Universal Investment Survey: A Third of German Asset Owners Yet to Determine ESG Performance of Their Own Real Estate Portfolio

German asset owners continue to face significant challenges in the ESG transformation of their own real estate portfolios. According to the "UI Real Estate Investment Insights" survey undertaken by Universal Investment , about a third of respondents have not yet determined the ESG performance of their portfolios. For around 50 percent, Article 8 funds, as classified under SFDR, represent the preferred ESG standard for companies, deemed much more important than Article 9 funds. The survey included banks, pension funds, public-law institutions, and other companies in Germany, managing a total of 13.5 billion euros in real estate assets.

"The starting point for a successful transformation of existing property holdings is a comprehensive assessment of ESG performance. Despite years of public debate around analysis, data collecting and the addition of smart meters, ’a significant need for action remains," says Axel Vespermann, Head of Real Estate at Universal Investment. "Transparency is essential to identify and manage existing and potential portfolio risks. A standardised methodology would allow for clearer evaluation and must be a long-term objective of both policy and business."

Investors trust traditional energy certificates and GRESB amidst label confusion

German asset owners continue to face significant challenges in the ESG transformation of their own real estate portfolios. According to the "UI Real Estate Investment Insights" survey  undertaken by Universal Investment , about a third of respondents have not yet determined the ESG performance of their portfolios. For around 50 percent, Article 8 funds, as classified under SFDR, represent the preferred ESG standard for companies, deemed much more important than Article 9 funds. The survey included banks, pension funds, public-law institutions, and other companies in Germany, managing a total of 13.5 billion euros in real estate assets.
"The starting point for a successful transformation of existing property holdings is a comprehensive assessment of ESG performance. Despite years of public debate around analysis, data collecting and the addition of smart meters, ’a significant need for action remains," says Axel Vespermann, Head of Real Estate at Universal Investment. "Transparency is essential to identify and manage existing and potential portfolio risks. A standardised methodology would allow for clearer evaluation and must be a long-term objective of both policy and business."

Photovoltaic systems primarily aim to enhance property value

For 95 percent of respondents, reducing energy and electricity consumption is a priority, followed by the installation of photovoltaic systems (68%) and heating system optimisation (68%). Nearly 45 percent reported installing photovoltaic systems on their properties for self-use, while 35 percent plan to lease installed systems to third parties. Over 59 percent install these systems to enhance property value, with about 14 percent aiming for cash flow return optimisation.

“The amendment of the Renewable Energy Act in 2023 eliminated the technical requirement that new systems operational after January 1, 2023, can only feed a maximum of 70 percent of the photovoltaic nominal output into the public grid. The political commitment to expanding a decentralised, emission-free energy supply thus matches the willingness of asset owners to enhance their photovoltaic infrastructure," Vespermann notes.

Co-ownership funds make a promising entrance

The rapid change in interest rates has led to a decline in new property, prompting asset owners in Germany to shift their focus toward optimising existing portfolios, with an added emphasis on Environmental, Social, and Governance (ESG) aspects. This shift has brought attention to an alternative investment option: the co-ownership fund. This type of fund enables investors to retain ownership rights while incorporating their direct real estate holdings into an open fund structure. Currently, nearly one in five respondents is fundamentally willing to include a property from their portfolio in such a fund structure. The primary objectives include balance sheet optimisation (33%) and enhancing property performance through reduced internal costs and access to specialised asset managers (24%). Approximately 19% of respondents anticipate that a co-ownership fund will lead to more efficient portfolio management.

_{The research was conducted during March 2024 with 31 asset owners.}