08 Feb 2024

AREF's CEO Paul Richards talks to Property Week's Madeleine Knight about how proposed regulations will help his sector.  Read the full article on Property Week's website here, or below:

The Association of Real Estate Funds managing director talks about how proposed regulations will help his sector.

Last month, the Financial Conduct Authority (FCA) consultation on tackling greenwashing closed. The watchdog aims to improve transparency for sustainable investment products by establishing rules and guidance that would require any reference to property’s sustainability characteristics to be “fair, clear and not misleading”. The Association of Real Estate Funds (AREF) contributed to the consultation and its managing director Paul Richards sets out why the organisation strongly supports the new stance, expected in final form shortly.

To what extent is greenwashing a problem in real estate?

It is quite difficult to greenwash in real estate because the investment is the building, which means carbon emissions, waste production and energy and water consumption can be easily monitored. This also makes it easier for real estate managers to substantiate claims about their sustainability efforts and use this new guidance.

The ‘Sustainability Focus’ label requires at least 70% of a product’s assets to be environmentally or socially sustainable. Will we see stranded assets as a result?

These labels are voluntary, not compulsory, so firms are unlikely to pick that label unless they are certain the threshold can be met. But the FCA has learned the importance of encouraging transition activity, such as retrofitting, from the EU Sustainable Finance Disclosures Regulation, which [unintentionally] made it difficult for a fund engaged in transition work to meet a label definition.

It’s not about demolishing buildings to create carbon neutral ones in their place

The transition is especially key in real estate, as it is an industry that emits around 40% of global carbon emissions. And that transition must be financed. The majority of the buildings we will have in 2050 already exist today, so the way to net zero is not about demolishing buildings to create carbon-neutral ones in their place; it is about upgrading existing assets.

The FCA has introduced the ‘Sustainability Improvers’ label, which allows for assets in a portfolio that may not be sustainable now, but will be over time, once improved. You can also have two labels – so once you’ve improved your fund, you can switch to a ‘Focus’ label.

Can the labels be used for products marketed to institutional as well as retail investors?

Most of AREF’s members serve institutional investors, mostly pension funds. But now, with the move from DB [defined-benefit] to DC [defined-contribution] pensions, the government sometimes regards DC as retail investors. So this is a bit of a grey area.

But the anti-greenwashing rule applies to all funds, including institutional ones. A lot of our institutional members have been talking about these labels, and while they haven’t explicitly said they would use them, they acknowledge it is a good way to show what they’re doing – especially if they do it on a voluntary basis.

Your consultation response asked the FCA to acknowledge investments that only afford limited control or influence. Why is this important?

If you invest in a listed company or a fund, you don’t have control over what the management team does. For example, multi-managers who invest in funds that buy properties get reporting from the underlying fund. They monitor what the fund is doing, but ultimately the multi-manager has no direct control.

So, if the fund fails to carry out a plan, the multi-manager can’t change that, but must still report on it. This is why we don’t want the FCA to penalise multi-managers, but to consider those who do not have direct control or influence.

The new guidance says sustainability-related claims must not omit or hide important information. Will this be a challenge for firms?

It shouldn’t be a huge challenge because this rule already applies to many firms anyway, especially funds relating to consumers. For example, firms must substantiate claims made about financial performance. It will require firms to put in work to provide this information, but it shouldn’t be a challenge for those good managers who are used to doing it already.

What are the next steps in this process?

The FCA has a deadline of 31 May, which doesn’t allow much time for changes to be made. The next step will be the FCA evaluating responses and then either issuing the guidance, possibly with the incorporated feedback, or they may issue a new, updated proposal. The FCA has been especially engaged on environmental, social and governance and net zero issues, and has been responsive to the industry.




Paul Richards

Paul Richards


Paul is the CEO of AREF.  Before joining AREF in 2020, Paul was Head of the European Real Estate Boutique within Mercer’s investment consulting business for almost 10 years, previously he was Head of Indirect Real Estate Investment and Global Managed Accounts at LaSalle Investment Management, where he was responsible for managing global portfolios of unlisted real estate funds for clients from Europe and Asia Pacific.

He has over 25 years of real estate experience in investment, corporate finance and research, and has advised investors, occupiers and venture capital companies on property portfolio strategy and on financial structuring, including PFI, senior and mezzanine debt and joint venture arrangements. His employers have included LaSalle Investment Management, Cushman & Wakefield and Henderson Investors.

Before coming into the world of real estate, Paul worked in marketing and market research. He originally studied Physiological Sciences at Lincoln College, Oxford and has a Master of Science in Real Estate from City University Business School, London, now Cass Business School.