Property funds are responding to the challenge of climate change with Foresight launching a sustainable real estate fund and Derwent London planning to be the first carbon neutral real estate investment trust.
Sustainability has long been a buzzword for stock pickers but the real estate sector is catching up as property funds turn green.
Foresight Capital Management has launched the FP Foresight Sustainable Real Estate Securities fund, that will operate as a fund-of-investment trusts, picking real estate investment trusts (Reits) for their sustainability focus.
Foresight said this was the first UK real estate fund of its kind and would target an income yield of 4% a year plus capital growth.
The open-ended fund hopes that investing in Reit shares will mean it avoids the liquidity issues many physical ‘bricks and mortar’ property funds have faced, and the consequent suspensions of those funds at times of heightened redemptions.
The fund will ‘benefit from the resilient growth of trends of real estate assets without compromising on liquidity’ and the weighted average market capitalisation of companies invested in is over £6bn.
When picking Reits for the portfolio, manager Mark Brennan, will ensure sustainability plays ‘an integral role’ and the fund will follow the UN Global Compact 10 Principles, that ensure companies meet minimum fundamental responsibilities in the areas of human rights, labour, environment, and anti-corruption, and four of the UN Sustainable Development Goals to measure the suitability of Reits against.
The fund will invest across Europe, North America, and Asia and focus on ‘resilient’ sectors such as logistics, medical properties, and data centres. However, it will only buy shares in a Reit if the property invested in delivers a ‘net social or environmental benefit’.
Brennan, who also runs the Foresight UK Infrastructure Income fund, said traditional sources of income were ‘under sustained pressure’.
‘The fund provides global access to sectors of the property market that are well positioned to benefit from modern tailwinds, such as the growth of e-commerce and acceleration of digitisation, which can play a vital role in income-focused portfolios, while directly contributing towards a sustainable future,’ he said.
Pathway to sustainability
One Reit that may pique Brennan’s interest is Derwent London (DLN), the £3.1bn London-focused property company. Derwent has set out its plan to become the UK’s first ‘net zero carbon Reit’ by following a ‘net zero carbon pathway’.
Derwent will work towards limiting its emissions to target a ‘1.5°C climate warming scenario’. Scientists believe that keeping the warming of the earth under 1.5°C over the next century will avoid the worst impacts of climate change, and it was also the threshold for global warming agreed by world leaders at the 2015 Paris climate accord.
The pathway sets out plans to reduce the portfolio’s energy and carbon emissions, such as using all-electric heating for new developments and retrofitting existing, older properties.
It has committed to using renewable electricity and green gas to power its portfolio and ‘self-generate renewable energy from our land holdings in Scotland’, as well as investigating low carbon technologies.
The progress towards its zero carbon goal will be measured by an independent assessor.
The push for sustainability has been driven by the issue of climate change becoming an increasing concern, not just to individuals but to companies as it will impact on how corporates operate in the future.
Derwent said the property and the ‘built environment’ contributed heavily to the UK’s carbon footprint, real estate investors and developers must find ways to reduce emissions and utilise renewable energy sources.
Derwent’s recently completed project in London’s West End is the group’s first net zero building, and will be followed by two more projects in Soho and the City.
John Davies, head of sustainability for Derwent, said the company is committed to becoming ‘net zero by 2030’.
‘Following the work we have done in recent years, together with an accelerated ambition to find solutions, we will draw on innovation and collaboration to bring about effective change,’ he said.
Derwent chief executive Paul Williams said the impact of the Covid-19 pandemic will not derail the ambitious targets the company has set.
‘It is fundamental to develop a resilient business and to lessen our impact on climate change,’ he said. ‘We have an opportunity and responsibility to make a difference and look forward to working with our occupiers, suppliers, our communities, and sector peers to achieve common goals.’