By Jeremy Anagnos, portfolio manager of Nordea’s Global Sustainable Listed Real Assets strategy
The listed real assets universe – an $8trn market[1] – is uniquely positioned to lead and benefit from global sustainability initiatives.
Infrastructure and real estate are at the forefront of net zero action – through the installation of solar farms, the upgrading of transmission lines, and improving building energy efficiency. Global utilities are pushing to shutter fossil-based generation and upgrade water systems, while in communications and transport, companies are enabling telecommuting, optimising logistics, and reducing congestion.
Companies within the listed space have amongst the largest portfolios and operating platforms in real assets. They touch nearly every sector of the economy in the management of essential facilities and delivery of vital services. As a result, listed real assets are well positioned to contribute to sustainability goals.
Collectively, industries in real assets are leading nearly three fourths of investment to support decarbonisation, improve energy efficiency and promote economic growth with a lower carbon footprint. Global real assets can also have a tremendous impact from a societal perspective – impacting community health, employment, and quality of life.
Specialised ESG considerations
Real assets are relatively unique and disparate entities, with unique data reporting compared to broad equities. For example, a property developer may report a high proportion of green building certification, while a global utility company may report renewable capacity in place or carbon intensity goals.
From a social sustainability perspective, the evaluation of a given company’s alignment with UN Sustainable Development Goals such as ‘Sustainable cities and communities’ or ‘Clean water and sanitation’ can vary significantly depending upon whether a railroad or a student housing facility is being considered.
When it comes to standardising ESG scores across different sectors and companies, third party ESG scorers are often of little help, particularly in real assets. Among the different ESG ratings agencies, little agreement exists about how a specific company can score – correlations across major agencies including MSCI, S&P, Sustainalytics, CDP, ISS and Bloomberg range from 0.3-0.7, whereas major debt ratings agencies exhibit scoring correlations of over 0.95.
Third-party ESG rating agencies are also dependent upon simplified company disclosures for ratings – ‘yes/no’ information about a given social policy can lead to high social scores, without any analysis on the degree of those social policies or actual results achieved. Third-party ratings and a generalist ESG approach lack experience in real assets and tend to prioritise backward looking data, which can be misleading. For example, a well-flagged utility CEO transition to a well-known internal candidate may impact a company’s rated governance score, which dedicated investors would set aside.
Climate commitment optimism
A focus on net zero and environmental sustainability tends to dominate investor engagement, given the outsized impact real assets can have in combating climate change. To find out more information about real net zero commitments, CBRE, manager of Nordea’s Global Sustainable Listed Real Assets Strategy, recently completed a study of net zero policies and emission reduction targets across the listed investment universe[2]. We focused on companies who also reported Scope 1 and Scope 2 emissions in order to better understand the potential impact of company policies on mitigating climate risk.
Within the listed real asset universe, companies reporting scope 1 and 2 data comprise $5trn in total market cap. These companies generate 5-10% of total world emissions and 10-15% of emissions stemming from all real assets. Companies within listed real assets therefore have a significant opportunity to make an impact on the forces of global warming and climate change.
Our findings here are optimistic. Of the companies reporting scope 1 and 2 emissions, nearly 70% have interim reduction or net zero targets. From a commitment to net zero emissions perspective, about 40% of these companies reporting emissions have net zero targets, with a third seeking to hit net zero by 2030 or earlier. Collectively, these real asset companies with net zero targets can therefore direct the elimination or offset of over 1.2 gigatonnes of carbon over time.
Our review of emission reduction targets clearly showcases the accelerating impact listed real assets can have on the environment and the globe’s pathway toward net zero. As society progresses towards its sustainable goals, the need for real assets and for specialised ESG analysis will only increase. When considering the future of sustainable investment, the years ahead show real promise.
Nordea Asset Management (NAM, AuM 241bn EUR*), is part of the Nordea Group, the largest financial services group in the Nordic region (AuM 363bn EUR*). NAM offers European and global investors exposure to a broad set of investment funds. We serve a wide range of clients and distributors which include banks, asset managers, independent financial advisors and insurance companies.
Nordea Asset Management has a presence in Bonn, Brussels, Copenhagen, Frankfurt, Helsinki, Lisbon, London, Luxembourg, Madrid, Milan, New York, Oslo, Paris, Santiago de Chile, Singapore, Stockholm, Vienna and Zurich. Nordea's local presence goes hand in hand with the objective of being accessible and offering the best service to clients.
Nordea’s success is based on a sustainable and unique multi-boutique approach that combines the expertise of specialised internal boutiques with exclusive external competences allowing us to deliver alpha in a stable way for the benefit of our clients. NAM solutions cover all asset classes from fixed income and equity to multi asset solutions, and manage local and European as well as US, global and emerging market products.
Having entered the ESG space over 30 years ago, Responsible Investment is deeply rooted in our Nordic DNA. As an ESG pioneer and market leader we established an award-winning** RI Team in 2009—now one of the largest in Europe. We currently offer a broad suite of RI solutions to investors of all types across the globe.
* Source: Nordea Investment Funds S.A., 30.06.2023
**Best ESG Team Europe 2022 awarded by CFI, for more information click here.
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[1] CBRE Investment Management, Real Commitments and Real Impact: Listed real assets on the path to net zero, 12.2022
[2] CBRE Investment Management, Real Commitments and Real Impact: Listed real assets on the path to net zero, 12.2022
