Disclosure of sustainable real estate

The ISR label has existed since 2016 for investment funds that invest in equities or exclude the worst. For real estate, the approach is completely different: we seek to improve existing properties," explains Véronique Donnadieu, General Delegate of the French Association of Real Estate Investment Companies (Aspim).

In other words, we are moving from a "best-in-class" approach (ESG scores - environmental, social and governance - equal to or above a threshold score) to a "best-in-development" approach (scores below a threshold score but above a minimum score) for specialized real estate funds.

In fact, new construction is usually up to standard. "Real estate renewal is only around 2%, with few new assets," emphasizes Véronique Donnadieu.

Therefore, attention must be paid to the renovation of old buildings, as the construction industry in France produces 23% of greenhouse gas emissions and accounts for 43% of the country's annual energy consumption.

Eight indicators are taken into account The ISR label applied to real estate funds requires the consideration of eight indicators linked to additional ESG financial criteria. Four of them are mandatory: return on securities (shares, bonds...) - but it only appeared in July 2020 for those that specialize in real estate, such as real estate investment companies (SCPIs) and collective real estate investment companies (OPCIs).

This ramification of the tag for socially responsible investments (ISR) differs from the original one in its approach and the criteria that must be met to qualify for it. "The securities reference framework rather emphasizes energy efficiency, greenhouse gas emissions, supply chain management, and mobility or occupant health and comfort. The other four are chosen at discretion, but should include at least one indicator related to the environment (water or waste management, biodiversity...), one indicator related to social issues (contribution to local development, services for tenants...) and the last one related to governance (sustainability, relations with tenants, neighbors...).

For example, biodiversity mainstreaming can manifest itself in the greening of buildings or an indicator of development and artificial soil contamination.

The ISR label is awarded for a period of three years, renewable after an audit by one of the three authorized fund certification organizations: the French Association for Standardization (Afnor) and Deloitte and EY. "This three-year cycle, taken from securities funds, is short in real estate so that fully effective renovation strategies can be developed," regrets Véronique Donnadieu.

The tagged funds are also subject to annual monitoring.

Competitive returns "The ISR tag is a transparency and normalization tool. It is a system worth still improving, with more standardized indicators," adds Aspim's General Delegate.

Three years after its launch in 2020, more than one hundred and ten real estate funds - offered by more than fifty investment management companies - have already been tagged. This represents more than 75 billion euros under management and approximately 35% of the market.

While the cost of ambitious building renovation policies is not insignificant, ISR real estate funds have average returns comparable to unlabeled funds. For example, SCPIs have an average return of 4.53% in 2022. However, it's still too early to determine the impact of this guarantee on returns, whether they rise or fall.

2 ISR tags are labeled SCPI and 1 OPCI

SCPI Fair Invest

Management company: Norma Capital

Founding date: 2018

Yield in 2022: +4.72%

Entry Costs: 12%

Management and operating expenses: 12%

This variable capital SCPI, which invests in commercial real estate, favors certain sectors of activity, including health and well-being, education and childhood, as well as social solidarity and renewable energy development. Having received the ISR tag in November 2020, it follows a 'best-in-development' approach based on 25 ESG criteria including six environmental, ten social and nine governance criteria.

SCPI Néo

Management company: Novaxia Investissement

Founding date: 2019

Yield in 2022: +6.33%

Entry costs: none

Management costs: 18%

This SCPI of the management company Novaxia has an office portfolio of thirty-one real estate assets at the end of 2022, 45% of which are in France and the rest in other Western European countries, including the Netherlands. To invest your money, all you need to do is purchase a stake worth €187. Having received the ISR tag in November 2020, SCPI is working on a “best-in-class development” approach to improve the energy efficiency of its buildings by 40% by 2030, in line with the European goal of reducing the carbon footprint of real estate to curb global warming. To achieve this goal, SCPI has developed a solution to continuously and realistically monitor all the consumption of its assets. Each of them must have a multi-stage work plan for replacing heating equipment, installing LED lamps, insulating walls or roofs, and investing in renewable energy.

OPCI PREIM ISR

Management company: Primonial Reim France

Date of foundation: 2021

Yield in 2022: +4.32%

Management expenses: 2,1%

Operating expenses: 2,2%

This OPCI from Primonial REIM, available through an account-trader or insurance contract, invests more than 70% in real estate, including offices, through real estate investment societies (SCIs) and SCPIs. It has, for example, an interest in the Bloom building in Bercy, a 1980s building remodeled with a seven-story vertical agricultural greenhouse and green roof. The fund assigns its assets an additional score, which must be at least 70 out of 100, according to the ISR approach, which takes into account ninety ESG indicators grouped into seven themes, such as the building's flexibility or its accessibility by public transportation. OPCI aims to reduce the final energy consumption of its buildings by 40% by 2030 compared to 2015. It also includes financial assets derived from ISR-labeled funds managed by La Financière de l'Échiquier.