The Green Alpha Index: Harvesting the Financial Premium of Green Factors in Real Estate Assets and Portfolios – An Empirical Methodology for Applied Decision Making

DESIGN: The aim of the Green Alpha Index is to identify and quantify the material set of green factors attributable to a financial green premium on real estate assets and portfolios. A wide scope of economic, environmental, social, and governance topics is considered for a robust determination of the relevant green impacts. The broad boundaries cover factors of asset and portfolio management as well as regional macro fundamentals. The Green Alpha is defined as the financial metric for the added value attributable to green factors; measured as the annual real rental growth differential per indicator or indicator group. / ANALYSIS: A multi-factor analysis identifies the Green Betas; assessing the measurable risks from the impacts of green factors. The Green Alpha Index gives empirical evidence of Green Alphas and Betas in commerical real estate investments across Europe. The research sample includes properties managed by CBRE Global Investors EMEA and other recognized real estate investment management firms. The portfolio data is retrieved from assured corporate reports, the asset data from self-declared surveys, and the regional data from OECD statistics and other public sources. FINDINGS: The gathered evidence of Green Alphas and Betas facilitates investors and managers in the implementation of green strategies into their business operations. The Green Alpha profile shows in a graph the performance gaps of an asset in a portfolio relative to its peer market. The index allows to drill-down the Green Alpha for any green indicator or indicator group of each asset or portfolio. So managers can see where enhancing green factors pays out best in enhanced real rental growth. Investors can use the Green Alpha Index to screen investments and managers for superior Green Alpha. Furthermore, the Green Alpha Index can help companies with the benchmarking and the integrated reporting of their financial and non-financial performance.FINDINGS: The gathered evidence of Green Alphas and Betas facilitates investors and managers in the implementation of green strategies into their business operations. The Green Alpha profile shows in a graph the performance gaps of an asset in a portfolio relative to its peer market. The index allows to drill-down the Green Alpha for any green indicator or indicator group of each asset or portfolio. So managers can see where enhancing green factors pays out best in enhanced real rental growth. Investors can use the Green Alpha Index to screen investments and managers for superior Green Alpha. Furthermore, the Green Alpha Index can help companies with the benchmarking and the integrated reporting of their financial and non-financial performance.