At Hermes, we have long recognised that responsible investment practices are changing real estate market conditions. Regulatory drivers and growing market demand indicate that sustainable portfolio and building characteristics affect real estate investment’s fundamentals: it creates reduced risk of obsolescence and depreciation, enhances tenant retention, reduces void periods and lowers operating costs. For real estate this means that as well as achieving a nominal financial return we also seek to deliver and manage sustainable cities, communities and buildings which have positive social impact through education and job opportunities and energy efficiency and low carbon buildings.
In the last year the focus of our responsible property engagement programme has been on the role of real estate in achieving a transition to a low carbon economy, and in particular the role it can play in scaling up finance for energy efficiency. Real estate also has an important role in helping to meet the UN’s sustainable development goals, and we strongly believe that developing and disseminating positive impact finance approaches will be an important delivery mechanism. These themes also represent major opportunities to deliver long term returns and expand our real estate market shares.
We are working with the industry through the UNEP FI positive impact working group, developing common definitions and frameworks, and assessment methodologies and impact measurement indicators. In particular we are working on a framework for real estate investments. In our view a typical Positive Impact Framework for real estate would follow these key steps, see Figure below: