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towards-sustainableNever has an EU policy been so often quoted than the so-called “20/20/20” targets.[i] The policies and directives underpinning these targets and those of the broader Energy Roadmap[ii] all share one aim: for the EU to become more energy-efficient.  For that, the commission is betting on the building sector. Why?  Because when we consider the full lifecycle[iii] of buildings, the building sector is the largest energy consumer, accounting for some 40% of all energy used– and some 35% of all EU CO2 emissions. [iv] Reducing both emissions and consumption is most cost-effective in the building sector. First, there are numerous technologies on the market that can reduce a building’s energy footprint by at least 30%, and by up to 80% if a full refurbishment is undertaken[v] (see graph 1). Secondly, if we ignore the principal-agent dilemma (that is, who pays for what) the net outcome for society, in this case the EU as a whole, quickly becomes positive (see graph 2). Graph 1
Real estate
Graph 2 gloval_cost_curve
The graph shows that it is in insulation improvements, fuel-efficient commercial vehicles, lighting systems, air conditioning and water heating where GHG reduction is economically most beneficial. All except commercial vehicles are directly linked to the building sector. Source: Hal Harvey, (August 2008), American Council for an Energy-Efficient Economy. Conscious of this, the EU has come to grips with the issue: the Energy Performance of Buildings Directive (EPBD), followed by its updated version of the Energy Efficiency Directive (EED) has set the pace. Yet, despite the EU’s threat of introducing mandatory energy efficiency targets by 2014, questions have been raised when these directives have been applied at a national level in the absence of sound energy efficiency strategies within member states.  For instance, France’s Grenelle law sets an ambitious 38% reduction target on energy consumption for all existing stocks by 2020.[vi] Yet there is no base year to set this target against and, most importantly, there are no sanctions for not meeting the target. Regulatory loopholes and faults aside, no-one can deny the growing regulatory pressure on the real estate sector to substantially reduce its energy and CO2 footprints. And being at the centre of the regulatory spotlight is producing some real gains. Green certification for new buildings in Europe is fast becoming the norm. When asked, 46% of all European real estate companies said they targeted high green certification standards for all new assets, and 18% do it already[vii]. The real battlefield lies elsewhere: what to do with existing building stock given that 50% of all European buildings are over 30 years old.[viii] To refurbish an existing building costs far more and the resulting energy savings do not repay the investment within viable timeframes. This, then, is where the core question lies. Some advocate co-responsibility, i.e. expanding regulation to include tenants. This could foster demand for green building characteristics, but would also incentivize tenants to be vigilant with their energy consumption. After all, most green labels certify a building’s intrinsic characteristics, not the use made of them. If your tenant happens to want to keep his home at 27°C all year long, you are bound to underperform on energy consumption. No surprise, then, to see the emergence of ‘in use’ certifications. Leading companies have started ‘green’ retrofitting and important gains have been achieved. For example, Gecina has reduced its offices portfolio’s energy consumption by 18% respect to 2008 levels 20%[ix]. As commendable as this is, a closer look reveals that most achievements are the result of benefiting from ‘low-hanging fruit’ – the almost immediate energy reductions from simply installing smart meters or shifting to LED lighting. The question remains as to how they will achieve the additional expected 20% in energy savings once all the low hanging-fruit has been picked? We, at BNPP AM SRI Research, have analyzed all 85 European listed real estate companies in the Europe EPRA Index[x] as an integral part of our Sustainable Real Estate Fund selection process.  We benchmarked all companies against four environmental indicators: energy consumption and efficiency, CO2 emissions, water and waste management and green certifications. The findings were unsurprising: while 74% of companies have developed elements of energy efficiency management, only 31% measure their energy performance against targets. Nevertheless, the pressure is on and will remain. Demand is starting to increase rapidly, led by major firms concerned over their environmental footprint. Investors increasingly see green building characteristics – particularly when certified – as a guarantee against obsolescence and a way of managing risk and future competitive advantage. Above all, they regard regulatory risk as the most important. Integrating green building characteristics into the investment decision-making process, from research to stock-picking, makes common sense for any long-term investor. Moreover, by investing in more sustainable real estate companies and in those companies that develop green building technologies,  investors are playing a role in reducing emissions, lowering energy dependency and, ultimately, shifting towards a lower-carbon economy.
[i] Le Grenelle Environnement, Grenelle 2 Loi at
[ii] As mentioned later in the article, in 2012, BNPP AM SRI Research analysed the Europe EPRA Index of 85 companies on their energy consumption and efficiency; greenhouse gases emissions; water and waste management and green certifications. These figures are the direct result of that study.
[iii] Source: Bouygues Immobilier and RehaGreen,
[iv] Gecina Sustainable Reporting 2011-2012,
[v] European Public Real Estate Association (EPRA), [vi] These state that the EU wants to achieve by 2020, a 20% reduction in greenhouse gas (GHG) emissions, a 20% improvement in energy efficiency and a 20% increase in renewable energy.
 [vii] An 80% to 95% reduction of GHG emissions to below 1990 levels by 2050. European commission (Brussels 2011), A Roadmap for moving to a competitive low carbon economy in 2050, at
[viii]  A building's life-cycle goes from choosing the site to design, construction, operation, maintenance, renovation and deconstruction.
[x] Ecofys by order of Eurima, 2012: “Renovation tracks for Europe up to 2050: building renovation in Europe - what are the options?”

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