Real estate with good environmental, social and governance (ESG) credentials can provide better returns or ‘green value’ over the next five years. However, real estate that falls short will suffer significant value depreciation due to brown discounting, according to Deepki, an ESG data intelligence firm, which surveyed 250 European pension fund managers in the UK, Germany, France, Spain and Italy, with a combined AUM of €40bn.
The Deepki European Pension Fund Report: Integrating ESG into commercial real estate investment, takes an in-depth look at trends in commercial real estate asset allocation, the value of ESG, and the measures being taken to improve ESG performance.
It highlights the significant impact of ‘brown discounting’ for commercial property assets that demonstrate poor ESG compliance and deferred maintenance risk that may require additional capital outlay for improvements. The study showed that over the past 12 months, 40% of pension funds said they had seen depreciation of 21-30% due to brown discounting, and a further 21% have seen assets devalue by 11-20%. Some 18% had seen dramatic depreciation of 31-40% highlighting the growing focus on climate risk and resilience, carbon emissions and occupant health.