• Atmospheric CO2 /Parts per Million /Annual Averages /Data Source: noaa.gov

  • 1980338.91ppm

  • 1981340.11ppm

  • 1982340.86ppm

  • 1983342.53ppm

  • 1984344.07ppm

  • 1985345.54ppm

  • 1986346.97ppm

  • 1987348.68ppm

  • 1988351.16ppm

  • 1989352.78ppm

  • 1990354.05ppm

  • 1991355.39ppm

  • 1992356.1ppm

  • 1993356.83ppm

  • 1994358.33ppm

  • 1995360.18ppm

  • 1996361.93ppm

  • 1997363.04ppm

  • 1998365.7ppm

  • 1999367.8ppm

  • 2000368.97ppm

  • 2001370.57ppm

  • 2002372.59ppm

  • 2003375.14ppm

  • 2004376.96ppm

  • 2005378.97ppm

  • 2006381.13ppm

  • 2007382.9ppm

  • 2008385.01ppm

  • 2009386.5ppm

  • 2010388.76ppm

  • 2011390.63ppm

  • 2012392.65ppm

  • 2013395.39ppm

  • 2014397.34ppm

  • 2015399.65ppm

  • 2016403.09ppm

  • 2017405.22ppm

  • 2018407.62ppm

  • 2019410.07ppm

  • 2020412.44ppm

  • 2021414.72ppm

  • 2022418.56ppm

  • 2023421.08ppm

News & Views

PGGM’s Andrea Palmer on decarbonising real estate: ‘Most buildings we will be using in 2050 are already built’

Net Zero Investor sat down with Andrea Palmer, responsible investment lead for PGGM's Global Real Estate Portfolio to find out how the Dutch pension fund manager reduces its carbon footprint

While investors have historically focused their net zero efforts on the listed equity allocations of their portfolio, with the countdown to 2050 ticking, attention is increasingly turning towards sectors which are harder to decarbonise. 

One of these is real estate, according to the IIGCC, it accounts for nearly 40% of global carbon emissions. This significant impact arises both from the energy intensive nature of the materials such as cement and steel deployed in the construction process, but also due to the energy required to heat existing buildings. 

Decarbonising real estate is also a key challenge for PGGM, the €245bn not-for-profit cooperative pension fund manager for some 4.3 million members, among others for PFZW, a pension fund for the Dutch care sector. PGGM has built up a significant real estate portfolio across listed and unlisted markets. 

Ahead of Net Zero Investor's first Real Estate Summit in September, we caught up with Andrea Palmer, responsible investment lead for PGGM's Global Real Estate Securities portfolio and chair of the fund's climate risk working group. Andrea is also a member of the real estate standard's committee at ESG performance data provider GRESB.

You've been with PGGM for four years, focusing on ESG integration within PGGM’s listed real estate portfolio. Can you tell us more about your role?

That is correct. My team manages a listed real estate portfolio on behalf of our client PFZW. My role is to help the team integrate sustainability and governance into how we value listed real estate companies and to define our team’s engagement, ESG data, and research priorities.

How big is the real estate team at PGGM?

Across the listed and private real estate teams, we are about 30 people. Fourteen people work specifically on listed real estate, with myself as the ESG specialist. All the portfolio managers are upskilling themselves to build-in sustainability expertise as part of their traditional portfolio management roles. The idea is that in the future, all of us will be able to say we are an ESG specialist.

Besides your role at PGGM, you are also a member of GRESB’s Real Estate Standards Committee. Can you tell us more about the work you do there and how it relates to your day-to-day work with PGGM?

Sure. Each year, both private and listed real estate entities such as funds and property companies, submit an extensive ESG questionnaire and data template to GRESB. GRESB acts as a data disseminator, allowing institutional investors to access sustainability data from across all their real estate investments in one place. Our job in the GRESB Real Estate Standards Committee is to define what should be in the questionnaire and data template, and determine how the information should be scored. Ultimately, we set the criteria to define what makes a leader and what makes a laggard in the real estate sustainability space. At PGGM, our sustainability data needs are evolving, so we seek to integrate these developments into the survey. The GRESB assessment needs to evolve along with the market to remain relevant.

How has this evolved over time? Do you see any trends in real estate’s approach to sustainability?

Certainly. GRESB started as an academic project and has professionalised to become the market standard over the last 15 years. Recently, it has evolved towards more performance-based scoring, focusing on actual outcomes, and less so on policies. Additionally, the GRESB assessment is moving towards property type-specific questioning and scoring mechanisms, because not all ESG factors are relevant or material to all property sectors. For example, as investors we would not assess the same ESG factors for a healthcare REIT and an industrial REIT. There are major differences in what sustainability issues require attention for different property types, and the GRESB Real Estate Standards Committee wants to ensure these get captured appropriately in the annual assessment. The change towards property type specific ESG assessment is in the early phases, but my view is that it’s a very positive development for the industry.

Is there still a significant variation in how pension funds interpret these standards? We noticed there are sometimes huge differences in how funds report their carbon footprints for assets such as real estate.

Indeed. Each investor consumes GRESB data differently and in a way that suits their expertise and resources. For example, smaller investors might not have the capacity to breakdown GRESB scores into their individual components, so they put more emphasis on the overall GRESB rating. While other investors, including ourselves, consume the data at a more granular, indicator level using GRESB’s data download function. This allows us to get a really detailed view of how real estate investments perform on different material sustainability factors. The data processing needs for this kind of sustainability data consumption is more intensive than only using the top level score.

