Andrea Palmer, responsible investment lead, global real estate securities at PGGM, sat down for a video interview at Nareit’s REITworks: 2024 Sustainability & Social Responsibility Conference, held in McClean, Virginia from Sept. 10-12.
Palmer discussed the integration of ESG data in investment decisions. PGGM employs an actively managed approach to their listed real estate portfolio, where ESG considerations are embedded at various stages of the investment process. Initially, they exclude certain companies based on ESG criteria during the universe selection phase.
ESG factors also influence the valuation of both the property portfolios of REITs and the corporate frameworks surrounding them. For instance, Palmer explained how ESG data affects projected growth and required returns, with higher risk profiles leading to lower valuations.
When discussing the REIT industry's progress on decarbonization strategies, Palmer noted a wide spectrum of advancements, from impressive initiatives to companies still in the early stages of implementation. She emphasized that the transition to a low-carbon economy poses risks for commercial real estate, which PGGM incorporates into their risk premiums. This approach allows them to adjust valuations based on varying risk profiles associated with different property types and their energy characteristics.