Effective today MSCI and the S&P’s Dow Jones Indices’ Global Industry Classification Standard (GICS), will add its first additional Sector since inception in 1999: Real Estate. That’s big news!
Historically real estate has been included as part of the Financial Sector alongside banks, diversified financials and insurance companies. Establishing real estate as its own categorization is in response to an increasing investor appetite for real estate specific entities, in addition to financial performance and correlations that have diverged away from the greater Financial Sector. The change reinforces that real estate is inherently different from banks and insurance companies, and is indeed its own diversifying asset class with a need for distinct financial and management-level benchmarking.
With the recent spotlight placed on listed real estate companies, the market has reaffirmed the asset class’ unique characteristics and need for rigorous, class-specific measurement of all portfolio and management components, including environmental, social and governance (ESG) factors. ESG is especially important for real estate, as it has been shown repeatedly to materially impact the financial performance and longevity of real estate.
Real estate’s increased visibility will require portfolio managers to better understand the full materiality of their holdings. Aligned with other globally recognized sustainability frameworks, but specifically aimed at real estate and infrastructure, GRESB data supports investors and managers in developing this deeper comprehension by acting as a function to measure and benchmark the portfolio’s ESG performance and risk metrics. This level of analysis is necessary to more cohesively attribute a portfolio’s risk and performance to individual real estate holdings.
As listed real estate companies move into a Sector of their own, the need for accurately focused data becomes even more paramount. REITs and real estate companies who open their doors to investor transparency across all components of their operations are well-positioned to beat the rush of investor demand. Robust reporting standards and clear ESG value capture will provide reputational boosts, leading to strengthened investor confidence and increased allocation weightings on high-performing real estate companies.