FTSE, NAREIT, USGBC Develop Groundbreaking Green Indexes

WASHINGTON, DC-FTSE Group, NAREIT and the US Green Building Council are in the process of building a new family of green property indexes for both institutional and retail investors. Expected to debut in the first quarter of 2013, the indexes will be based on the FTSE NAREIT Index Series and use data—namely 13,126 LEED and 18,402 Energy Star projects—provided by USGBC.

There will be 76 REITs in the index at first. Any REIT with a LEED-certified or Energy Star-rated building is eligible, NAREIT's SVP Brad Case explains to GlobeSt.com. The weight given to each REIT in the index is based on how much of its portfolio is green. Some, such as Government Income Properties Trust and Vornado, have a significant weight, he says. Others are just starting on greening their portfolios. "Some REITs in, for example, the industrial space won't have many buildings in their portfolios that are green because the industrial asset class started later with this process than office," Case says.

FTSE and NAREIT had been tossing around this idea for some time, Gordon Morrison, managing director at FTSE's environmental, social and governance group, tells GlobeSt.com. "We were talking about how we could construct a product that would give institutional and retail clients exposure to green properties. One thing, though, that we knew was missing was a clear definition of what a green property is." Enter USGBC. FTSE and NAREIT reached out to the organization to see if it were open to the idea and found, not surprisingly, that it was. "I would say the most significant piece to all of this is the huge amount of work USGBC has done for the project," Case says. "They have had to identify the properties that are LEED certified but they also have to keep its data completely up to date" so that the REITs' weights in the index are accurate.

The work, or research rather, involved in the project is what USGBC found intriguing, along with its mission, Chris Pyke, VP of research for USGBC, tells GlobeSt.com. "By combining NAREIT's and FTSE's algorithms with USGBC data, we can easily track the progress of LEED among REITs," he says.

This information is in increasing demand by both institutional and retail investors, Morrison says. "We have done some soft marketing of the indexes and the demand is pretty significant. We have approached large pension funds in the US, UK, continental Europe and Asia to see if they had any interest in the idea of a green investable property vehicle."

To a man, Morrison says, "they were all very interested."