The majority of commercial real estate assets held by European pension funds do not yet have strong ESG credentials.

This is according to a report by Deepki, The Deepki European Pension Fund Report: Integrating ESG into commercial real estate investment, which surveyed 250 European pension fund managers in the UK, Germany, France, Spain and Italy, with a combined AUM of €402bn.

The study, which takes an in-depth look at trends in commercial real estate asset allocation and the measures being taken to improve ESG performance, found that 64 per cent of European pension fund managers said that only 21-30 per cent of their fund’s commercial real estate assets have strong ESG credentials. A further 19 per cent said that this figure was between 11-20 per cent.

It also showed that when it comes to reaching net zero, 23 per cent expect the majority of their commercial real estate assets to hit this target in six to 10 years and a further 15 per cent expect it to take 11-15 years. Just 26 per cent have a more optimistic view, expecting to hit this milestone in two to four years’ time, and a further 15 per cent within one to two years.

The study also highlighted the growing focus on commercial real estate as a pension fund asset class, with 46 per cent of European pension funds having 21-25 per cent of their assets allocated to domestic commercial real estate. A further 24 per cent have 16-20 per cent allocated to commercial real estate. The majority (68 per cent) expect allocation to the asset class to increase over the next three years.

Commenting on the report findings, Deepki CEO and co-founder, Vincent Bryant, said: “The commercial real estate sector is committed to reaching net zero by 2050. Our research highlights the complex challenge the sector faces, with many buildings falling short when it comes to good ESG performance, and much must be done to ensure assets meet the scrutiny of influential institutional investors such as pension funds.”

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