Stockholm (NordSIP) – Investors are specifying increasingly stringent sustainability requirements across all asset classes in their portfolios, as evidenced by this European Real Estate request for proposal recently published by Global Fund Search (GFS). Rewind just a few years and search criteria like these would have severely limited the field of candidates in this asset class.
In this new manager search, a Nordic investor is seeking to invest EUR 40-50 million in a European real estate strategy with a value-added or opportunistic style. They have not specified a strict minimum number of years’ track record. However, they would prefer to work with managers able to demonstrate long-term success in this precise asset class, in which they should also have a minimum of USD 1 billion under management. The investor will consider either open or closed-ended funds, which should be no smaller than EUR 400 million. Fund-of-funds offerings will be excluded.
In terms of investment style, the mandate specifies a multi-sector approach, with some flexibility regarding strategy design. Traditional four-sector coverage will be considered alongside more niche strategies, providing the focus is not too narrow. For example, a single senior housing strategy would be out of scope.
The investor has laid out several ESG-related requirements for this mandate. Potential providers must be PRI signatories and be subject to independent, external ESG appraisal at least bi-annually. The proposed funds must be SFDR Article 8 compliant. These are not part of an aspirational wish-list, but clearly expressed, up-front hard “knock-out” criteria. Fund managers should also have a stated Net Zero carbon target to be achieved by 2050 or sooner.
The United Nations Environment Programme Finance Initiative’s (UNEP FI) Responsible Property Working Group (PWG) has been helping to establish a common framework that would allow fund managers to systematically integrate climate-related risks and opportunities into their real estate strategies. Many national governments in Europe have also been implementing mandatory minimum environmental standards on new property developments, giving rise to focused investment opportunities for sustainability-driven strategies.
The PWG’s work-in-progress has been taken over by the PRI as of the beginning of this year. There are still many areas of climate risk to investigate, and a frustratingly fragmented regulatory landscape for global and regional fund managers to negotiate. Buildings account for roughly 36% of CO2 emissions and 40% of energy consumption in the EU, hence the importance of including real estate within the ongoing Sustainable Finance Disclosure Regulation (SFDR) implementation.
Candidates that might fit the bill for this mandate must submit their proposals to GFS by February 22, 2022. More information can be obtained directly from GFS via their platform.