S&P Dow Jones Indices LLC launched a set of indexes weighting real estate investment trusts according to an environmental sustainability score, and the company is talking with ETF providers and asset managers that may be interested in referencing the benchmark.
The indexes use proprietary scores from GRESB, a data firm that evaluates real estate portfolios and assets for environmental sustainability, to re-weight S&P Dow Jones' existing REIT indexes for investors and fund sponsors focused on environmental issues.
The four indexes in the series focus on global REITs, U.S. REITs, global REITs excluding U.S. REITs and Japanese REITs, with companies weighted by GRESB score and size. Companies with GRESB scores in the bottom half of the standard S&P Dow Jones REIT indexes have their index weight reduced by 30%, with the additional weight reallocated to companies in the top 25%.
Index providers earn fees from ETFs and traditional funds that reference their indexes, and from asset managers who benchmark against the indexes and use the underlying data to assemble their own portfolios.
Michael Orzano, senior director of global equity indices at S&P Dow Jones, said there is demand among institutional investors and asset managers for a product that takes a specialized, data-centric approach to real estate.
While finding good data on green real estate has historically been challenging, organizations such as GRESB are working to fill that gap, Orzano said.
"The fundamental reason for the demand behind this type of product is that the real estate sector faces particularly acute sustainability risks," he added, noting that, according to the United Nations, the construction and operation of buildings accounts for nearly 40% of global carbon emissions. Moreover, he said, buildings as long-lived, energy-intensive assets are inherently exposed to climate risks, regulatory changes and energy price volatility.
At the same time, Orzano said, many investors believe sustainability initiatives are well-aligned with real estate investment goals, with links between energy efficiency, higher occupancy and reduced operating costs.
S&P Dow Jones Indices and S&P Global Market Intelligence are owned by S&P Global Inc.