “underlying that is a huge amount of social discontent that will need to be tackled in some shape or form,” said CPP Investments’ Barlow. “I truly believe that will be at the top of the agenda next year.”

Big Society Capital’s Shiel described the intersection between climate issues and social issues: “You can’t pull them apart. If you want people to change their behaviour, they have to believe that society is working for them,” she said. “If you don’t have a safe home that you can afford, then these other questions become rather secondary.”

There is a need, she noted, for “rounded conversations” about the “trade-offs and balances” between questions about climate and social justice.

StepStone’s Patel also predicted more conversations about “people and labour” as real estate becomes more operationally intensive.