How Can Real Estate Funds Become Sustainable Investments? – An Analysis of European Best Practices.

Greenbors Consulting has published a new study titled “How Can Real Estate Funds Become Sustainable Investments? – An Analysis of European Best Practices.” The aim of the research – as a continuation of our previous professional work – was to present the operation and development trends of sustainable real estate funds through European examples.

“As the energy efficiency of buildings becomes increasingly important in the context of climate change, the issue of responsible investment is also gaining prominence,” emphasized Gábor Szarvas, Managing Director of Greenbors, at the public presentation of the study on March 6.

According to him, the trends are clear: “the importance of green buildings, as well as sustainable real estate funds that invest in green buildings as financial market products, will grow significantly in the near future.”

Sustainable real estate funds that follow the guidelines of ESG (Environmental, Social, Governance) considerations encourage the launch of green investments in the real estate market. Buildings designed and operated with environmental awareness have lower energy consumption and a smaller ecological footprint. In addition, they provide a healthier and more comfortable environment for their users. Together, these factors result— from an investment perspective — in a more stable, lower-risk financial product for investors in the long term. Sustainability in the real estate market is therefore not only an environmental issue but also an economic and social interest that will shape the future of the sector.

One of the key conclusions of the study is that the European Union’s green financing and green transition regulatory guidelines, financing practices, and legislative activities are all driving this phenomenon. As a result, financial and real estate market participants operate based on clear criteria and considerations accepted by both sectors. Instruments such as the EU Taxonomy, sustainable finance reporting requirements, and other regulatory tools therefore strengthen this market.

Business breakfast with real estate market stakeholders

At the business breakfast organized alongside the professional presentation of the Greenbors study, representatives of the domestic real estate market, real estate funds, and regulatory organizations were also present. The study was briefly introduced by its author, Éva Beleznay, followed by a discussion with participants moderated by Gábor Szarvas, featuring Éva Beleznay and Bálint Szaniszló (President of HuSIF, Erste Bank Hungary Zrt.). The level of interest in the event, as well as the results of our survey conducted among participants, both suggest that green real estate funds are likely to become more widespread in the domestic financial market offering in the medium term.

In response to our question, “Where does your organization stand in its thinking about green real estate funds?”, 40% of the professionals attending the event selected the option “The topic interests us, but we are still far from implementation.” Another 30% considered it particularly important, although their organizations do not yet operate a sustainable fund. At the same time, representatives of two institutions indicated that they already have such a fund or that one is available to domestic investors within their corporate group’s offering.

Regarding the factors motivating the creation of green funds, the option “Founders’ commitment to sustainability” received the most votes. In response to the question “What currently drives the greening of real estate funds the most?”, the following distribution of answers was recorded:

42% – Founders’ commitment to sustainability

25% – Long-term preservation of asset value

25% – Preparation for a tightening regulatory environment

8% – Meeting investor demand

Alongside motivations, the issue of returns cannot be avoided. However, there is currently only a limited amount of comparable data available on the performance of green real estate funds. According to the unanimous experience of professionals, their return levels do not significantly differ from those of traditional funds in either direction; rather, investors choose them based on different asset and investment strategies. Participants agreed that if there is no meaningful difference in financial performance, sustainability considerations alone may justify the choice of green investments.

If an organization has already decided — or is considering — launching a green real estate fund, the question arises: “Which green metrics have you chosen or would you choose?” Perhaps this was the question that produced the most uniform responses: 67% of votes indicated green building certification schemes such as BREEAM, LEED, and DGNB. In joint second place were Building Energy Performance, the CRREM – Net Zero Carbon Pathway, and the EU Taxonomy. In relation to the latter, it was mentioned that, for example, the euro-denominated Green Real Estate Fund of Erste Real Estate Asset Management has chosen the EU Taxonomy framework.

The issue of returns mentioned above is echoed in another highly represented answer to the question “What do you consider the main challenge?” — “Lack of investor demand”, which also reached 67%, while the remaining votes (33%) pointed to “Engaging tenants/service providers.”

The final conclusion of the study and the expert comments heard at the event were consistent: the domestic regulatory environment and economic processes both point toward the growth of green investments in the real estate market, as well as an increasing share of sustainable products within the real estate fund segment.

The study is available here in Hungarian