Dutch Pension Funds Look to Transform How Real Estate Investors Decarbonize

A new coalition backed by Dutch pension funds APG and PGGM has been formed to help real estate fund managers find avenues to decarbonize their portfolios and investment pipelines while still maintaining strong performance metrics.

The coalition’s mission is to help real estate managers identify potential strategies to meet the 1.5- and 2-degree decarbonization pathways similar to that of the Paris Agreement. The coalition intends announce its proposal by February 2020, and the initiative requested that participants in the industry provide feedback and “help develop a common language for assessing climate transition risk in real estate.”

“Decarbonization pathways based on a transparent methodology that is aligned with the Paris Agreement offer a tool for understanding and managing transition risks, enabling investors to benchmark assets and derive significant risk indicators,” said Dr. Sven Bienert, managing director at the IIÖ Institute for Real Estate Economics.

The institute is helping to carry out research endeavors for the coalition, with the support of GRESB and the ESG Benchmark for Real Assets. The initiative is essentially expanding the work of the Carbon Risk Real Estate Monitor project, which analyzes carbon risk in European commercial real estate, to expand into markets outside of the EU, as well as into the residential sector.

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The initiative is part of a larger worldwide decarbonization method as investors seek to adhere to environmental, social, and governance (ESG) concerns. Major institutions such as the New York State Common Retirement Fund, one of the largest funds in the US, recently announced plans to grow its ESG program’s investments to an aggregate $20 billion over the next decade. A recent study said that the pension should work to ensure that all its assets are sustainable by 2030.

Several groups have popped up in recent months to assist in the growing ESG movement. One such institutional investor consortium called the Group of 88 is pushing more than 700 companies to reveal metrics regarding their respective environmental impacts.

New York is also leading an institutional investor rally coined the Climate Majority Project, made of up pension plans throughout the United States, whose goal is to entice the 20 largest public traded utility companies to eliminate their carbon pollutants by 2050.

Tags: Alternatives, APG, Carbon Risk Real Estate Monitor, ESG, PGGM, Real Estate

Although automatic enrollment has been credited with significantly boosting pension participation in the UK, it can also lead to more fees for savers, according to UK-based independent research organization The Pensions Policy Institute (PPI).

In a recently released report, the Pensions Policy Institute examined the extent to which fee structures affect savers’ retirement outcomes, and found that fee levels and structures play a key role in determining retirement outcomes.

According to the report, automatic enrollment can cause many people reaching retirement to end up with multiple pensions, which means they can lose out by paying multiple fees. Even with automatic enrollment, individual plans don’t travel with employees as they change jobs. The trick is getting employees to roll over those accounts into a single vehicle rather than ending up with a handful of small pensions each charging fees.

Having multiple pensions can also mean that savers are at risk of losing track of their pensions. The report notes that if accounts are small enough individual savers might forget about them or be unaware that they can be rolled over into their current account.

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The research also found that while transparency is important, it isn’t necessarily a solution.

“Greater transparency in terms of default strategies and their costs and charges will allow for greater understanding of the charges levied by providers,” said the PPI, “but may not always produce data that members or employers can understand or use effectively.”

For individuals that do end up with more than one retirement account, certain fee structures can help ease the burden.

Combination fees, in which an annual management charge (AMC) is combined with either a flat fee or a contribution fee, generally provide better outcomes over time than an AMC-only approach.

“This is particularly true when an individual has deferred or multiple pots, where the same AMC continues to be levied even when contributions have ceased,” said the report. “However, fixed flat fees can erode deferred savings over time.”

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Tags: Automatic Enrollment, Pension, Pensions Policy Institute, UK