Close
FSSA-logo-colour-png.png

Specialist in Asia Pacific, China, India and South East Asia and Global Emerging Market equities.

Discover more
Close
rqi-investors-logo-ash-mint.png

formerly Realindex Investments

Leader in active quantitative equities across Australian equities, global equities, emerging markets and global small companies.

Backed by a unique blend of research, portfolio construction and risk management, focused on uncovering original insights and translating them into investment strategies that are active and systematic, aiming to generate alpha.

Discover more
Close
SI-logo-black-png.png

At Stewart Investors, we believe in putting people first. Our investment world-view is of a series of partnerships – with each other, with our clients, with the companies we invest in, the people who buy their goods and services, and with the wider society in which we all live and work.

Discover more

Why the ‘E’ should matter to property investors

Why the ‘E’ should matter to property investors

While the decarbonisation efforts of Real Estate Investment Trusts (REITs) have advanced reasonably well in the last five years, it’s what happens next that could be most meaningful for investors

The investment opportunity for real estate is quite real and tangible when it comes to environmental considerations. We think this is only going to get more important as REITs align with higher standards expected of them by the communities and regulators.

The global property sector’s continuing alignment on Taskforce on Climate Related Financial Disclosures (TCFD)i is an example of the kind of higher standard property companies are being held to.

Then there’s the standards investors like us are creating as we wait for official standards and benchmarks – including the World Business Council Green House Gas Emission Protocols – to catch up.

Operational carbon (scope 1 and 2) is now mostly measured across the listed REIT sectorii. It’s the so called embodied carbon emissions (scope 3)iii that may end up surprising investors that haven’t assessed the impact of emissions in the full life-cycle of an asset when more stringent regulations are put in place. 

We believe there is a direct link between Environmental, Social and Governance (ESG) alignment and long-term value for investors in listed property. And while we have been pleased with the developments made by the property sector to date, the work ahead on the environmental side is likely to be more meaningful for investors than ever.

Where the rubber hits the road

Think about modernisation programmes, for example. As renovations and upgrades continue, upgrades in technology and materials can lead to major improvements in a portfolio's energy and carbon efficiencies.

Modernisation can equate to lower ongoing tenant costs of occupation when viewed through the investor lens. Energy savings through modernisation programs typically get shared between landlords and tenants.

Improvements in energy efficiency through modernisation can also increase the “rentability” of buildings, leading to more secure cash flows.

Tracking and measuring the effectiveness of modernisation programmes and how these programmes translate into better cash flows and greater tenant demand can directly relate to investor outcomes.

Beyond modernisation, another emerging area of materiality for property investors are carbon offset programmes.

We expect carbon offsets to be a significant risk mitigating factor in coming years as carbon regulation gets rolled out.

Landlords with established high-quality offset programmes will be at less risk of increasing financial liabilities associated with the rising cost of carbon credits.

ESG has progressed, but there’s more to come

Overall, we consider ESG adoption to be a positive development in the property sector. Social disclosures have been improving, whilst corporate governance evaluations have been a mainstay for investors already now for many years.

We have had ESG considerations embedded in the investment process for a decade now and it’s clear to us there is a high correlation between these considerations and shareholder returns. 

We believe there are no losers, broader society and the environment benefit, corporate culture strengthens, and so do employee and executive and shareholder outcomes.

We expect to see higher returns in the property sector attributable to the progress REITs are making on their energy and carbon efficiencies, as carbon emissions reduction programmes become more and more prevalent.

ihttps://www.unpri.org/infrastructure-and-other-real-assets/tcfd-for-real-assets-investors/7495.article

iiOperational carbon is the carbon released from the ongoing operation of the building, including from sources such as power, heating, cooling, lighting, ventilation etcetera.

iiihttps://ghgprotocol.org/standards/scope-3-standard

Important Information

This material has been prepared and issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017) (FSI AIM), which forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group. A copy of the Financial Services Guide for FSI AIM is available from First Sentier Investors on its website.

This material contains general information only. It is not intended to provide you with financial product advice and does not take into account your objectives, financial situation or needs. Before making an investment decision you should consider, with a financial advisor, whether this information is appropriate in light of your investment needs, objectives and financial situation. 

Any opinions expressed in this material are the opinions of the individual author at the time of publication only and are subject to change without notice. Such opinions: (i) are not a recommendation to hold, purchase or sell a particular financial product; (ii) may not include all of the information needed to make an investment decision in relation to such a financial product; and (iii) may substantially differ from other individual authors within First Sentier Investors.

To the extent permitted by law, no liability is accepted by MUFG, FSI AIM nor their affiliates for any loss or damage as a result of any reliance on this material. This material contains, or is based upon, information that FSI AIM believes to be accurate and reliable, however neither MUFG, FSI AIM nor their respective affiliates offer any warranty that it contains no factual errors. No part of this material may be reproduced or transmitted in any form or by any means without the prior written consent of FSI AIM.

Any performance information has been calculated using exit prices after taking into account all ongoing fees and assuming reinvestment of distributions. No allowance has been made for taxation. Past performance is not indicative of future performance.

Copyright © First Sentier Investors

All rights reserved.