07 - 09 March 2023 | ExCeL, London

07 - 09 March 2023
ExCeL, London

Opinion piece

Investing for Change

An opinion piece article by Alexandra Notay, Placemaking and Investment Director, PfP Capital

“Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

Larry Fink, Founder, Chairman and CEO of Blackrock, the world’s largest asset manager, sent a ripple through the investment and financial service sectors in 2018 when he included this statement in his annual letter to investors. Subsequent letters have reiterated the importance of diversity within organisations, adaptation to the climate emergency and the net zero challenge.  The texts have been added to the reading list of multiple business school MBA courses and represent a cultural shift in the investment market, particularly in real estate and construction where the GlobalABC (Global Alliance for Buildings and Construction, formed by the UN Environment Programme) has highlighted in its fifth annual status report that in 2020 our sectors contributed 38% of global emissions.

ESG serves two chief purposes – it acts as a tool to mitigate risk from the known and unknown future and build resilience to these risks, and a framework within which real estate can create positive environmental and social change. According to the Investment Association, in the UK last year, one out of every three pounds in net sales of retail funds went to ‘responsible’ products. The 2020 JLL European Living Investor Survey found that 77% of its investor respondents had now mandated some form of sustainability criteria into their investment structure. Increasingly specific certifications or benchmarks are being required, yet it is still a challenge to cover the immediate costs and reflect the anticipated (but not evidenced) premium in appraisals and business plans as well as to find a certification that covers all the aspects.  Many are heavily weighted towards carbon and the ‘E’ but do little to pick up on the long-term social value or governance even though these are often more visceral and visible to communities, occupiers and residents.

In addition, as the leader article that I chose from the FT highlights, the risks of greenwash, both perceived and actual, are significant. An earlier FT piece from 20th February 2022 by Laurence Fletcher and Joshua Oliver noted that:

 “In August, a report by climate think-tank InfluenceMap, found that 421 out of 593 equity funds it assessed had portfolios that were not aligned with the Paris climate targets. The research, which used the widely accepted Pacta (Paris Agreement Capital Transition Assessment) methodology to measure alignment, further found that 72 out of 130 climate-themed funds were not in line with the Paris goals. That included three out of four funds marketed as ‘Paris-aligned’.”

As Chair of the BPF (British Property Federation) working group on ESG and residential and a member of the AREF (Association of Real Estate Funds) ESG and Impact Investing Committee I can confirm that the UK real estate sector is extremely focussed on the practicalities of achieving net zero and meeting our ESG commitments.  As noted above, this isn’t just for corporate responsibility or doing the right thing – there is naturally an element of enlightened self-interest. The 2014 ULI Europe research on Extreme Weather Events and Property Values by Professor Sven Bienhart demonstrated that “direct monetary losses related to real estate and infrastructure resulting from severe weather events have tripled globally during the past decade.” In 2014 direct losses recorded by reinsurance companies globally amount to US$150billion a year and in 2021 the USA adopted new federal flood insurance rates to better reflect the real risks of climate change.

The latest term to strike fear into the hearts of investors and fund managers is ‘stranded assets’ – those assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities. Suddenly real estate portfolios that looked like robust performers have to be scrutinised for obsolescence risk in both climate risk and financial risk terms and future-proofing both existing and new buildings is a key priority. The granularity of analysis required is complex, time-consuming, often contradictory and, inevitably, expensive. Another disincentive to the very rapid strategic change that climate scientist are telling us with increasing urgency, that we need to make.

Yet defining what meets ‘good’ performance in ESG terms is strikingly difficult when there aren’t any agreed baseline definitions or criteria. While UK policy intervention has focussed on green incentives to owner-occupiers or penalties for low EPC-rated properties, the FCA, COP, European and global markets have moved toward direct regulation around climate risk and energy use with a collection of ever-more confusing acronyms, from SFDR (Sustainable Finance Disclosure Regulation) to TCFD (Taskforce for Climate-Related Financial Disclosures); – but when the EU have decided to include gas and nuclear power in their ‘acceptable sources’ for Net-Zero it’s not surprising that investors, developers, design and construction professionals are somewhat confused! Add to that the phenomenal pace of change in terms of technology, customer expectation and market dynamics and it is sorely tempting to stick one’s head into the sand or wait for others to take the plunge. The trade-offs referred to in the FT leader article are many in a real estate context – considering customer affordability against net-zero, particularly in the current energy crisis, differing time horizons between investors, operators and occupiers, the lifespan of technological innovations that seem promising but are as yet unproven; all make building in ESG-related flexibility into buildings much more difficult!

Wearing both BPF and AREF hats I was one of a team of co-authors of a submission to the FCA (Financial Conduct Authority) around appropriate ESG metrics for proposed UK regulation of the real estate and asset management sector where we tried to highlight the collaboration already underway but the complexities of implementing one regulatory metric in such a complex and uncertain space.

The proliferation of more than 500 real estate and sustainability benchmarks that have emerged over the past 20 years are overwhelmingly focused on the commercial real estate sector – a sensible place to start given a typical office or shopping centre is a far more homogenous asset, without the granular operational quirks of residential portfolios and with a more straightforward landlord-tenant relationship. However, decarbonising our housing sector is a critical element to achieve Net Zero and despite advances in sustainable and zero-carbon new- build homes, the institutional private rented sector’s (PRS) path remains unclear.  

When BPF’s residential members made the not unreasonable request for my ESG/resi group to simply recommend the best existing benchmark, we realised there was a gap in understanding of what is available and applicable. There simply wasn’t one viable benchmark that could be universally adopted to move UK residential along so we created some guidance of what the ESG service providers market currently offers, to help investors and developers at least understand that better and to enable more productive conversations with their professional advisor teams. This guidance published in COP week in October 2021 is freely available to download:  


There are so many nuances to this ESG and net-zero conversation that I’ve only been able to skim the surface here so I really look forward to debating with my fellow panellists and with FutureBuild members in the webinar on 22nd June!

Alexandra Notay

Placemaking and Investment Director, PfP Capital

Chair, BPF Working Group on ESG and Residential

Member, AREF ESG and Impact Investing Committee

Independent Commissioner, UK Geospatial Commission

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