SFDR at Bouwinvest
What is the Sustainable Financial Regulation Disclosure?
On 10 March 2021, the Sustainable Finance Disclosures Regulation (hereafter: SFDR) came into force. This legislation is part of a major European Union legislative package and aims to create more harmonisation in sustainability-related disclosures to clients and facilitate the comparison of financial products from different providers in terms of their sustainability. In doing so, the SFDR aims to combat the so-called greenwashing of financial products.
Why does the SFDR apply to Bouwinvest?
The SFDR applies to Bouwinvest Real Estate Investors B.V. as a manager of investment institutions, as well as to the separate investment institutions: Bouwinvest Residential Fund, Bouwinvest Retail Fund, Bouwinvest Office Fund, Bouwinvest Healthcare Fund, and the Dutch Social Impact Real Estate Partnership (hereafter: Impact Partnership).
In addition, Bouwinvest aims to contribute to the following United Nations Sustainable Development Goals (SDGs):
- SDG 3 - Good health and well-being
- SDG 7 - Affordable and sustainable energy
- SDG 8 - Decent work and economic growth
- SDG 11 - Sustainable cities and communities
- SDG 13 - Climate action
Bouwinvest has translated this contribution into objectives at fund level, distinguishing between environmental, social and governance (ESG) objectives. The aim is to ensure that the capital we invest delivers an above-average performance on these aspects.
Investing in responsible real estate
Bouwinvest focuses entirely on investing in real estate and has both Dutch and international activities. The Dutch activities involve direct property investments in the Netherlands. The international investments are indirect investments and can be divided into listed and unlisted real estate investments.
Real estate is responsible for approximately 30% of total CO2 emissions and 40% of total energy consumption worldwide, and plays a significant role worldwide when it comes to reducing both CO2 emissions and energy consumption.
Bouwinvest’s objective is to have real estate that scores above-average in terms of sustainability (GRESB 4/5 stars). This requires Bouwinvest to work in a structured way to reduce these adverse impacts of real estate investments.
What does the SFDR mean for Bouwinvest?
The SFDR stipulates that every financial product must be classified. The SFDR has three classifications: dark green (article 9), light green (article 8) and neutral (article 6).
Bouwinvest's products classify as Article 9 and Article 8 products. The Impact Partnership has specific sustainable objectives and is therefore an article 9 product. The Bouwinvest Residential, Office, Retail and Healthcare funds promote ecological and social characteristics and are therefore classified as Article 8 products.
Article 9: sustainable investments in the Impact Partnership
Within Bouwinvest’s portfolio, the Impact Partnership has a sustainable social investment objective. This partnership aims to have a positive impact on people’s well-being by creating fair opportunities in the housing market for disadvantaged target groups by investing in residential properties, care-related homes and social real estate.
Article 8: promoting environmental and social characteristics in the Bouwinvest Residential, Office, Retail and Healthcare funds
With its Article 8 products, Bouwinvest promotes ecological and social characteristics but has not set sustainable investment as an objective.
For each of Bouwinvest’s financial products, Bouwinvest explicitly had explicitly made the ecological and social characteristics, not specifically defined by SFDR, that the fund promotes transparent and linked these to Bouwinvest’s four ESG objectives. Bouwinvest then defined KPIs (Key Performance Indicators) for each characteristic.
Integration of ESG risks in investment policy
In a general sense, the organisation of risk management within Bouwinvest aims to protect Bouwinvest’s continuity now and in the future and to create awareness throughout the organisation of the potential material risks to which Bouwinvest is exposed. This is to protect both Bouwinvest’s resources and the resources and interests of its clients.
In addition, the SFDR requires that specific Environmental, Social and Governance (ESG) risks should be an integral part of risk management within Bouwinvest at strategic and fund, mandate and investment levels. ESG risk is equivalent to the term ‘sustainability risk’ as defined in the SFDR.
In the ESG risk category, Bouwinvest distinguishes between five risk types:
- Physical risks related to climate change
- Transition risks related to climate change
- Other environmental risks
- Social risks
- Governance risks
Bouwinvest has developed a methodology for ESG risk, in line with the existing Risk Management Framework, to systematically clarify and maintain the relevance of specific ESG risks. This methodology determines the relevance of risks on the basis of two pillars:
- What is the impact on people and the environment if this risk occurs?
- What is the impact on our portfolio if this risk occurs?
This methodology provides a clear picture of the inherent relevance of ESG risks at fund, partnership and mandate level. Having insight into the risks at fund, partnership and mandate level also improves insight into how ESG risks can have an impact on the risks of Bouwinvest Real Estate Investors.
For the management of the most relevant risks, Bouwinvest has a system aimed at gaining and maintaining insight into the measures and KRIs (Key Risk Indicators).
The ESG risk profile applicable to the fund, partnership or mandate is also used as a frame of reference for the assessment of ESG risks in all investment and divestment proposals. This ensures that all potentially relevant ESG risks are systematically taken into account.
Bouwinvest is convinced that the impact of ESG risks on its investment products can be partly mitigated by reducing the impact of the investments on people and the environment. The extent to which this is the case varies between the different funds and mandates that Bouwinvest manages.
Sustainability in general and the mitigation of the impact of our products on people and the environment are still evolving, which means that adverse impacts may have an impact on the value and returns of our investments. At the same time, we also see opportunities to actually have a positive impact in the value and returns of our investment products.
The ESG risk methodology and determining the impact on investment products is constantly evolving. We are devoting particularly close attention to the move towards the further quantification of these risks, aligning with developments in the market (e.g. in terms of availability of data and tools) where relevant.
Bouwinvest’s SFDR disclosures
Bouwinvest reports periodically and in accordance with the SFDR via the following documents:
- Pre-contractual disclosure as an appendix to the Information Memorandum
- Periodic disclosure as an appendix to the fund annual reports
- Product-specific website disclosures on the fund-specific pages of the Bouwinvest website
- PAI disclosure via the website as per 30 June each year
Website disclosures via the SFDR page on the Bouwinvest website