Sustainability Strategies in Real Estate Investment Trusts
Brought to you by Emergent Africa
Introduction
Capital markets have sent a clear signal: sustainability performance is now inseparable from real estate value. For Real Estate Investment Trusts (REITs), the shift isn’t merely reputational—it is financial, regulatory and operational. Investors want to see credible decarbonisation plans, regulators are tightening disclosure requirements, tenants are seeking healthier, low‑carbon space, and insurers are re‑pricing physical climate risk. In this environment, sustainability is no longer a side programme; it is a core strategy that protects net asset value, lowers the cost of capital, and drives income resilience.
Over the next few years, three forces will define winners and laggards. First, disclosure standards are converging globally—raising the bar for comparability and scrutiny. Second, transition risk and physical risk are being quantified—pushing asset‑level interventions from “nice to have” to “license to operate”. Third, a bifurcation is opening between buildings that are efficient, future‑ready and well‑leased, and those drifting towards “brown discounts” and obsolescence. This article lays out a practical playbook for REIT boards and executives: how to build a credible disclosure spine, where to concentrate capital, how to align with science‑based pathways, how to finance the transition, and how to capture tenant demand for sustainable, healthy space.
1) Build a credible disclosure spine
Start by aligning your reporting with the global baseline. The International Sustainability Standards Board (ISSB) has issued IFRS S1 (general sustainability‑related disclosures) and IFRS S2 (climate‑related disclosures), effective for annual reporting periods beginning on or after 1 January 2024. The standards consolidate best practice on governance, strategy, risk management, metrics, targets and scenario analysis, providing investors with decision‑useful information. For REITs with multi‑jurisdictional portfolios, this “single grammar” reduces reporting friction and signals seriousness to capital providers.
2) Understand jurisdictional overlays—and how they change
If you have European exposure, the EU’s Corporate Sustainability Reporting Directive (CSRD) requires reporting under European Sustainability Reporting Standards (ESRS), with phased‑in timelines by filer type. Keep an eye on policy drift: the European Commission has tabled proposals to simplify elements of the regime and adjust thresholds—still subject to parliamentary and member‑state approval—so compliance contours may evolve. Build flexibility into data pipelines so you can adapt without costly re‑engineering.
3) Use South African guidance when operating locally
For JSE‑listed issuers and South African portfolios, the Johannesburg Stock Exchange’s Sustainability and Climate Disclosure Guidance—aligned with TCFD concepts and international frameworks—offers a practical roadmap on what to disclose and how to start. It reinforces governance, strategy, metrics and assurance, and helps REITs structure climate‑related information coherently for local stakeholders.
4) Anchor your plan in science: set targets with SBTi & CRREM
Set emissions reduction targets aligned to 1.5°C. For the buildings sector, the Science Based Targets initiative (SBTi) and CRREM (Carbon Risk Real Estate Monitor) have produced fully aligned pathways that translate climate science into property‑type‑ and geography‑specific decarbonisation trajectories. Use CRREM to test portfolio alignment and identify “stranding risk”; use the SBTi Buildings criteria to cover operational emissions and, increasingly, embodied carbon. Tie executive remuneration to meeting these science‑based milestones.
5) Start with the asset class you already own: deep retrofits that pay
In most portfolios, the cheapest tonne of carbon is the one removed through efficiency. Prioritise retrofits that reduce energy intensity (kWh/m²), improve airtightness and controls, and upgrade heat pumps, chillers and BMS. A rigorous measurement and verification (M&V) plan guards against performance slippage and underpins sustainability‑linked finance (see Strategy 15). Treat each retrofit as an investable mini‑project with IRR, payback and carbon abatement cost curves.
6) Electrify heat and ready your buildings for a cleaner grid
Electrification of heat—via variable refrigerant flow (VRF), high‑efficiency heat pumps and thermal storage—cuts on‑site combustion, simplifies carbon accounting, and positions assets to decarbonise as grids get cleaner. Plan phasing to avoid stranded gas plant and coordinate with lease events to minimise disruption.
7) Clean power procurement: PPAs, wheeling and on‑site solar
Layer renewables on top of efficiency. Depending on market rules, long‑term power purchase agreements (PPAs), wheeling through municipal networks, or on‑site solar with storage can materially de‑risk operating costs and emissions. In South Africa and many African cities, where grid reliability and tariffs are volatile, these levers are risk management as much as sustainability.
