How To Invest in Green Buildings
Buildings account for nearly 40% of U.S. and 39% of global greenhouse gas emissions. To achieve the zero-carbon goals of the Paris Agreement, the real estate industry must become more sustainable. If you are looking to invest in sustainable real estate, you can now do so through the Invesco MSCI Green Building ETF (GBLD) or the Vert Global Sustainable Real Estate Fund (VGSRX). Keep reading to learn more.
SustainFi October 11, 2021
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Why invest in green buildings?
According to the United Nations, buildings represent 39% of global emissions, including 28% from running buildings and 11% from construction. Unknown to many, buildings create more greenhouse gas emissions than transportation or agriculture.
What are green buildings?
To decarbonize, the world needs greener buildings with on-site solar power, energy management and water-saving measures. Green buildings can have features like solar-powered heat pumps, smart sensors, carpets made from recycled materials, on-site bicycle storage and drought-tolerant landscaping.
There are several green building certifications, including LEED and WELL. For example, LEED awards points in areas like water efficiency, energy, materials, indoor environmental quality and sustainability. A LEED-certified building must earn 40 points out of 100. A Platinum certification requires 80 points.
Green buildings are not just about sustainability, though.
Investing in green buildings helps reduce emissions in the world’s most polluting industry. But it can also be a good deal for investors. Sustainable buildings can generate power through rooftop solar and are more energy-efficient, reducing their utility bills. Although they cost more to develop, green buildings can demand higher rents and cost less to insure. As a result, they can generate higher returns for investors than conventional buildings.
The world’s most sustainable commercial building, the Bullitt Center in Seattle (pictured), features solar panels, rainwater harvesting and composting toilets.
Make an impact with your money
How to invest in sustainable buildings
There are currently two funds that let you invest in green real estate, the Invesco MSCI Green Building ETF (GBLD) and the Vert Global Sustainable Real Estate Fund (VGSRX), a mutual fund. See how the two funds compare:
Green building funds
|Fund||Invesco MSCI Green Building ETF||Vert Global Sustainable Real Estate Fund|
|Type||Exchange-traded fund||Mutual fund|
|Assets ($ million)||5||142|
|MSCI ESG Rating||A||A|
|Sustainalytics ESG Rating||4 / 5||5 / 5|
Invesco MSCI Green Building ETF (GBLD)
- Assets under management: $5 million
- Expense ratio: 0.39% ($39 on a $10,000 investment annually)
- Minimum investment: none
Launched in April 2021, the Invesco MSCI Green Building ETF is the first exchange-traded fund (ETF) focused on the green building ecosystem. The fund tracks the MSCI Global Green Building Index, investing in companies that design, construct, redevelop, retrofit and acquire sustainable real estate. To be included, companies must derive at least 50% of revenues from green buildings. Stocks are also rated based on their environmental, social, and governance (ESG) scores.
The fund has about 80 investments spread across the world, including the U.S. (31% of the fund), Japan (25%), and Hong Kong (11%). Around 95% of GBLD is in real estate investment trusts (REITs). The top three holdings are Alexandria Real Estate Equities Inc (ARE), Sun Hung Kai Properties Ltd (16 HK) and Boston Properties (BXP).
GBLD has an A rating from the ESG Rating Agency MSCI and 4 out of 5 globes from Sustainalytics, another ESG rating agency. The fund has no fossil fuel holdings.
GBLD also offers a healthy dividend yield of over 3%.
Vert Global Sustainable Real Estate Fund (VGSRX)
- Assets under management: $142 million
- Expense ratio: 0.50% ($50 on a $10,000 investment annually)
- Minimum investment: $10,000
Launched in 2017, the Vert Global Sustainable Real Estate Fund (VGSRX) is a mutual fund that invests in sustainable REITs.
The fund has over 130 REIT investments selected based on sustainability criteria (like emissions) and financial metrics. The top three holdings are the wireless tower REIT American Tower Corp (AMT), the data center REIT Equinix (EQIX), and Prologis (PLD), which owns warehouses. Roughly two-thirds of the fund is in U.S. stocks.
VSGRX has good ratings from ESG rating agencies MSCI and Sustainalytics and no fossil fuel holdings.
The fund was launched by Vert Asset Management (“Vert”), a dedicated sustainable fund manager. Vert is a certified B Corp, a signatory of the UN Principles for Responsible Investment and a contributor to 1% for the Planet.
VSGRX costs 0.50% ($50 annually on a $10,000 investment.) However, the fund has not performed as well as its non-ESG benchmark, the S&P Global REIT Index, since its launch. VSGRX returned 6.1% vs. the benchmark’s 7.03% return through June 2021.
You can buy VSGRX through brokers, including Fidelity and Schwab, or directly from Vert Asset Management. The initial minimum investment is $10,000.
You can’t talk about decarbonization and net-zero goals without talking about buildings. If you want to invest in green real estate, you now have several options.
🔔 Looking for other ways to invest in climate change solutions? Consider green bonds.