Don Jordison, Managing Director, Property at Columbia Threadneedle Investments talks about how low carbon strategies in real estate cater to institutional investors’ fiduciary duty and shape active investment solutions
Climate change is firmly back on the agenda. In December, United Nations delegates will meet at the 2015 Climate Change Conference in Paris to negotiate a global agreement on climate change.
As large asset owners, institutional investors have an important role to play in helping to mitigate the risk of climate change. I know from my own conversations with clients that they are keen drive positive outcomes for society, not least because as large asset owners, they have a moral responsibility to do so. But there is also an incentive to take climate change into account when it comes to investment decisions.
As large asset owners, institutional investors have an important role to play in helping to mitigate the risk of climate change. I know from my own conversations with clients that they are keen drive positive outcomes for society, not least because as large asset owners, they have a moral responsibility to do so. But there is also an incentive to take climate change into account when it comes to investment decisions.
"As large asset owners, institutional investors have an important role to play in helping to mitigate the risk of climate change"
Indeed in July last year, the Law Commission released a report on the fiduciary duty of pension trustees, noting that taking ESG factors into account is designed to reduce risk and should therefore be considered along with financial factors. This doesn’t mean institutional investors have to give up financial return on their investment, in fact quite the opposite is the case. The emphasis is on active investment solutions – not divestment.
We know that as a large investment manager we have the ability – and the responsibility – to help investors facilitate flows into investments with tangible environmental outcomes. In 2010 we took a pioneering step towards CO2 reduction by teaming up with Stanhope, one of the leading commercial developers and the Carbon Trust, a world-leading adviser to businesses, governments and the public sector on carbon reduction.
Together we launched the Low Carbon Workplace (LCW) Trust, a partnership between industry leaders in property investment management, design, carbon engineering/refurbishment and carbon compliance. We identify suitable office buildings and turn them into modern, energy-efficient workplaces, while at the same time generating returns for investors. We then let and manage the buildings to ensure ongoing management and reduction of energy wastage.
LCW offers a compelling investment case. Last year, it returned 11.7% per cent net of fees. Lower energy costs mean properties are resistant to functional and environmental obsolescence. Due to the imbalance between supply and demand, low carbon properties also benefit from better security and quality of income, greater potential for capital gains, shorter void periods and access to pre-let developments.
A good example of a recent refurbishment project undertaken is the six-storey Mansel Court in Wimbledon. Built in the 1960s, it had been losing a lot of heat due to its single-glazed windows with metal frames and poor seals. We transformed Mansel Court into a state-of-the-art eco building that is now over 50% more energy efficient than it was before the refurbishment. Air-tightness exceeds building regulations while tenants can still make use of the windows. It was also the first commercial building to have capillary matting embedded in its floors and ceilings. This low-energy system enables cold water to circulate through small plastic tubes to cool the building efficiently. Smart meters and occupancy sensors compare energy consumption to occupancy levels, helping the Carbon Trust to monitor and improve the energy performance of the building together with the tenants.
We know that as a large investment manager we have the ability – and the responsibility – to help investors facilitate flows into investments with tangible environmental outcomes. In 2010 we took a pioneering step towards CO2 reduction by teaming up with Stanhope, one of the leading commercial developers and the Carbon Trust, a world-leading adviser to businesses, governments and the public sector on carbon reduction.
Together we launched the Low Carbon Workplace (LCW) Trust, a partnership between industry leaders in property investment management, design, carbon engineering/refurbishment and carbon compliance. We identify suitable office buildings and turn them into modern, energy-efficient workplaces, while at the same time generating returns for investors. We then let and manage the buildings to ensure ongoing management and reduction of energy wastage.
LCW offers a compelling investment case. Last year, it returned 11.7% per cent net of fees. Lower energy costs mean properties are resistant to functional and environmental obsolescence. Due to the imbalance between supply and demand, low carbon properties also benefit from better security and quality of income, greater potential for capital gains, shorter void periods and access to pre-let developments.
A good example of a recent refurbishment project undertaken is the six-storey Mansel Court in Wimbledon. Built in the 1960s, it had been losing a lot of heat due to its single-glazed windows with metal frames and poor seals. We transformed Mansel Court into a state-of-the-art eco building that is now over 50% more energy efficient than it was before the refurbishment. Air-tightness exceeds building regulations while tenants can still make use of the windows. It was also the first commercial building to have capillary matting embedded in its floors and ceilings. This low-energy system enables cold water to circulate through small plastic tubes to cool the building efficiently. Smart meters and occupancy sensors compare energy consumption to occupancy levels, helping the Carbon Trust to monitor and improve the energy performance of the building together with the tenants.