8) Build a data backbone you can audit
ISSB‑grade reporting requires audit‑ready data. Deploy sub‑metering for landlord and tenant loads, integrate BMS and utility feeds into a central data platform, and adopt clear boundaries (landlord‑obtained vs tenant‑obtained consumption). Automate data quality checks and retain a robust audit trail—the difference between “marketing data” and “assurance‑ready data” is process discipline.
9) Make green leases your superpower
Sustainability outcomes hinge on owner‑occupier collaboration. Modern green lease clauses cover data sharing, operational controls, fit‑out standards, embodied carbon, circularity, renewable procurement and performance improvement plans. The Better Buildings Partnership’s (BBP) updated Green Lease Toolkit provides practical clause libraries and “light/medium/dark” options to match ambition levels—accelerating programme rollout across mixed tenant profiles.
10) Design for health, wellbeing and productivity
Healthier buildings command stronger demand and stickier leases. Evidence compiled by the World Green Building Council links green building features—daylight, air quality, thermal comfort—to improved wellbeing and productivity. Treat “healthy buildings” as part of your net operating income (NOI) strategy, not a soft add‑on: happier, healthier occupants renew.
11) Water stewardship belongs alongside carbon
Water stress is accelerating and materially affects valuation and operational risk—especially in African metros with drought and flood cycles. Cape Town’s brush with “Day Zero” showed how quickly risk can crystallise; nature‑based solutions and demand management are now central to city resilience. Portfolio strategies should include water budgets, leak detection, circular water systems (grey/blackwater), and flood‑resilient design.
12) Tackle embodied carbon and build for circularity
Operational energy is only half the story. Set embodied‑carbon limits for new build and major refurbishments; require Environmental Product Declarations (EPDs); prefer low‑carbon cement, recycled steel and timber where appropriate; and specify design for deconstruction. Track whole‑life carbon (WLC) and prioritise adaptive reuse before demolition. These decisions lock in decades of emissions and cost.
13) Nature‑positive real estate and TNFD‑ready reporting
Biodiversity is moving into the mainstream of investor expectations. The Taskforce on Nature‑related Financial Disclosures (TNFD) has published sector guidance for real estate—use the LEAP approach (Locate, Evaluate, Assess, Prepare) to map dependencies and impacts, set targets (e.g., urban greening, habitat connectivity), and disclose meaningful metrics. Green roofs, shade trees, porous surfaces and ecological corridors provide co‑benefits for heat mitigation, stormwater and tenant wellbeing.
14) Fortify against physical climate risk
IFRS S2 expects decision‑useful climate risk disclosures, including scenario analysis. Use hazard mapping (heat, flood, wind, wildfire) to stress‑test income and capex plans; update design standards (freeboard height, drainage, façade performance) for future climate conditions, not historical norms. Revisit insurance strategies, deductibles and business interruption exposures; mitigation spend often pays for itself via premium savings and avoided downtime.
15) Finance the transition: green bonds and sustainability‑linked loans
Sustainability finance lowers cost of capital and unlocks scale. Green bonds fund eligible projects (e.g., energy retrofits, renewables, water efficiency). South Africa’s market proved viability when Growthpoint issued the first JSE‑listed corporate green bond in 2018; since then, development finance institutions like IFC have anchored subsequent green issuances. Sustainability‑linked loans (SLLs) embed margin ratchets tied to measurable KPIs (e.g., energy intensity, GRESB score, certifications), aligning financing costs with performance over time.
16) Anticipate the “green premium” and avoid the “brown discount”
Demand for low‑carbon, high‑quality workspace is rising while supply lags. Research cited by JLL and others points to rental and yield premiums for greener buildings in major markets and warns of accelerating obsolescence for inefficient stock. For REITs, that means higher lease‑up, lower incentives and stronger covenant appeal on the green side—versus cap‑ex‑heavy repositioning or value erosion on the brown side. Prioritise capital where demand is most “green‑sensitive”.
17) Certify strategically: use the right tool for the market
Certification remains a powerful signal. In South Africa and across Africa, Green Star (via GBCSA) and EDGE (an IFC programme) are widely used, with rapid growth in certified residential and commercial schemes. Choose the scheme that best fits your asset strategy and investor base, and integrate certification pathways into design briefs to avoid retrofit “churn”.
