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ESPI IREC is a bi-annual conference run by ESPI2R. This year, the event took place on 26-28 November in the very heart of Paris. While being research-oriented, the program also included thought-provoking roundtable discussions with industry representatives, delving into the topics of sustainable real estate, ESG reporting and data, and sustainability regulations.  

My three key takeaways from the conference were:  

1. Sustainability is currently among the top two most critical topics to address from an investor’s perspective, alongside the required rate of return. 
2. While the concept of “brown discount” is a reality in real estate finance, the business case for “greenium” is rather weak. 
3. Although ESG is growing in importance in real estate valuation practices, appraisers are still cautious about integrating ESG into valuation. 

Next, I will briefly elaborate on each of the points, based on the insights from the presentations and roundtable discussions. 

1. Having sustainability high on the agenda of real estate investors is perhaps old news, yet it was still reassuring to hear that it is a key issue investors address when they make inquiries about an asset and evaluate the feasibility of the investment. However, lack of “hard” data and standardised metrics and methodologies remains a challenge, making it difficult for investors to assess the impact of their decisions accurately. This is especially true for topics like biodiversity that have only recently emerged in the field of sustainable real estate. To address this gap, organisations including the French asset management company Amundi and the French Green Building Observatory (OID) have started a project to develop biodiversity metrics for buildings. Next to ensuring data quality and robustness, more effort will be needed to make sustainability information understandable and actionable, so that investors can make fact-based decisions. As pointed out by Amundi, any amount of sustainability reporting is useless if it is too complex to understand. 
2. The second key insight was that, despite the hype around the green premium (“greenium”) of sustainable investments, the actual bps differences between “normal” and “green” investments are hard to prove except for limited cases of first-mover premium in some markets. Instead, “green is the new normal”, as expressed the Canadian asset manager CDPQ at one of the roundtable discussions. Moreover, not performing to the current market standard of “green” does indeed lead to “brown discounts” and stranded, unwanted assets. Such a decrease in value is a tangible threat, and companies need to keep themselves up to date regarding the market demand. For instance, CDPQ uses carbon prices and CRREM scenarios to estimate asset-specific brown discounts that could occur at exit after a 10-year holding period if no green investments are made. They have even coined the term "green IRR" to emphasise the financial disparity between green and brown assets. 
3. Finally, some interesting points were made by researchers who had studied real estate valuation practices from the ESG point of view. Despite the increased importance of sustainability in valuation, property appraisers are still navigating the evolving role of ESG in their valuations, taking a rather reactive role towards the market rather than positioning themselves as sustainability educators or drivers of change to the market. These findings further highlighted the need for measurable and standardised metrics for assessing the sustainability performance of real estate assets holistically.  

These insights were also very well aligned with my conference presentation “Green exits – An EU Taxonomy initiated strategy framework for Nordic housing funds” which was based on our research (Holopainen et al. 2024) as part of the GADB platform project. The pdf version of the presentation can be accessed via the link below. 

Reference:
Holopainen, M., Saari, A. and Junnila, S. (2024), “Green Exits - An EU Taxonomy initiated strategy framework for Nordic housing funds”, presented at the ESPI International Real Estate Conference, Paris.