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Driving positive environmental and social impact with real estate

06 September 2022 by National Bank Investments
RI in action V

Investors are increasingly interested in real estate from a sustainable development perspective. Whether it's energy efficiency or housing affordability, this sector can play a key role in generating positive social and environmental impact. AlphaFixe Capital explains how the real estate theme fits into a sustainable bond strategy.

AlphaFixe's Perspective

According to the International Energy Agency (IEA), greenhouse gas (GHG) emissions from building operations were responsible for just under 30% of global energy-related emissions in 2020.

Based on recent projections by CBRE’s 2022 Canadian Market Outlook2, the global real estate inventory is set to double by 2060, thus exerting significant pressure on our energy consumption, but also on the ecosystems in which we live together with increasingly fragile biodiversity. 

From a social point of view, the easing of monetary policy during the pandemic has led to a significant increase in the price of real estate assets, thus eroding accessibility among younger generations and low-income households. 

In short, we believe that the real estate theme will occupy a predominant place in the context of a just energy transition.

How does the real estate theme add value to the strategy from a responsible investment perspective?

Issuers of green bonds financing real estate projects that meet high environmental standards, for example LEED certification, are multiplying. In addition, government issuers and non-profit organizations issue social bonds aimed at the construction of affordable housing, in order to promote home ownership. 

Therefore, we believe that the market for green bonds from issuers in the real estate industry is essential for building a diversified portfolio in our strategies aimed at a positive environmental and social impact.

What is the responsible investment approach of AlphaFixe?

At AlphaFixe, we believe that the sustainable aspect of a building promotes long-term demand and that this represents a differentiating factor that improves the financial stability of building stock. That is why, in AlphaFixe's proprietary credit rating, we assign a 10% weighting to ESG issues affecting the real estate industry.

We determine the environmental integrity of a green bond based on the taxonomy of the Climate Bonds Initiative (CBI). This tool, developed according to rigorous scientific standards, offers us a framework to identify assets and projects aligned towards a low-carbon economy.  To meet those criteria, the financed buildings must have at least a LEED Gold certification.

Regarding social bonds, having no taxonomy to rely on, we use target 11.1 of the UN Sustainable Development Goals, which aims to ensure access for all to adequate, safe, and affordable housing by 2030. 

An example of a real estate green bond issuer

Allied Properties: Energetic efficiency

Use of funds

Equipment modernization at Nordelec, an 830,000 square foot multi-use property located on St-Patrick Street in Montreal.

  • Heat recovery
  • Ventilation and cooling system
  • Window replacements
  • Roof insulation
  • Lighting upgrades
  • Energy management and control system

Project cost: 37.9 $M

Impact

  • Annual potentially avoided emissions of 1,300 tons of CO2 eq
  • Annual energy savings of 3,700,000 kWh

Contribution to SDGs   

In what strategy can we find this issuer?

NBI Sustainable Canadian Short Term Bond ETF (NSSB)

NBI Sustainable Canadian Bond ETF (NSCB)

NBI Sustainable Canadian Corporate Bond ETF (NSCC)

Sub-managed by AlphaFixe Capital

 

 

https://www.iea.org/reports/tracking-buildings-2021

https://www.cbre.ca/insights/reports/canada-market-outlook-2022

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