How REITs are Leading the Charge on ESG

The global push to decarbonise starts with property — literally.

Why REITs hold the key to Net Zero

The building and construction sector accounts for nearly 40% of global greenhouse gas emissions, with more than 30% tied to operational energy use like heating, cooling, lighting and appliances. Another 10% comes from embodied carbon — the emissions embedded in materials and construction processes. It’s a staggering footprint, making real estate central to climate action.

The reality? We can’t achieve net zero without significant action from the real estate sector.

REITs are rising to the climate challenge

REITs (Real Estate Investment Trusts) are stepping up, leading the way on sustainability with high quality portfolios and green-certified buildings.

We’ve been tracking ESG (Environmental, Social, Governance) factors of A-REITs over the past five years since launching our fund. In this time, we’ve seen positive progress:

• Clearer sustainability targets and initiatives

• Improvements in measurement and reporting

• Diversions of waste from landfill

• Roll out of solar and LED retrofits

• Electrification and renewable energy adoption

• Lower energy use and emissions reduction

• Green building design focused on reduced upfront embodied carbon

For instance, Mirvac’s Heritage Lanes premium office development at 80 Ann Street in Brisbane is a world-first to achieve a 6 Star Green Star Buildings certified rating, an internationally recognised rating system from the Green Building Council of Australia.

Innovative sustainable design solutions include using lower carbon concrete made with 70% recycled water and 89% recycled steel, with 90% of construction waste diverted from landfill and powered 100% from renewable energy.

Mirvac, alongside Goodman and Dexus, are among a growing number of REITs that have already achieved carbon neutral certification by Climate Active, an Australian government-backed certification aligned with international best practices.

But let’s not stop at the “E”

Environmental initiatives are only part of the equation. The social (S) and governance (G) factors are just as critical. From contributions to society, fair treatment of communities and employees to board independence, risk management and shareholder alignment — these factors help prevent reputational and financial fallout.

What we’re seeing in the “S” and “G”

Key trends we’ve noticed are an increasing focus on social well-being and diversity. A-REITs have high employee engagement scores by global standards (exceeding 65% and over 80% for many REITs) with many now adopting the 40:40:20 gender diversity target (40% male, 40% female and 20% any gender).

We also monitor exposure to unethical sectors such as gaming/gambling, tobacco, alcohol and fossil fuels – marking down “E” and “S” scores in our valuation model based on the level of income that is generated from these sectors.

Good governance plays an important part in our “G” scores and how we vote. We believe having a strong and independent board with an appropriate long-term investment strategy and remuneration structures that are aligned to investors provides a strong foundation for delivery of a company’s “E” and “S” objectives. In particular, for externally managed REITs we seek transparency on related-party transactions and how conflicts of interests are managed.

How we apply ESG to investments

As a high conviction fund with an ESG focus, we directly integrate ESG considerations into our investment process to help manage portfolio risk. REITs are, in our view, ahead of the curve in implementing ESG initiatives, and it’s encouraging to see improvements in both the number of REITs reporting and the quality of disclosures over the past five years since we began tracking ESG factors.

By incorporating ESG factors alongside financial measures, we gain a more complete view of the risk/return characteristics of our property investments, helping us deliver better risk-adjusted returns for investors.