Ari Frankel, head of ESG strategy, real estate, at Deutsche Asset & Wealth Management, joined REIT.com for a video interview at NAREIT’s 2014 Leader in the Light Working Forum in San Francisco.
Frankel was asked why gathering sustainability data has become a key project for the REIT industry. He responded that 100 percent of studies that have looked at the connection between sustainability performance and financial performance have demonstrated a positive correlation, which isn’t the case in other asset classes.
“Investors are onto that,” he said of the correlation between sustainability and financial performance, “and they understand also that they need actionable frameworks and metrics that enable them to assess what should be done.”
He pointed out that, particularly in the United States, “investors are really looking to their managers to deliver those frameworks and strategies to them.”
Frankel also noted that investors are particularly interested in sustainability data concerning how to both preserve and create real estate value.
“As the technology and function and design of buildings change, you want to make sure that you can keep your buildings leased,” Frankel said. Meanwhile, Frankel pointed to a study by global consulting firm McKinsey & Co. indicating about $1.2 trillion of value waiting to be unlocked by energy efficiency measures.
“The financials there are very good. Again, it’s about how to get there,” he said.
Frankel was also asked to discuss how well industry is doing in terms of providing sustainability metrics in a context that stakeholders can use.
“A lot of the metrics that are out there were not developed by the investment community,” Frankel observed.
He noted that most of the metrics have been designed by architects, engineers, the construction industry and governments. “I think if you saw metrics designed by the investment community, it would look very different,” he said.
Frankel pointed out that the Global Real Estate Sustainability Benchmark (GRESB) is a program that has been orientated toward investors.
“And I think that’s one of the reasons why the uptake has been so strong,” he said, “but we ultimately need to get to a place where we have objective performance metrics because that’s what investors expect.”
Frankel also discussed the challenges involved in taking non-financial information and making it financially material.
“The major theme that I see going forward is valuation frameworks,” Frankel said. “It’s about taking that information and working with internal stake holders and those that are responsible for valuation and promoting education and understanding about what those mean.”