Sustainability – lip service, or genuine commitment?

It will surely come as no surprise that sustainability is a big issue for German asset managers – it has been the word on everybody’s lips for several years now. A recent survey by consultants EY attempts to quantify just HOW important it really is, and how it is likely to affect buying behavior.

In its study carried out in Q1 of this year among 40 active asset managers, 85% of respondents said they want to increase their commitment to appropriately sustainable real estate. However, about 50% concede that investors are not purely motivated by their higher commitment to nature, but rather are aiming to bring in a wider circle of investors by their broader green product offering. 26% said they are left cold by the whole sustainability hype, or at least the perceived growing importance of the stance has no major effect on their business processes, they say.

When it becomes concrete, the commitment is in any case modest, with only a quarter of the responding asset managers having a formal sustainability strategy; 15% say they have already built this strategy into their daily work. At the property level, only around a third have ESG (environment, social and governance) databases, for example on carbon dioxide emissions, another third collect data and even fewer asset managers (30%) specifically monitor CO2 specifically – NOT due to a lack of will, they stress, but rather to a change in control mechanisms.

For 90%, at any rate, "consistent and comprehensive data collection" is currently the biggest challenge. The lack of concrete sustainability requirements and market standards with regard to ESG indicators is a problem for 84% of those surveyed, and for 76% the lack of benchmarks at property level.

What is new may also be risky, some managers seem to think. 78% fear reputational risks, almost 70% strategic risks and 65% market price risks. Only a third of investors have already integrated these factors into their own risk management. "There is an urgent need to catch up," says the author of the study, Natalie Wehrmann, Associate Partner at EY Real Estate, of the results. Many companies are not yet sufficiently identifying and assessing significant ESG risks.

Another focus of the study is digitisation. Here, too, progress at many companies is leaves much to be desired. Half of them stated that they were only in a digital development phase, while a third said that they were already in the establishment phase and already had sufficient data. For 64% of the survey participants, finding new customer bases is important, for 53% the development of new asset classes through digitisation measures.