Measurabl-FTSE Partnership: A new way forward for sustainability in real estate

Today FTSE Russell, An LSEG Business rebalanced its Green REIT index based on Measurabl data. Already over $9B of investor capital tracks the index and it's poised for significant growth, with a total of $404 billion tracked across the FTSE Russell Real Assets Index. Here's what the move to actual, timely, asset-level ESG performance data means for real estate markets broadly, and how to use sustainability to position your REIT for success in attracting capital.

The first major takeaway from the Measurabl-FTSE partnership is that sustainability pays through superior access to capital.

The first major takeaway from the Measurabl-FTSE partnership is that sustainability pays through superior access to capital. Historically, a direct relationship like this was difficult to establish. Although a number of pioneering studies (see Nils Kok, Piet Eichholtz, Norm Miller, among others) were successful in documenting a "green premium" / "brown discount" at the asset level based on things like certification status (e.g. ENERGY STAR, LEED, BREEAM etc), and investigated the linkage between asset value and actual performance i.e. energy and carbon intensity, extrapolating asset level performance to the fund or REIT-level was difficult. Meanwhile, scored systems like GRESB were constantly changing, static or backwards looking, and included a number of qualitative ingredients that were difficult to compare and not clearly material to investors.

By comparison, FTSE uses three objective metrics: energy, carbon, and green property certification. Simple, objective and transparent. This approach is also measurable across any asset, anywhere, in near real time, and scales to the level capital markets demand, affording real estate investors a new and visceral way to allocate billions to sustainable assets and funds as they seek better risk-adjusted returns. The model and its ingredients can evolve over time to include other objective and ubiquitous measures as markets validate them. The result is a clear price signal that allows real estate owners and managers to tie sustainability investments to returns.

The second major takeaway is alignment... Alignment on what matters in terms of sustainability at the point of real estate transactions, where money is made (and lost), and how to measure it, has been a limiter on our industry's progress towards sustainable real estate. Not any more.

The second major takeaway is alignment. The ability to for all parties in a real estate transaction to make decisions that drive financial value, not merely scores, plaques, or accolades, has been a limiter on our industry's progress towards sustainable real estate. Now lenders, investors, appraisers, occupiers etc can rally around a shared set of material sustainability indicators that drive obvious financial value. Alignment on what matters in terms of sustainability at the point of real estate transactions, and how to measure it, has been a limiter on our industry's progress towards sustainable real estate. Billions of investor dollars have already expressed preference for three sustainability indicators so the real estate industry now has the clarity, confidence, and consensus needed to invest sustainably. That is a virtuous cycle.