Energy efficiency and sustainable buildings as investment opportunities
Increasingly more investors realize that social and environmental factors have an impact on the value of a real estate property, and there is growing interest in sustainable buildings. For us, therefore, Real Estate Investment Management means investing in “green” buildings, energy efficiency and ESG process integration to preserve and enhance risk-adjusted returns.
Real estate assets around the globe are increasingly exposed to the impacts and risks of climate change, regulatory policy and the onset of modern high-performance technologies and features in the commercial building stock. Return-driven real estate investors now expect high-quality real estate investment managers to lay out ESG (Environmental, Social and Governance) objectives that can be measured, and overall strategies that preserve and enhance risk-adjusted returns. It is therefore our responsibility to provide investors in the Deutsche Asset & Wealth Management Real Estate Investment Management business with a pragmatic and objective approach to guide how we implement ESG within our business in a manner that addresses the issues that are material to financial performance.
The Deutsche Asset & Wealth Management Real Estate ESG team collaborates with the ESG Head Office at Deutsche Asset & Wealth Management. The ESG Head office has the following objectives:
- Set the Deutsche Asset & Wealth Management ESG strategy and implement this strategy across the platform
- Identify and manage ESG risks across all Deutsche Asset & Wealth Management portfolios
- Roll out consistent policies and procedures relating to ESG
- Improve the quality of ESG data and analysis, and assist portfolio managers to use it to manage risk and enhance performance
- Work with all business areas to develop innovative and scalable ESG-related products
Green Building Labels
“Green” building standards across the globe include LEED, BREEAM, DGNB, HQE, and ISO 14001. These systems cover environmental and social topics such as energy, water, waste, sourcing of construction materials and ongoing procurement, indoor air quality, occupant comfort, and access to public or alternative means of transportation.
In 2014, we grew our total Assets Under Management (AUM) with a third-party “Green” label by USD 1.5 billion, doubling our total certified AUM from USD 2.5 billion to USD 5.1 billion from 2012-2014. This growth continues to be achieved both through acquiring buildings with green labels, and earning labels in already held assets through the value-add approach mapped out in the Standards of Sustainability that govern how our assets are managed.
Standards of Sustainability
Engaging with our external supply chain and with our tenants is an important component to our ESG Strategy. The Standards of Sustainability which we have adopted in partnership with external property managers and managing agents provide the overarching framework for the sustainability activities which take place our buildings under management. The standards include guidelines for energy benchmarking, lighting upgrades, recycling, water conservation, training, tenant communication, and quarterly reporting of all such actions taken to asset management.
Adopting and implementing operational standards at our properties regionally ensures that the appropriate best practices and knowledge on building management are consistently deployed at the local level. We currently have for the United States and United Kingdom. Because many of our European funds own properties across different countries, we are in the process of applying these standards within the balance of Europe to the degree they are relevant and feasible in other local markets.
“We seek to provide investors with a pragmatic and objective approach to guide how we implement ESG within our business in a manner that addresses the issues that are material to financial performance.”
of third party certified buildings, which is equivalent to € 4.6 bn of managed assets.
Recognized by the US Department of Energy as a “Green Lease Leader” in 2015
10.2 million SqFt
Building floor space in the USA issued the ENERGY STAR ® certificate.
Greenprint & Carbon Pollution
Both Deutsche Bank’s Corporate Real Estate group and Deutsche Asset & Wealth Management were founding members of the Greenprint Foundation, a non-profit organization whose mission is to lead the global real estate community toward value-enhancing carbon-reduction strategies that support the Intergovernmental Panel on Climate Change goals for global greenhouse gas stabilization by 2030.
For the 191 buildings Deutsche Asset & Wealth Management benchmarked in Volume 4 of Greenprint which had like-for-like data, energy consumption dropped by 2.7%, reducing carbon pollution by 2.5%. This equates to planting nearly 95,000 trees.
Global Real Estate Sustainability Benchmark (GRESB)
Deutsche Asset & Wealth Management Real Estate became a member of GRESB and began benchmarking its largest funds in 2012. Since joining, Deutsche Asset & Wealth Management has actively participated on the GRESB Benchmark Committee to provide guidance on the evolution of this important measurement and comparison of portfolio-level ESG policies, practices and disclosures. For the funds benchmarked in 2013, all Management & Policy scores were again above the 70th percentile for their peer groups.
