Thursday, November 22, 2012

FTSE Group, NAREIT and US Green Building Council Develop the First Investable Green Property Indexes

FTSE Group, NAREIT and the U.S. Green Building Council (USGBC) announced today that they have jointly developed the first investable green property indexes for both institutional and retail investors.
This collaboration brings together the global market leaders in US real estate indexing, REIT market expertise and environmental building standards. The indexes, currently in the final stages of implementation prior to customer use, will give investors a structured and disciplined way to measure and model the risk and reward profile of green property, using the first codified, transparent definition of listed green property. They will also provide investors with new ways to incorporate principles of sustainability into their property selections and portfolios, and access this investment theme through index-linked financial products. 
The new family of green property indexes will be based on the market's leading benchmark for US real estate, the FTSE NAREIT Index Series, using green data (LEED & Energy Star ratings) from USGBC. The USGBC is a leading non-profit organization known for its development of LEED, a global green building certification program, and its large diverse member community. 

The FTSE global REITs universe represents $1.07 trillion today. US REITs account for 48% of this universe, valued at $512bn.The green property indexes are based on the analysis of 13,126 LEED and 18,402 Energy Star projects that have received third-party certification based on their green achievements and performance1.  These projects represent 4.7 billion square-feet (440 million square-meters) of commercial real estate.  USGBC certifies an average of 1.5 million square feet of additional property per day.  

Mitigating and adapting to climate change, resource depletion and environmental erosion are some of the biggest challenges for the 21st century and will be major structural drivers of economic change. Because of this, a growing number of investors are seeking to understand how their portfolios will be affected and how they can reduce their risk. The global building and construction sector is a good example of this change. It consumes a significant proportion of the world's key resources, making it highly exposed to the risks and rewards associated with the transition to the low carbon economy. The sector accounts for at least 30% of greenhouse gas emissions2. Buildings and construction materials use three billion tons of raw materials per annum (40% of total global use3), and account for 55% of the wood cut for uses other than fuel. Buildings are one of the heaviest consumers of natural resources and account for a significant portion of the greenhouse gas emissions that affect climate change. In the U.S., buildings account for 38% of all CO2 emissions and represent 73% of U.S electricity consumption.

Mark Makepeace, CEO, FTSE Group said, "To date, no comparable benchmark has been available. We've already received expressions of interest from many large asset owners concerned about their exposure to a rapidly changing sector directly affected by the transition to the low carbon economy."
Rick Fedrizzi, President, CEO & Founding Chair, USGBC said, "Green building is a win-win, offering both environmental and economic opportunity. Greater building efficiency can meet 85% of future demand for energy in the United States and a commitment to green building has the potential to generate 2.5 million jobs. The sector has seen incredible growth and is projected to add $554 billion to the U.S. economy each year. This partnership creates significant investment opportunities for those ready to participate in this growing market."
Separately NAREIT honored the 11 winners of its annual Leader in the Light Awards competition on November 14th The awards, done this year in conjunction with the Global Real Estate Sustainability Benchmark (GRESB) survey, honored member companies that have demonstrated superior portfolio-wide energy use practices and sustainability initiatives.
AvalonBay Communities Inc. (NYSE: AVB) took the Large Cap award and Post Properties Inc. (NYSE: PPS) took the Small Cap award for the residential sector.  Brookfield Office Properties Inc. (NYSE: BPO) was honored with the Large Cap award and Thomas Properties Group received the Small Cap award for the office sector.   In the retail category, Simon Property Group Inc. (NYSE: SPG) received the Large Cap award, while Equity One was presented with the Small Cap award.  The industrial award went to Prologis (NYSE: PLD). Hersha Hospitality Property Trust (NYSE: HT) won for the lodging/resorts sector. The health care award went to HCP Inc. (NYSE: HCP), while the mixed use/diversified award went to Vornado Realty Trust (NYSE: VNO).  Additionally, London-based British Land Company received the “Global Recognition” honor.

“There’s a positive link between energy efficiency and financial performance for those REITs that have a high fraction of efficient buildings,” said Nils Kok, co-founder of GRESB.
For more information visit search "REIT".
1 Green Building Information Gateway
2 RICS. 2005. Green Value – Green buildings, growing assets
3 Journal of International Money & Finance 2012 – Portfolio greenness & the financial performance of REITs.

NAREIT, the National Association of Real Estate Investment Trusts
Press Release dated November 14, 2012

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