APG's bespoke index to boost responsible real estate bets
The APG Real Estate Responsible Investment Index, launched earlier this year, aligns with a trend towards greater customisation for pension funds.
"This real estate index strategy is truly unique in the market. We are the first to apply [Carbon Risk Real Estate Monitor (CRREM)] pathways as a precondition for constituents to be included in the index," said Rutger van der Lubbe, head of global real estate investment strategy at APG.
APG
The $664-billion Dutch pension fund manager has been actively involved with CRREM, an initiative that aims to help real estate owners, investors, and stakeholders understand and mitigate the carbon risks within their portfolios.
APG’s product actively incorporates environmental, social, and governance (ESG) factors into index inclusion criteria, enabling clients to align their portfolios with their specific sustainability policies and preferences.
The new index was primarily intended for APG's smaller asset management clients — including SPW and the PPF employee fund — but can have applications globally, according to van der Lubbe.
"Our clients focus on costs, which makes an index product attractive to them. We saw that as a reason not to simply offer a passive index strategy but instead to leverage our leadership in responsible investing to create what we believe offers a superior investment solution: an index that incorporates ESG factors."
"The customisation features that the index provides helps clients achieve several key ESG objectives, distinguishing it from existing index products in the market," said van der Lubbe.
To ensure the effectiveness of the Real Estate Responsible Investment Index Strategy, APG engaged in collaborations with industry experts in data and index constructions, according to van der Lubbe.
Working closely with index provider STOXX and several data providers, APG combined the preferences of its pension fund clients with its own expertise and external knowledge to create the product.
“One critical partnership was with CRREM, an initiative focusing on carbon risk in real estate. By aligning with CRREM's guidelines and the targets of the Paris Climate Agreement, we ensure that the equities comprising the index meet strict sustainability criteria,” said van der Lubbe.
ASIA APPLICATIONS
“We have made a commitment to responsible investing and we also recognise the increasing importance of ESG considerations in the Asia-Pacific region,” he said.
The real estate responsible index strategy was initially designed for global developed markets. However, there is potential for its application in Asia and the strategy can be amended to include emerging markets, according to van der Lubbe.
“The strategy could be amended to align with the sustainability goals and preferences of pension funds in Asia and cater to the specific needs of this region,” he said.
“We have implemented APG inclusion filters, but we can change those filters based on clients' requirements, and actually, all those criteria could be made as client-specific as they desire."
CRREM ADOPTION
Asian investors are increasingly adopting CRREM as a toolkit to help decarbonise property assets, with Japan's Government Pension Investment Fund (GPIF) leading the charge.
CRREM
"It is a great supporter: it sits on the investors committee and has been using [CRREM] intensively for the last couple of years," CRREM's project lead Julia Wein told AsianInvestor in a recent interview.
Wein emphasises the importance of this toolkit in today's global investment landscape.
"Investors today are international, with portfolios across multiple countries: they want to get coverage up for their entire portfolio, and that means ensuring the Asia-Pacific portfolio is also on track," she said.
The adoption of CRREM by Japan’s $1.3-trillion GPIF pension fund illustrates the growing trend towards a more detailed analysis of building emissions, and the necessity of reducing these numbers.
CRREM's reach is expanding across Asia, with a specific focus on China, according to Wein.
After releasing a Chinese-language version of its decarbonisation guidelines, CRREM is now seeking more data partners in China to create city-level pathways for decarbonisation, she said.