18) Make social value measurable
Beyond E (environment), REITs can lead on S (social): inclusive procurement, local employment on retrofit programmes, training for hard‑to‑place workers, accessible public space, and community amenities. Capture social value with baseline metrics (jobs, training hours, local spend) and link to lease negotiations and planning permissions where appropriate.
19) Triaging the portfolio: hold, fix, sell
Map each asset on two axes: transition alignment (CRREM/SBTi) and market demand for sustainable space. “Hold & scale” assets already aligned; “fix” assets where a viable retrofit pathway delivers returns; “sell or repurpose” assets with weak demand and high abatement costs. Tie this triage to your capital allocation framework and disclose the logic to investors.
20) Align governance, incentives and culture
Elevate sustainability from a function to an operating model. Clarify board‑level accountability; embed ESG risk into enterprise risk management; dedicate a cross‑functional “retrofit factory” to compress timelines and unit costs; link management incentives to audited, externally benchmarked KPIs (e.g., energy intensity, carbon intensity, GRESB outcome).
21) Use digital twins and analytics to shrink the performance gap
A persistent gap often exists between expected and actual performance. Digital twins, continuous commissioning, and analytics can detect drift, identify faulty sequences, and optimise set‑points in real time. The gains—often 5–15% additional savings post‑retrofit—protect the business case and help you meet SLL ratchets (see Strategy 15).
22) Partner for outcomes
No REIT can decarbonise alone. Build structured partnerships: with tenants (green lease committees), with utilities (grid services, demand response), with municipalities (urban greening, stormwater), with financiers (use‑of‑proceeds and linked instruments), and with universities (innovation pilots). The right coalition accelerates delivery and reduces execution risk.
23) Benchmark performance and assure it
Investors compare like‑for‑like. Use GRESB to benchmark management, performance and development practices against peers, and align your sustainability section with EPRA’s Sustainability Best Practices Recommendations for consistency and comparability. Plan limited assurance on key metrics and escalate to reasonable assurance over time.
24) Factor local policy and price signals into your model
Policy matters to cash flows. South Africa’s carbon tax is rising in Phase 2, with allowances tightening—tilting the economics further toward efficiency and cleaner energy. Build explicit carbon price scenarios into your investment committee papers, and update hurdle rates for projects with large emissions reductions to reflect avoided tax liabilities.
25) A pragmatic 12‑month roadmap
Quarter 1 – Diagnose & design
Quarter 2 – Prove & finance
Quarter 3 – Scale & certify
Quarter 4 – Disclose & assure
South Africa and the wider African context: constraints turned into catalysts
African cities face unique energy and water challenges—unreliable grids, tariff volatility, and periodic droughts. These constraints actually strengthen the business case for on‑site renewables, storage, water circularity and nature‑based resilience. South Africa’s ecosystem is mature: JSE guidance helps issuers disclose, GBCSA’s Green Star tools set design ambition, and IFC’s EDGE accelerates cost‑effective certification across building types. With carbon tax escalation on the horizon, early movers can lock in lower operating costs, lower tax exposure, and stronger tenant demand—compounding advantages over time.
Conclusion: from compliance to outperformance
Sustainability is not a parallel track; it is how high‑performing REITs will compete. The path is clear: adopt a credible disclosure spine (ISSB/CSRD/JSE), set science‑based targets (SBTi/CRREM), invest in deep retrofits and clean power, institutionalise green leases, quantify and mitigate physical risk, and finance the journey with green bonds and SLLs. The payoff is tangible: stronger leasing velocity, reduced downtime, lower operating costs, lower cost of capital, and better resilience to policy and climate shocks. The market is already differentiating between future‑ready and future‑risky assets. The sooner your strategy turns from fragmented initiatives to an integrated operating model, the faster you compound value.
How Emergent Africa can help We partner with boards and executive teams to translate ambition into delivery: portfolio decarbonisation roadmaps, retrofit factories, data and disclosure systems, green leasing, and sustainable finance structures—always tuned to local realities and investor expectations. If you’d like a tailored diagnostic of your REIT’s sustainability posture and a 24‑month action plan, we’d be delighted to help.
Great synthesis of SBTi, CRREM and finance levers. The green lease section is particularly actionable
Incubating value-adding engagement between solution providers and executive decision-makers at leading companies
1dThe retrofit factory idea is gold—scales delivery and protects returns. Thanks for sharing