Northern Trust Asset Management has launched the Northern Trust GRESB Developed Real Estate ESG Index, a unique sustainable real estate index tracking the performance of developed market real estate investment trusts (REITs) with strong responsible investment characteristics. It may serve as the basis for future investment products including exchange-traded funds.
GRESB uses more than 40 specific indicators across seven aspects of sustainability to assess real estate companies.
The index was created in collaboration with GRESB, an investor-driven organization committed to assessing the ESG performance of real assets globally, and representing over $3tn in assets under management.
According to GRESB, the global property and infrastructure sectors are at the heart of the most important and far-reaching issues of our time, including urbanization, demographic change, resource constraints, environmental impacts and emerging technologies.
As such, the industry-first index was developed in response to growing demand for a passive approach to real estate investing incorporating environment, social and governance (ESG) factors.
Hazel McNeilage, Managing Director, EMEA, Northern Trust Asset Management, commented: “Northern Trust listens to investors and develops solutions to meet their evolving needs. We are delighted to collaborate with GRESB to create this ground breaking index. This enables passive investors to benefit from the long-term returns associated with listed real estate companies, whilst incorporating sustainable investing principles.”
GRESB uses more than 40 specific indicators across seven aspects of sustainability to assess real estate companies. Companies shall be excluded from the Index if they do not have a GRESB rating of at least 2 stars (0 to 5) and at least one rating in the last three years.
As of the end of December 2016, the index had 130 constituents with an average dividend yield of 3.6% and a forecast EPS growth rate of 5.6%. The largest country exposures are to the US (49.7%), Japan (12.6%), Hong Kong (6.9%), the UK (5.3%) and the Netherlands (3.9%). It is primarily composed of retail REITs (31.5%), office REITs (15.6%), diversified REITs (11.3%), residential REITs (9.3%) and real estate operating companies (6.6%).
The largest single holdings are Simon Property Group (7.4%) and Prologis (3.5%).
In addition to catering specifically to ethically-minded investors, incorporating ESG-screens into one’s portfolio is increasingly being shown to improve risk/return characteristics over the long term.
“The environmental performance of buildings has been shown to have a clear link with the underlying financial performance of the assets, and with the risk return profile of property companies or investment funds ultimately owning the assets,” said Sander Paul van Tongeren, Managing Director, GRESB.