United States: Energy Star Benchmarking & Recognition
In the United States, our 16.3 million square foot (1.5 million square meters) office portfolio uses the ENERGY STAR benchmarking system, which was developed by the U.S. Environmental Protection Agency (EPA). The average score across this portfolio has risen from 64 to 76, on a 1-100 basis, over the past two years, and nearly half of the buildings are in the top quartile for energy efficiency.
Based on this progress, the EPA recognized our business as an “ENERGY STAR” Leader Top Performer. This significant achievement reflects the success which our Standards of Sustainability have had in the United States since being adopted in 2010.
UK Better Buildings Partnership
In 2013, Deutsche Asset & Wealth Management joined the United Kingdom Better Buildings Partnership, a collaboration of leasing commercial property owners who are working to develop solutions to improve the sustainability of existing commercial stock. The practical expertise of fellow companies which can be gained through member conversation and guidance is proving valuable as we implement our Standards of Sustainability for the United Kingdom.
Germany – Compliance Management & Transparency
In Germany, Deutsche Asset & Wealth Management was certified by the Initiative Corporate Governance (ICG) of the German real estate industry association ZIA in 2010, and re-certified in 2012, for implementing a value management system based on the ICG guidelines for compliance management in the real estate industry. Deutsche Asset & Wealth Management Germany is also endorsing the RICS code for broker and consultants, and actively asking them to comply with the code. Lastly, Deutsche Asset & Wealth Management Germany is a strong supporter of transparency by being the first to publish valuations for its German open end funds.
All transaction partners are screened according to “know your client” rules, and on several documented occasions opportunities were not pursued due to suspicions about the seller of a building.
Engaging tenants to share utility data and align incentives through leasing clauses address the “split incentive” will strengthen the business case for investing in building upgrades, and provide a financial win-win for both landlord and tenant alike.
Our US real estate investment business was recognized as a 2015 Green Lease Leader. The award was presented by Dr. Kathleen Hogan, Deputy Assistant Secretary for Energy Efficiency at the Department of Energy (DOE) during a presentation at the Better Buildings Summit in Washington, DC on May 27, 2015.
We were recognized for executing leases with green clauses since 2011 and for our overall focus on sustainability inside Asset Management. This award builds upon our recognition from the US Environmental Protection Agency (EPA) in 2013 as an Energy Star Leader Top Performer, and reenforces the partnership we have had with the DOE since 2011 as a participant in its Better Buildings Challenge.
In addition to using Greenprint and GRESB for benchmarking, the evolution of these initiatives and the metrics they collect continues to be refined. Deutsche Asset & Wealth Management is playing an active role in providing consultation and feedback to these groups so that their inputs and outputs most accurately and consistently measure building performance, ESG policies and the implementation of best practices.
Deutsche Asset & Wealth Management also sits on a number of additional ESG-oriented committees and working groups, including the Property Working Group (PWG) of the United National Environment Programme-Finance Initiative (UNEP-FI), and the Urban Land Institute (ULI) Sustainable Development Product Council.
Deutsche Asset & Wealth Management has a history of publishing Research and White Papers on the topic of “Green” buildings and Sustainability Metrics dating back to 2007. These papers articulate how to unlock the energy efficiency retrofit opportunity and how to translate sustainability metrics so that they impact property investment and management.
- The Bank has made significant efforts to reduce our own energy use, such as the green refurbishment of the Frankfurt Towers and installing energy efficient services, lighting and heating systems in many of our buildings and using green leases in more of the buildings we occupy. These efforts contribute to the Bank’s carbon neutrality and cost reduction goals.
- This expertise was used to help win the fund mandate for the European Energy Efficiency Fund, which invests in projects to improve the energy efficiency of public sector buildings.
- Deutsche AWM real estate has an increasing focus on energy efficiency and will publish an annual report on progress in March, alongside Deutsche Bank’s Annual Report and Corporate Responsibility report.
- Deutsche AWM real estate has an energy efficient property investment team focused on retrofits of physical buildings.
- The Sal Oppenheim managed Green For Growth Fund focuses on investments in Southeast Europe and other neighboring countries such as Turkey and Ukraine.
- The Corporate Banking & Securities division has structured an energy efficiency bond in California and is a leading player in the growing green bond market.
- The Private and Business Clients division provides loans to businesses and individuals to support energy efficiency and renewable energy investment.