Integrating Real Estate into Global Investment Strategies: Navigating Climate Change and Biodiversity Challenges

This study aims to understand how real estate assets are integrated into general and global investment initiatives. Specifically, the goal is to better understand in which extent the general and global investment initiatives, excluding those dealing exclusively with real estate assets (CRREM, GRESB, etc.), adopted by large institutional investors address the theme of real estate investment with respect to the fight against climate change and the biodiversity protection. In the past years there has been a wave of reintegration of real estate investment subsidiaries into the core management of institutional investors (ex: Norge Bank Investment Management, Cadillac Fairview and Teacher’s, Ivanhoé Cambridge and the CDPQ, etc.). This trend has accelerated since the end of the COVID-19 pandemic and the underperformance of the real estate assets in the years following this worldwide event compared to other asset classes. In response to those difficult times, the strategy has been to have an in-house real estate platform within multi-asset-class investors in order to better control and manage the real estate assets with an integrated view. As multi-asset-class investors, institutional investors typically adopt or join initiatives that are designed to accommodate this broader investment approach. These initiatives are important because they help institutional investors navigate the poorly institutionalized and changing topics such as climate change and biodiversity protection. Moreover, those initiatives help define good or best practices that are commonly accepted by the investment industry as legitimate. They can affect a diversity of dimensions of their activity such as investment practices, disclosure practices, governance practices, risk management, etc. However, despite being multi-asset-class investors, real estate assets still represent a significant portion of institutional portfolios. According to the data of the PERE GLOBAL INVESTOR 100 ranking 2023, this percentage represents an average of 11.67 %. Due to the unique characteristics of real estate assets regarding their physical dimension, their heterogeneity, their illiquidity, their transaction costs and times as well as their maintenance costs, they cannot be treated like any other asset class. Given that institutional investors are increasingly bringing real estate activities in-house and holding a significant proportion of real estate in their portfolios, while also pursuing multi-asset-class initiatives, it is important to understand how these initiatives address both climate change and biodiversity protection regarding real estate assets. To achieve this, the study examines the integration of real estate assets within five major large-scale and diversified initiatives: 1) the United Nations Environment Programme – Finance Initiative (UNEP-FI), 2) the Principles for Responsible Investment (PRI), 3) the Sustainability Accounting Standards Board (SASB), 4) the Investor Leadership Network (ILN), and 5) the Climate Bonds Initiative (CBI). This analysis provides insight into how knowledge and actions related to climate change and biodiversity protection at the real estate investment level are applied within mainstream investment frameworks. It also helps to identify which aspects of climate change and biodiversity protection are prioritized in real estate asset investment from a multi-asset-class perspective on a global scale.