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March 30, 2009

Real Estate Investors Are Encouraged to Apply Responsible Investment Principles to Property Investments
    by Robert Kropp

The UNEP FI Property Working Group finds that equity approaches to responsible investment can be applied to commercial property investment as well. -- A recent report by the Property Working Group (PWG), an initiative of the United Nations Environment Program Finance Initiative (UNEP FI) that aims to encourage Responsible Property Investment (RPI) among the fund and investment management community, argues that approaches adopted by Responsible Investment (RI) investors in the equity market can be transferred to the commercial property market.

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our sponsorsThe UNEP FI is a global partnership that works with over 170 financial institutions to understand the impacts of environmental and social considerations on financial performance.

In the report, entitled Responsible Property Investment: Similar Aims, Different Manifestations, the authors argue that such RI equity approaches as engagement, screening, best in class, and enhanced analysis can be applied to property investment as well. However, because property is a very different asset class from equities, the forms these approaches take need to be amended to be effective with property investments.

For instance, because property investment often involved property management activities as well, investors in property can engage with their ownership holdings in the engagement approach by employing sustainable practices in construction and redevelopment, and by creating green leases that require both parties to behave in environmentally responsible ways.

A best in class approach to investment in direct property can be applied by referring to industry-wide asset rating systems and building standards guidelines.

At present, according to the report, "problems with data availability and the ability to parameterise the effects of emerging sustainability issues, policy responses, and related social and market attitudes on asset valuation and performance, make enhanced analysis very difficult to operationalise in the direct property investment market."

Launched in 2006, the PWG is committed to encouraging property investment and management practices that can improve the sustainability of new and existing buildings by reducing carbon emissions and increasing energy and water efficiency. According to the US Green Building Council, buildings account for 38% of CO2 emissions in the US, and CO2 emissions from buildings are projected to grow faster than any other sector over the next 25 years.

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