The increasing importance of environmental sustainability in global real estate investment markets
| DOI | https://doi.org/10.1108/JPIF-01-2022-0005 |
| Published date | 29 March 2022 |
| Date | 29 March 2022 |
| Pages | 411-429 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Graeme Newell,Muhammad Jufri Marzuki |
The increasing importance
of environmental sustainability
in global real estate
investment markets
Graeme Newell and Muhammad Jufri Marzuki
School of Business, Western Sydney University, Sydney, Australia
Abstract
Purpose –Within the context of ESG (Environment, Social and Governance), environmental sustainability
has taken on increased global importance in recent years. Similarly, real estate investment managers in
developing their global real estate investment portfolios need a fuller understanding of the ESG and
environmental sustainability dimensions of these global real estate markets for more informed real estate
investment decisions. Using the JLL GRETI sustainability sub-index, this paper examines the environmental
sustainability transparency status of 99 global real estate markets over 2016–2020 and explores various
strategic issues regarding ESG and environmental sustainability; particularly the critical issues relating to
climate risk mitigation, climate resilience and zero-carbon. The current status of environmental sustainability
in these 99 real estate markets is assessed, with areas for “best practice”improvement identified to the benefit of
real estate investment managers; particularly the improvements needed in ESG to support real estate
investment in the emerging real estate markets.
Design/methodology/approach–The JLL GRETI sustainability sub-index is analysed to examinestrategic
issues relating to environmental sustainability transparency. 99 real estate markets are assessed globally for a
range of critical ESG issues over 2016–2020. Differences between the developed and emerging real estate
markets are highlighted.
Findings –Considerable variation was seen in the ESG and environmental sustainability practices,
procedures and frameworks across these 99 real estate markets. This was particularly evident amongst the
emerging real estate markets. Compared to the other five dimensions for real estate market transparency,
environmental sustainability was seen to be well behind these other dimensions in most markets. Progress has
been made in recent years, but it has been slow and steady rather than at a dynamic level. Clearly, more is
needed globally to enhance the stature of environmental sustainability in the context of an increasing focuson
ESG and specifically on climate risk mitigation, climate resilience and zero-carbon in real estate investment.
Practical implications –With ESG and environmental sustainability taking on increased importance across
the international real estate markets,it is important that real estate fund managers have a full understanding of
the ESG and environmental sustainability status of these real estate markets where they may be considering
real estate investment opportunities; this includes both the developed and emerging real estate markets. This is
essential to ensure future capital raising for new funds, as well as supporting the global ESG agenda by the real
estate investment community. Specific strategies are also identified for emerging real estate markets to
improve their environmental sustainability practices and ESG status.
Originality/value –This is the first paper to use the JLL GRETI sustainability sub-index to assess the
environmental sustainability status of 99 real estate markets globally; providing strategic insights for real
estate investment managers as they develop their global real estate portfolios and more fully embrace the
challenges of ESG and environmental sustainability in the real estate space going forward. Specific strategies
are clearly identified for all markets to improve their environmental sustainability ratings to the benefit of both
global real estate investment and the broader communities.
Keywords Environmental sustainability, ESG, Real estate market transparency, International real estate
investment, JLL GRETI sustainability Sub-index, Climate risk mitigation
Paper type Research paper
Environmental
sustainability
in real estate
markets
411
The authors acknowledge the generous assistance of JLL/LaSalle in providing the necessary GRETI
sustainability sub-index data.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 16 January 2022
Revised 15 March 2022
Accepted 15 March 2022
Journal of Property Investment &
Finance
Vol. 40 No. 4, 2022
pp. 411-429
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-01-2022-0005
Introduction
Recent years have seen the increased importance of global real estate investment strategies
by the major real estate investment managers, as they seek to take advantage of the role and
benefits of international real estate in their portfolios. This includes diversification benefits,
potential excess market returns and access to a wider range of both developed and emerging
real estate markets. This has been particularly evident amongst the leading real estate
investment managers such as Brookfield, Blackstone, Hines, PGIM, Nuveen, CBRE Global
Investors, LaSalle, AXA and MetLife, with the top 150 real estate investment managers
having over V4.9 trillion in real estate assets under management globally in 2021 (IPE,
2021a). Similarly, this global real estate investment agenda has also been supported by the
major institutional investors (e.g. pension funds, insurance companies, sovereign wealth
funds) using a range of real estate investment vehicles to capture this international real estate
exposure, including direct real estate, non-listed real estate funds, club deals, separate
accounts and REITs. These institutional investors include Allianz, APG, ADIA, CIC, CPPIB,
GIC, CalSTRS and CalPERS (IPE, 2021b).
For their more informed real estate investment decision-making, this international real
estate investment mandate has seen an increased importance on real estate investors’
understanding of international real estate market information, market players, capital
markets, legal systems and planning systems; capturing many aspects of real estate market
transparency. This need for an increased understanding of international real estate markets
has been facilitated by the role of the professional real estate associations (e.g. INREV,
ANREV, EPRA, APREA and IPF), as well as by the major real estate data providers and
advisory services (e.g. JLL, CBRE, Real Capital Analytics). All of these drivers have seen an
increased focus on improving the level of real estate market transparency. This broad context
of global real estate market transparency has been greatly supported by the development of
the JLL Global Real Estate Transparency Index (GRETI) (JLL, 2020a) to support global real
estate investment decision-making. This has been particularly important as many of the
world’s most dynamic cities are in the emerging real estate markets (e.g. China and India)
(JLL, 2020b). Hence, having access to this international information is a key element in more
informed real estate investment decision-making, particularly at a global level.
Another key aspect of international real estate investment decision-making that has taken
on critical importance for investors is ESG (Environment, Social, Governance), reflecting the
increased ESG and environmental sustainability agenda in the fuller investment space. This
has seen investors focused on the broader aspects of ESG and the specific strategic delivery
aspects needed in environmental sustainability within this ESG mandate. This change has
seen the language in recent years broaden from environmental sustainability to the fuller
agenda of ESG. This paper focuses on the E dimension of ESG that relates to environmental
sustainability.
Importantly, ESG is the strongly supported terminology today by major players in the real
estate industry, including professional groups (e.g. EPRA, INREV, APREA, ANREV, RICS,
IVS) and the major real estate investors (e.g. pension funds) (IPF, 2020). This has resulted
from global investor initiatives such as the UN Finance Initiative Principles for Responsible
Investment (PRI), Institutional Investors Group on Climate Change (IIGCC), Net Zero Asset
Owners Alliance (NZAOA) and the Global Sustainable Investment Alliance (GSIA),
supporting the UN’s Sustainable Development Goals and a strong global commitment to
reduce global warming and climate change.
This has seen a better alignment for investors and the broader objectives of society, acting
in the long-term interests of all stakeholders; consumers, community, industry, investors and
governments. A key driver is the high level of risk attached to environmental issues in the
fuller global risk perspective (WEF, 2021). Guidelines and procedures such as the Global
Reporting Initiative, Carbon Disclosure Project and the introduction of the Task Force for
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