There are also differences in carbon accounting. Despite having rather well-developed accounting methodologies, carbon foot printing protocols leave room for interpretation and choice. For example, how organisational boundaries are set or the use of market-based or location-based emission factors. These accounting choices lead to widely varying outcomes in reported data, which makes using carbon data in investments processes still somewhat difficult.

Ultimately, is there more accountability required?

For investors and asset managers, we need to ensure we live up to everything we say we do. And, yes, we should be accountable to that. In Europe, SFDR has put a big mirror up by mandating that all sustainability integration processes are documented and available for investors to review. It has prompted more concrete discussions between LPs, GPs, and investment companies. SFDR has created a platform for honest discourse on the subject. This space is evolving, with genuine effort, resources, and thought going into it.

Is there a big difference between disclosure levels in listed and unlisted markets? We often hear that private markets are less transparent.

Generally, listed real estate companies have really good sustainability disclosures, especially the larger ones. That said, we also get good sustainability data from our private investments. As a large institutional investor with strong governance positions in our private market investments, PGGM has the ability to ask for what we need disclosed. 

In the public markets, a company cannot make specialised disclosures just for us – they would need to share it with the whole market, which they may or may not want to do. In the listed space, we get GRESB data for about 50% of our investment universe. We cannot force companies to report to GRESB. In private markets, however, PGGM makes reporting to GRESB a requirement for capital allocation, which results in nearly 100% data coverage. This works for us, but it might not be the case for smaller investors that don’t have the same level of influence that PGGM has in the market.

Interesting, that counters the commonly held view on private markets somewhat.

Yes, indeed. However, good to note that this ability is likely influenced by PGGM’s size in the market. Frankly, I’m not sure smaller LPs would be able to demand the same level of transparency for their private investments. GRESB reporting is a lot of work for managers, it’s certainly not a small ask. Real estate managers would need a critical mass of investors asking for the data to make it worth their effort.

How are you measuring Scope 3 emissions in real estate? Historically, that has been tricky, right?

For real estate, Scope 3 emissions are becoming easier to pin down. GRESB requires companies to report their Scope 3 emissions if they have them, but only those from tenant spaces. Tenant spaces are the lion’s share of floor area in a rental building, so account for the lion’s share of operational emissions. Measuring emissions from tenant spaces is becoming easier with automatic meter readings. That said, landlords are often reluctant to set reduction targets for this part of Scope 3, as the emissions are not in their control. To overcome this, landlords need to implement incentives for their tenants to reduce energy consumption, for example through green lease clauses.

We see developers and real estate owners more willing to set targets on Scope 3 from embodied carbon, as they have more control over the reduction path. For example, they can directly choose building designs and materials for their developments, so they have more control over embodied carbon. The pragmatic approach is to focus on material components of Scope 3 emissions where the landlord/developer has either high-quality information and/or where they have control.

How are you using this information at PGGM?

I prefer to look at energy rather than carbon, as energy data is more straightforward. Translating energy consumption to carbon emissions requires assumptions, such as emission factors, that create layers of imperfections in the output. Therefore, I prefer to use kilowatt-hours per square meter as the key performance metric. It’s also more relevant in many contexts. For example, most labelling schemes in Europe and the UK are based on energy performance certificates, not carbon. My view is that focusing on energy intensity gives a clearer picture of a building’s quality and sustainability. This puts our attention squarely on buildings’ main role in the energy transition, which is to reduce energy demand.

In the UK, the discussion on net zero in real estate often centres on retrofitting old housing stock versus building new, more sustainable houses. Where do you stand on this?

The vast majority of buildings we will be using in 2050 are already built. That means meeting the Paris goals will be impossible without retrofitting. One reason is embodied carbon, a major component of Scope 3 emissions. Tearing down buildings to build new ones, especially property types that are already oversupplied, such as office buildings and shopping malls, is not worth the carbon emissions. Retrofitting existing buildings to improve energy efficiency is a better approach. However, it can be challenging financially and technically, as it often involves redevelopment, which tends to be higher risk. Finding enough labour to retrofit the building stock is also challenging. It’s good to note that for socially important property types, such as affordable housing, more supply is simply needed. In those instances, new developments will need to be part of the solution. For these, we need to be sure we are building to appropriate standards.

You’ve mentioned before that the transition to a low-carbon economy is one of the most challenging questions for the real estate sector. Can you explain that a bit more?

Real estate is crucial to a low-carbon economy. Improving energy efficiency, sourcing clean power, and transitioning buildings from being purely energy consumers to energy producers are essential actions. Buildings are long lasting structures, so the choices we make today will lock us into energy consumption patterns years from now. This makes real estate one of the most important sectors to get right from a sustainability perspective, as soon as possible.

How do you put that into practice at PGGM?

PGGM has a target to have a certain amount of our assets under management in companies and private vehicles that have set science-based decarbonisation targets. When engaging companies on this, we promote an energy efficiency first principle. We aim to stimulate managers to improve their buildings, and we give them time to outline transition plans. We demand higher returns for companies that we deem as unlikely to set a science-based target. In short, we feel companies with underdeveloped transition risk management practices warrant a higher risk premium. 

Our approach to target setting was to hold ourselves accountable for stimulating transition in the real estate market through active engagement. We’ve had considerable success, growing our percentage of assets under management with science-based targets without merely swapping around the portfolio. This means more companies and fund managers have set targets and made transition roadmaps for their real estate assets, resulting in a tangible change on the ground. We believe this is the right approach.

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