Home / Heitman commits to 2030 carbon neutral target

Global real estate investment management firm Heitman has committed to the ambitious target of becoming net carbon neutral for its global private equity real estate portfolio by 2030.

Laura Craft, Chicago-based senior v.p., head of global ESG strategy, says that Heitman has had a strong ESG culture for many years, involving the adoption of ESG principles throughout its range of property investment activities.

Since advising clients and others of its plan mid-last month (October), Heitman has struck a timely chord due to changes in people’s behaviour and personal preferences due to the impact of COVID. As has been well documented, at least in several western countries, many people have reset personal and family values around sustainability during lockdowns.

Heitman implemented its current global systematic strategy after Craft joined the firm in 2016 following a similar role at LaSalle Investment Management, where she worked for about 10 years. Heitman now has a global committee on ESG for advice and oversight, of which chief executive and president Maury Tognarelli is a member.

She has also brought a closer involvement with the Urban Land Institute (ULI), such as partnering on studies involving the impacts of climate risk to real estate. In 2019, Heitman and ULI published a report on climate risk and real estate investment decision-making. The 2019 report identified the types of climate risks – physical and transition – that can impact real estate properties and where investors were in assessing and pricing the risk. Recently, Heitman and ULI have produced a follow-up report on how investors have progressed in climate risk decision-making and what the emerging practices to assess climate risk beyond the property-level to the market-level are. Both reports can be downloaded from Heitman and ULI websites.

Craft completed a nine-month program at the ULI’s ‘Center for Leadership’, graduating in 2013, and is a member of ULI’s ‘Greenprint’ performance committee. She is also co-chair of the Pension Real Estate Association innovation affinity group and has advised UNPRI and GRESB (Global Real Estate Sustainability Benchmark) on reporting frameworks.

With respect to its carbon neutral target, Heitman is starting with private equity real estate while maintaining its ESG overlays for its debt and REITs portfolios, over which it has less direct control.

Nevertheless, Craft says: “If we identify a building which is a poor performer [on Heitman’s ESG score] there is usually an opportunity to improve it and ultimately, enhance financial and investment performance. For example, by completing an energy audit to uncover areas of no/low cost energy upgrades, such as lighting retrofits, mechanical control timing schedules and BAS adjustments, we are able to improve environmental efficiency, net operating income and move one step closer to net zero carbon operations.”

Having control over a building obviously gives Heitman more scope for improvements but even with property it owns there will be other stakeholders to consider. For instance, with industrial buildings tenants will often drive the energy usage and the firm looks to work with them to improve efficiency.

In some of its specialty sectors, where Heitman has made a name for itself riding trends such as strong growth in self-storage and medical facilities, it has partners at the operational level with whom it works on ESG issues to match its broader policy.

Craft says there are a lot of places around the world where there are incentives to implement ESG principles, which the manager looks to maximise. “It’s a win for us, it’s a win for occupants and it’s a win for investors,” she says, noting the value of a building will rise after it becomes more energy efficient with less operating expenses.

“A lot of investors care about ESG,” she says. “I find Australian investors to be very sophisticated with regard to how they approach ESG. A lot of them have their own ESG scorecard. We enjoy engaging with our investors who have strong ESG programs as Heitman also evaluates our investments on ESG and have been doing so for a number of years. It’s been a priority for Heitman and rewarding to interact with investors on ESG topics and improvements.”

In addition to Heitman’s direct investment ESG evaluations, the firm also has its own composite scorecard for listed investments taking input from ISS Governance, Bloomberg, Sustainalytics – Morningstar’s specialist sustainability provider of data and analytics – and GRESB. GRESB published its latest annual global assessment in Amsterdam last week (November 25) which showed that ‘Oceania’ led the rest of the world’s regions with a benchmark score of 77, followed by Asia with 72, Europe with 69.5 and the Americas with 69. But Europe continued to lead the world in transparency (see separate report this edition).

Beau Titchkosky, Managing Director, Client Service & Marketing for Australia & New Zealand, says that some clients first started asking about a carbon neutral target a couple of years ago. “We think this gives us a leading position of which clients are very appreciative,” he says. “Some [property] firms are talking about 2050 targets. We believe that as we and others accelerate that goal, other stakeholders across the real estate ecosystem will be incentivized to act similarly.”

The four main elements for the pathway to net zero emissions, according to Craft, are: “Number one is energy efficiency; two is onsite renewables such as solar, wind and geothermal; three: Identifying if the property is in a deregulated energy market with the option to buy renewable energy from utility provider; and, lastly, buying offsite renewable energy credits.” The purchase of credits is the last consideration, with the aim to have the property as close to zero by itself.

She says that during COVID there has been a heightened awareness of ESG. “In the global financial crisis, investors held onto their [property] assets and decided to improve the environmental efficiency to drive investment returns. Now, there’s a heightened sense of social responsibility to create healthy and safe properties for occupants and maintain occupant demand. Beyond COVID, ultimately, achieving net zero carbon operations is an important undertaking for Heitman and the industry, and the goal complements our ESG philosophy, and asset- and market-level climate risk assessments.

Within a big investor’s portfolio, Titchkosky says, private real estate has shown its worth in resilience this year especially, adding balance and a defensive component.

– Greg Bright