MAY 2019 European Monthly Research Report: Improved Climate for Impact Investing

We are pleased to present our latest monthly research report taking an initial look at investors’ increasing awareness of Environmental, Social and Governance (ESG) issues across all asset classes, including real estate. Despite a lack of clarity on ESG metrics such as building-level certification, recent initiatives - from labels for green financial products to specific real estate fund-benchmarks - will allow sustainable investing to scale up as investors shift from awareness to proactive impact investing.

  • Investors’ increasing awareness of Environmental, Social and Governance (ESG) issues is shifting to climate change risks, as evidenced by over USD $33 trillion in AUM managed by Climate Action 100+ signatories.
  • In addition, investors shift from awareness to pro-active impact investing. This has already fueled strong growth in sustainable investment products – such as green bonds and unlisted green funds.
  • However, so far real estate constitutes a relatively small fraction of ESG investment products, which are so far dominated by bonds, equities and infrastructure.
  • Investors lack clarity on definitions and metrics regarding sustainable investing across all asset types, despite initiatives such as the Impact Management Project. Developing a classification system (“sustainable finance taxonomy”) and an EU label for green financial products are among the objectives of the recently created EU’s Technical Expert Group on Sustainable Finance. This will reduce concerns about greenwashing and therefore allow sustainable finance to scale up and not remain a niche product.
  • In real estate, we have seen the global GRESB fund-benchmarking reach over €1 trillion in European AUM. But, at the same time a large number of building-specific certifications globally has also created confusion among both investors and occupiers as certifications are not based on consistent methodologies. The real estate investment management industry will therefore have to embrace more detailed and consistent reporting and further innovations to meet investors' increasingly pro-active ESG requirements. 

SUSTAINABLE AND RESPONSIBLE INVESTMENTS (SRI) ENCOMPASS DIFFERENT STRAEGIES

Sources: Eurosif SRI Study (2018), GIIN, AEW

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The information and opinions presented in this research piece have been prepared internally and/or obtained from sources which AEW believes to be reliable; however, AEW does not guarantee the accuracy, adequacy, or completeness of such information. 

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Hans Vrensen
Head of Research, Europe

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