Maarten van der Spek: The need for sustainable and activist RE investing

Maarten van der Spek: The need for sustainable and activist RE investing

Maarten van der Spek (foto archief Maarten van der Spek)

By Maarten van der Spek, Spek Advisory

Once again a discussion has arisen about our pension funds. Now suddenly 'activist investing' is seen as a problem, despite the fact that this is done in the interests of the participants.

At the beginning of this month, the House of Representatives adopted a motion that a 'pension with purchasing power should always be central' for pension funds. This motion was mainly driven by the perception that pension funds have increasingly started investing in an activist manner without it being in the interests of the participants. But is that really so? Isn't an activist attitude crucial for maintaining pensions with purchasing power? These go hand in hand, especially when investing in real estate.

When investing in real estate, it is important to pay attention to sustainability. If pension funds do not do this, it will have a negative impact on returns. A lot of research has been done into the impact of sustainability on real estate values ​​and returns. Two scientific papers, those by Leskinen et al. (2020)[1] and Contat et al. (2024)[2], are very illuminating in this regard. Both studies have analyzed hundreds of scientific studies and underline the positive impact of sustainability on real estate, both in terms of value creation and risk management. Sustainable buildings not only offer financial benefits through higher valuations and lower operating costs, but also better resilience to climate disasters and changing regulations.

For example, Leskinen et al. concluded that sustainability measures, such as energy efficiency and green certifications, lead to higher real estate values. Homes and commercial properties with better sustainability scores command a premium in sales prices and rental income and also have lower operating costs, especially in the areas of energy consumption and maintenance.

In contrast, Contat et al. concluded, based on many studies, that flood risk has an average negative impact on house prices of 5% and 7.5% for commercial real estate. The cost of home insurance in Florida has exploded in recent years for good reason. In addition, several studies indicated that there is an inverse relationship between the energy performance of homes and mortgage arrears.

The difficult thing is that not every risk translates into negative value growth in the short term. This has to do, among other things, with how appraisers take such risks into account in the valuation. Only if there is a demonstrable negative impact on the transaction price will the appraiser be able to include it in his valuations. Equity analysts report similar problems, with climate risks currently insufficiently reflected in stock prices[3]. As a result, some managers will be inclined to wait to become more sustainable, as the short-term effect is only limited. However, pension funds invest for the long term and have a responsibility to protect their portfolio against negative effects. It is therefore worthwhile for pension funds to take an activist position with regard to real estate, to avoid these negative effects in the long term and thus achieve better returns.

Of course we must remain critical of our pension funds. However, let us also recognize that sustainable and targeted activist investing is essential for the long-term health of our pensions. It is not only sensible, it is necessary for good returns.

Spek Advisory is an independent consultancy firm that focuses on helping investors and managers optimize the strategy of the private investment portfolio, with the aim of improving the risk-return profile.

[1] Leskinen, N., Vimpari, J., & Junnila, S. (2020). A review of the impact of green buildingcertification on the cash flows and values of commercial properties. Sustainability, 12(7), 2729
[2] Contat J., C. Hopkins, L. Mejia and M. Suandi, “When climate meets real estate: A survey of the literature”, Real Estate Economics, Vol 52.3, 2024
[3] Bauer, R., Gödker, K., Smeets, P., & Zimmermann, F. (2024). Mental Models in Financial Markets: How Do Experts Reason About the Pricing of Climate Risk?. European Corporate Governance Institute–Finance Working Paper, (986).