The FINANCIAL — The majority (79%) of European pension funds expect commercial real estate with good environmental, social and governance (ESG) credentials to provide better returns or ‘green value’ over the next five years. However, real estate which falls short will suffer significant value depreciation due to brown discounting, according to Deepki, the global ESG data intelligence firm, which surveyed 250 European pension fund managers* in the UK, Germany, France, Spain and Italy, with a combined AUM of €402 billion (please see the attached press release).
“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 which 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.
The impact of brown discounting is set to increase significantly over the next three years, according to almost two thirds (62%) of European pension funds. Some 37% expect it to negatively impact assets by a further 31%-40% and 24% by 21%-30%, severely devaluing poor-performing real estate.
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