FTSE Group, NAREIT develop investable Green Property Indexes

FTSE Group, The US National Association of Real Estate Investment Trusts (NAREIT) and the US Green Building Council (USGBC) have developed the first investable green property indexes for both institutional and retail investors, bringing together US real estate indexing, REIT market expertise and environmental building standards.

The indexes, currently in the final stages of implementation prior to customer use, will give investors a structured and disciplined way to measure and model the risk and reward profile of green property, using the first codified, transparent definition of listed green property.

They will also offer new ways to incorporate principles of sustainability into property selections and portfolios, and access this investment theme through index-linked financial products.

The indexes will be based on the market’s leading benchmark for US real estate, the FTSE NAREIT Index Series, using green data (LEED & Energy Star ratings) from USGBC. The USGBC is a leading non-profit organization known for its development of LEED, a global green building certification program, and its large diverse member community.

The FTSE global REITs universe represents $1.07trn today. US REITs account for 48% of this universe, valued at $512bn. The green property indexes are based on the analysis of 13,126 LEED and 18,402 Energy Star projects that have received third-party certification based on their green achievements and performance.

Mitigating and adapting to climate change, resource depletion and environmental erosion are some of the biggest challenges for the 21st century and will be major structural drivers of economic change, and investors are increasingly interested in how their portfolios will be affected and how they can reduce their risk.

The global building and construction sector consumes a significant proportion of the world’s key resources, making it highly exposed to the risks and rewards associated with the transition to the low carbon economy.

The sector accounts for at least 30% of greenhouse gas emissions. Buildings and construction materials use three billion tons of raw materials per annum (40% of total global use), and account for 55% of the wood cut for uses other than fuel.

Buildings are one of the heaviest consumers of natural resources and account for a significant portion of the greenhouse gas emissions that affect climate change. In the US, buildings account for 38% of all CO2 emissions and represent 73% of US electricity consumption.

Mark Makepeace, FTSE Group’s chief executive (pictured), said: “To date, no comparable benchmark has been available. We’ve already received expressions of interest from many large asset owners concerned about their exposure to a rapidly changing sector directly affected by the transition to the low carbon economy.”

Steve Wechsler, NAREIT’s president and chief executive, said the new indexes will be a milestone for real estate investment worldwide and enable more real estate investors and managers to integrate sustainability factors into their strategies – both as benchmarks and as the basis for investment products.

Rick Fedrizzi, USGBC’s president and chief executive, said green building is a “win-win”, offering both environmental and economic opportunity.

Greater building efficiency can meet 85% of future demand for energy in the United States and a commitment to green building has the potential to generate 2.5 million jobs. The sector is projected to add $554bn to the US economy each year. 

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