Due Diligence real estate for ESG increasingly tightened
ESG is becoming an integral part of strategic decision-making in real estate investments. Thus, INREV, the European organisation of unlisted real estate funds, is further tightening the ESG criteria for assessing a real estate fund.
INREV's guidelines for assessing ESG count in real estate: INREV's members include about 120 of the largest institutional investors and 40 of the 50 largest real estate fund managers in Europe.
With ESG integration, investors systematically and explicitly include ESG factors in their financial analysis, risk assessment and performance monitoring. And that means that properties that do not adequately meet these will face an increasing discount in determining value.
The INREV Due Diligence Questionnaires (DDQ), further expanded earlier this year, contain questions that facilitate the recognition of ESG practices and encourages investment managers to highlight their concrete ESG plans and practical initiatives in relation to their investment portfolios and their organisations.
As markets evolve, INREV now sees an increasing need to address the social aspects of ESG more specifically in a separate DDQ annex. This was published early this year.
INREV's ESG Social Aspects DDQ Appendix provides a mechanism to assess an entity's approach to managing social aspects of ESG.
Some key questions that should be answered in any due diligence according to INREV:
- Do you require your underlying investments to submit data to organisations that evaluate sustainability performance (e.g. Global Real Estate Sustainability Benchmark)? If yes, what are your scores/results?
- Explain how you integrate your long-term corporate policy on the following sustainability issues at vehicle and organisational level and in the selection of underlying investments. How are these integrated into strategic decisions?
- Does the vehicle have an Environmental Management System (EMS)? Which aspects are covered by the EMS?
How many of your underlying investments have implemented an ESG policy? How many of them have signed the UN Principles for Responsible Investment, or similar ESG practices?
- Are reporting forms used when reporting information on ESG practices?
- Indicate whether and to which standards the social aspects of the policy comply (e.g. national laws and regulations, Universal Declaration of Human Rights, ILO core labour standards, UN Global Compact, UN Principles for Responsible Investment, etc?
- Please provide details on three key ESG initiatives related to the investment vehicle or your organisation
Click here for more information on the INREV DDQ