NAREIM Member Survey, ESG cost allocations

December 11, 2023

ESG cost allocations borne by the investment manager or management corporation will decrease on average 19% over the next two years, according to a NAREIM member survey.

However, vertically-integrated firms typically absorb more ESG costs at the manager level compared to allocator firms, which are moving costs to the vehicle/fund or property at a faster pace than their vertically-integrated peers.

NAREIM surveyed members between November 14 and December 5 to understand where ESG costs were primarily being borne - whether at the investment manager/corporate level, at the vehicle or fund level or at the property-level. A total of 32 member organizations participated.

Download your copy of the ESG cost allocations survey to see the results - split between all participants as well as allocators-only and vertically integrated-only firms.

Key findings included:

All participants:

Reporting costs will increasingly move towards the fund/vehicle expense, while ESG program, software and decarbonization programs will move to the property.

• 56% of firms expect to allocate most of their GRESB, investor ESG reporting and regulatory reporting costs to the vehicle or fund in the next 24 months, up from 39% today 

• 45% of firms expect to allocate most of their ESG program, software and decarbonization costs to the property in the next 24 months, up from 38% today

Capital allocator firms only:

Allocators absorb less ESG costs at the investment manager level compared to their vertically-integrated peers, but particularly around reporting - with allocator firms expecting to reallocate costs to the fund/vehicle or property at a faster pace over the next two years.

• The number of allocator managers absorbing GRESB, investor reporting and climate risk reporting costs at the management/corporate level will decrease by an average of 29% over the next 24 months.

• GRESB, investor reporting, regulatory reporting and marketing materials will increasingly be borne by the vehicle/fund.

• Climate risk reporting together with ESG software and decarbonization costs will increasingly become a property expense.

Vertically-integrated firms only:

Vertically-integrated firms absorb more ESG costs at the investment manager level compared to their allocator peers, not least on reporting, with double the number of vertically-integrated managers covering GRESB and investor ESG reporting costs at the management level compared to allocators.

However, like allocator peers, vertically-integrated firms expect to move costs increasingly towards the vehicle/fund and property over the next 24 months.

• Investor reporting, regulatory reporting, climate risk reporting and ESG program fees and software fees will increasingly be borne by the vehicle/fund.

• Like allocators, vertically-integrated firms see decarbonization costs as increasingly becoming a property expense.

Download your copy of the ESG cost allocations survey to see the results - split between all participants as well as allocators-only and vertically integrated-only firms.