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ESG in the Rental Market

In a study of investment in the UK rental sector, John German of Investco highlights the expanding definition of ESG and the increasing importance of sustainable investing in the Built to Rent (BtR) sector:
Strong ESG [environmental, social and corporate governance] characteristics are a feature of genuinely durable physical assets. ESG and sustainability are becoming key drivers during acquisition planning, development and ongoing property management of the BtR assets.[1]

As German points out, the meaning of the (notoriously vague) term “ESG” has come to encompass not only “energy efficiency, water, waste and recycling” but renewable energy, on-site storage and, more recently, health and wellness. It is, simply, a measure of the sustainability and societal impact of an investment. Investors are more and more looking to invest sustainably, divesting from businesses that fail to address their carbon contribution, and voting against board chairs due to a lack of gender diversity. In other words, their concern is not only with ROI but with the social and environmental consequences of putting money behind efforts to tackle climate change, inequality, or lack of diversity.

A robust ESG plan must be put in place for developers in the BtR market to attract international investment. Investors are concerned not only with the practical advantages of investing sustainably (reduced risk of reputational cost from labour unrest, pollution lawsuits, and so on) but with actively promoting trust in management and in the board, especially among shareholders.[2] Massive public upset following the BP oil spill, and the VW emissions scandal (and the resultant impact on share prices), has encouraged renewed focus on ESG across all markets. It is central to protecting the bottom line and ensuring a healthy culture within any large organisation. With these benefits in mind and especially given the continued growth of BtR in the UK, it is hardly surprising that so many investors place great importance on the long-term performance of a sustainable investment approach, and are moving away from more traditional strategies.

ESG investing also aligns with UK targets to achieve net zero carbon by 2050 (2045 in Scotland), with increasing focus on power in the buildings sector where around 70% of carbon emissions originate. Frameworks set out by the UK Green Buildings Council and Committee on Climate Change support the move towards sustainable investing, and show the potential for future growth as green buildings continue to attract investment. The obverse is also true: investors will become increasingly wary of traditional builds without efficient data integration, preferring to invest in real estate that will hold value as those net zero deadlines draw near and as environmental legislation changes.

Our service offering recognises the importance of sustainable investing in the UK’s burgeoning BtR sector, and the importance of historic data in meeting the ESG standards that are expected by investors. We are developing an integrated software/IoT platform to combine process automation with in-house developed data analytics and control. Using data analysis, we optimise energy use and unlock the value in building technology for our clients through a managed service. Importantly, an auditable data trail lets building owner-operators see how well their assets are performing relative to any initial score, and our software platform lets them view asset performance in real time, helping to optimise energy consumption. Our full suite of hardware and software reflects an understanding of the need for long-term sustainable investment not only for building operators, but for the environment and for society.

In addition, our wellness metric uses historic and live data to ensure that building owners can provide a safe and healthy environment for their customers and employees. Increased focus on wellness has been a marked feature of the market, especially in recent months, and a major incentive for investors to embed a strong environmental, social, and governance structure into their investment portfolio. From the perspective of building owner-operators, an optimal indoor environment not only attracts and retains the best staff, it also satisfies the high expectations of residents and guards against the spread of infection. A robust ESG policy is therefore even more important in the aftermath of COVID-19, and continues to be underpinned by data analysis.

 

[1] John German, “Whitepaper: UK Private Rented Residential Sector: An income generative infrastructure investment?”, Investco

[2] https://securities.bnpparibas.com/files/live/sites/web/files/medias/documents/esg/esg-global-survey-en-2019.pdf

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