The Battle of the Black and Green Swans
June 17, 2021
Real estate impact investing arrives, 100 of the world’s first energy-positive residential towers to rise across Europe
The world is in the grip of a titanic all-defining battle between two opposing forces, captured in the metaphors of the ‘Black and Green Swans’ created by two of the foremost thinkers on capitalism and investment market risks, delegates at this year’s INREV (European Association for Investors in Non-listed Real Estate Vehicles) online annual conference heard in a breakout panel session.
Nassim Taleb’s Black Swans are unpredictable extreme events, such as the Global Financial Crisis, the Covid-19 pandemic and the oncoming tsunami of climate change, which expose the fundamental flaws in the economic system and the inherent fragility of standard market risk models. Including for the largest asset class of all, residential real estate, which is bigger by value than global bond and equities markets combined.
But if Taleb’s Black Swans are crises that lead exponentially towards breakdown, then John Elkington’s Green Swans of regenerative capitalism are the opposite, solutions that lead exponentially towards breakthrough, panel moderator Steve Hays, managing director at Bellier Communication, said.
Elkington believes the EU’s ‘Green Deal’ target of Europe becoming the world’s first net carbon neutral continent by 2050 could be just such a Green Swan in the fight against global climate change and social inequality, the twin greatest challenges of our age.
The Little Green Swan – Elithis’ Energy-Positive Residential Towers
The Green Deal vision is contributing to a revolution in sustainability as companies and institutional investors alike adopt ESG investment strategies at an accelerated pace. French building engineering design company Elithis is at the forefront of this movement in real estate markets with the development of the world’s first scalable ‘energy-positive,’ residential tower, which produces more energy than it consumes.
“For more than 10 years, Elithis has been the leader in the innovation, design and development of energy-positive buildings. The question is no longer whether it is possible to achieve such feats, our buildings are off the charts for environmental and energy performance for a standard cost. The question is now, how many of these towers do we need to build to reduce our impact on the climate?” Thierry Bièvre, CEO and founder of Elithis, said.
Alan Kirsch, head of business development at Elithis, said that the electricity produced by the building was effectively a source of income for the tenants of the rental apartments within it, who are also financially incentivised and encouraged with ‘digital nudging’ through ‘smart apps’ to manage energy efficiency in their homes.
Overall household costs of the building’s tenants are reduced substantially by the complete or virtual elimination of energy bills, while any positive energy gains, sold to the national grid, are rewarded through a tenant bonus payment. With no energy charges, the effective rental price of the apartments becomes far more affordable in comparison with the average level of any neighbourhood where an Elithis tower is constructed.
Kirsch said apartment rents in the world’s first energy-positive residential tower developed by Elithis in Strasbourg, and other similar projects now underway in France, were set around ‘mid-market’ levels, averaging about €900 – €920 a month, before energy cost savings are taken into account.
“Anyone can live in these buildings because they are affordable. With the overall eradication of the energy costs, tenants’ monthly bills are much, much, lower…After three years of laboratory testing we can now say the building (in Strasbourg) will produce 108% of the energy the building and the tenants use,” he added.
“Time is the Issue” in Fighting Global Climate Change and Social Inequality
Elithis has an exclusive agreement for the development of its energy-positive residential tower designs with Catella Residential, one of the first and largest cross-border investment managers in this property sector in Europe.
In April, Catella Residential initiated the first project in a €2.0 billion investment programme to roll out 100 energy-positive Elithis Towers across Europe over the next 10 years, but this is not ambitious in terms of the sheer scale of the climate change and social inequality challenges facing the world, managing director Xavier Jongen told the webinar.
“A programme of 100 towers may seem ambitious, but actually it is not. The proof of concept is already done and that is what makes this very scalable, due to the extraordinary engineering insights it has provided into what you can do at market prices. Equity is also not a challenge…. Investors are obviously very charmed by this type of investment. Time is the issue. We have to quickly move forward on climate change and prove we can do this at scale. We need (development) plots and partners that can help us make not just 100 towers, but many multiples of that,” Jongen said.
Neither governments, nor the private sector alone, can tackle the sheer magnitude of the environmental and societal challenges that are encompassed by the housing sector and the pivotal role residential real estate plays within economies and across communities.
“We have to regroup and reorganise how this whole system works and gain a different perspective on how all these parties can interact,” he added.
‘Dark Green’ Impact Investing Starting to Go Mainstream in Real Estate
Casper van Grieken, executive director at CBRE Netherlands, told the webinar that true impact investing, where investors aim to achieve positive environmental and social returns alongside simply a financial payback for their investments, is starting to go mainstream in the European real estate markets.
The process of implementation of the EU’s SFDR (Sustainable Financial Disclosure Regulation), which forces institutional investors to audit the ESG characteristics of their investments, is spurring the transition, he noted. Particularly whether assets and funds are categorised as ‘light green’ under SFDR Article 8, where ESG considerations are integrated into investments, or Article 9 ‘dark green’ impact investing, where the focus is actively on positive sustainable and societal goals, such as cutting carbon emissions.
“It’s not the case that impact funds don’t make a financial return — they do, but alongside this they make returns on the social and environmental sides. For example, on carbons emissions you can set a clear goal that you want to be energy-positive by 2050. On the social side, we’ve been discussing affordable rents, and that’s also something you can measure, monitor and report on,” Van Grieken said.
In the past, it was the pioneering investors who had separate asset allocation ‘buckets’ for impact investing, but going forward ESG investing is going mainstream, he added.
“There are definitely new solutions, new funds, we can use as torpedoes to tackle really serious problems, that are unfortunately probably lying not too far ahead in the distance. But if we can all do a little bit and take it as our own responsibility to do something positive, we might get somewhere,” Xavier Jongen concluded at the close of INREV panel session.