As sustainability becomes increasingly important to investors, publicly traded Real Estate Investment Trusts (REITs) are stepping up their efforts to provide greater transparency on their environmental impact. According to Nareit’s REIT Industry Sustainability Report 2024, the industry has made significant strides in documenting risk management approaches and performance reporting, particularly in areas related to climate mitigation and adaptation.
In 2023, all of the top 100 equity REITs by market capitalization publicly reported on their sustainability practices, showcasing the sector's commitment to transparency. REITs have not only increased their reporting on resource consumption, such as energy, water, and waste management, but have also improved their data collection and analysis processes. For instance, energy usage reporting has risen by 57 percentage points since 2017, while water usage and waste management reporting have increased by 53 and 50 percentage points, respectively.
One of the most notable areas of improvement is in greenhouse gas (GHG) emission reporting. The percentage of REITs disclosing their GHG emissions more than doubled over the past seven years, with 94% of REITs reporting in 2023. This transparency provides stakeholders with valuable insights into the potential financial risks associated with the transition to a low-carbon economy and highlights the efforts REITs are making to reduce their carbon footprint.
In addition, REITs are increasingly setting and publicly disclosing emissions reduction targets. In 2023, 73% of the top 100 REITs by market cap reported on their emissions targets, with many aligning their goals with industry frameworks like the Science Based Targets Initiative (SBTi). These targets include commitments to net-zero emissions and carbon neutrality, reflecting REITs' dedication to addressing climate-related risks and regulatory compliance.
REITs are also focusing on assessing and mitigating weather-related risks. The report found that a majority of REITs are evaluating their exposure to severe weather events, such as floods, storms, and wildfires, and are investing in resilience capital improvements. By upgrading buildings to withstand extreme weather, REITs are better positioned to protect their assets, support tenants, and contribute to community resilience.
Furthermore, the adoption of clean energy is on the rise within the REIT sector. The percentage of REITs reporting on-site clean energy generation has more than tripled since 2019, with 78% reporting in 2023. Additionally, 77% of REITs are procuring clean energy generated off-site, demonstrating their commitment to transitioning to renewable energy sources.
These findings from Nareit’s 2024 report underscore the REIT industry's ongoing efforts to enhance sustainability transparency. For investors focused on sustainability, the increased disclosure and commitment to environmental stewardship among REITs offer valuable insights into potential investment opportunities. The sector’s emphasis on good governance and accountability further strengthens the case for integrating REITs into sustainability-focused real estate portfolios.
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