INDUSTRY
THOUGHT LEADERSHIP
REAL ESTATE LUXEMBOURG FUND MANAGERS
Luxembourg is conducive for fund managers to integrate ESG into real estate practices
KAVITHA RAMACHANDRAN HEAD OF BUSINESS DEVELOPMENT & CLIENT MANAGEMENT, CONTINENTAL EUROPE
Why is ESG vital to real estate? It is no secret that fund managers are aware of the need to integrate ESG factors into their portfolios, with an up and coming generation of tech-savvy, sustainability conscious Gen Z individuals. It is in fact essential for fund managers to adapt to meet the rising demands of current and future clients to stay ahead of the industry curve.
ESG is important ESG is not just the latest buzzword on the financial services block. It is the key to unlocking liquidity in the real estate game. Certainly, the desire to invest in property aligned with ESG principles is nothing new. But with a seismic shift towards ESG investing over the last 5 years, a recent thought-provoking panel discussion at the ALFI PE/RE conference last November got me thinking: what does this mean for investors with existing property built without ESG considerations? And what role does technology have to play here? The truth is that many real estate assets are at risk of being stranded and investors developing stores of trapped cash if fund managers don’t integrate ESG factors into their real estate portfolios. To prevent an accumulation of frozen assets, fund managers need to identify ways to truly integrate ESG principles into their real estate portfolio without greenwashing and communicate this effectively to the investor.
68 | January 2021 | International Finance
Luxembourg presents a better climate for fund managers In this context, Luxembourg presents a better climate for fund managers to do so. By creating a range of labels attributed to different sustainability factors such as climate finance, microfinance, environment, green bond and ESG initiatives like the LuxFLAG clearly define ESG eligibility criteria, creating an environment in which fund managers can take considered steps towards more sustainable financing. Furthermore, a consistent approach to ESG measurement across the jurisdiction ultimately allows fund managers to compare the ESG contribution of their real estate assets against an industry recognised benchmark. In time, this process not only allows fund managers to better integrate ESG principles into their portfolio but also raise the capital of those sustainable investments and generate better returns for clients. To the latter point, what cannot be understated about the dawning risk of stranded real estate assets is the role that service providers can play in monitoring and mitigating that risk. While labels clearly define ESG factors for fund managers to adhere to, without the ability to measure the performance of those assets and relay that information back to the investor, the value of ESG considerations are lost in communication.
