For the fourth year, the French Sustainable Real Estate Observatory (Observatoire de l’Immobilier Durable – OID) is publishing, in collaboration with the French Association of Real Estate Investment Companies (Association française des Sociétés de Placement Immobilier – ASPIM), a study dedicated to the ESG practices of French mainstream real estate funds. The aim is to analyse the environmental, social and governance practices of fund managers in the light of European regulations. The SFDR Regulation and the Taxonomy impose and standardise a certain level of extra-financial transparency for funds subject to them. How are real estate players adapting to the French regulatory framework?
SCOPE OF THE STUDY
This study is based on an analysis of the regulatory documentation of 120 French retail real estate funds, representing 69% of the national market for retail funds (by value). Interviews were conducted with nine portfolio management companies (see below) to supplement the quantitative approach with qualitative data. We would like to thank them for their time.
MAIN RESULTS
SFDR Regulation
The SFDR Regulation (Sustainable Finance Disclosure Regulation) establishes common rules for extra-financial reporting by financial market players at the level of the European Union. These rules include a classification of funds (Articles 6, 8 and 9) according to their sustainability strategy.
This classification goes as follows:
- Article 6 funds do not promote any environmental and social features.
- Article 8 funds promote environmental or social characteristics.
- Article 9 funds have an objective of sustainable investment.
All the property funds in the sample analysed in the study meet the SFDR classification. The classification breaks down as follows:
- Article 6: 16.3% by value and 57 by number,
- Article 8: 58.6% by value and 54 by number,
- Article 9: 25% by value and 9 by number.
Concerning the Article 8 funds, a majority pursue a sustainable investment objective for part of their portfolio, in addition to promoting social or environmental characteristics. This means that if we combine Article 8 funds with a sustainable investment objective and Article 9 funds, almost 1/4 of the real estate funds analysed in number have a sustainable investment objective. The popularity of classifications 8 and 9 shows that the vast majority of property funds are now incorporating environmental and social issues into their strategies.
European Environmental Taxonomy
The European Taxonomy is used to determine whether an economic activity is environmentally ‘sustainable’, i.e. whether it makes a substantial contribution to at least one of the six environmental objectives (see below) without adversely affecting the other five, while complying with the minimum guarantees. An activity that follows these criteria is considered ‘aligned’ to the EU Taxonomy.
Fig. 1: The six environmental objectives of the EU Taxonomy
Our study shows that the real alignment rates for real estate funds in terms of CA, CAPEX and OPEX are relatively low, as shown in the graph below.
Fig. 2: Average proportion of alignment with the European Taxonomy
The Taxonomy is a framework designed to value only the most sustainable activities, which explains why the alignment rates are relatively low in the sample of real estate funds studied here.
If European taxonomy seems mysterious and remote to you, we have published a guide on the subject. In this guide, which is available free of charge in English, we present the regulations and their implications for the real estate sector.
Our conclusions
To conclude, French property funds have seized on the new European regulations on non-financial reporting and are complying with them. The SFDR classifications show a clear interest in ESG issues. However, taxonomy alignments are fairly low, which can be explained by the requirement of the European Taxonomy criteria.
The 2024 study is available in French on the Taloen resource centre.The replay of the conference presenting the study is published on the OID’s Youtube channel
