Protecting investments

Most tenants are already switched on to the value of buildings that are low energy, low carbon and de-risked from future energy costs and regulation.

 

Now, developers and property fund managers are beginning to make similar connections between high-performance buildings and mitigated risks to property investment portfolios.  For many, it stands to reason in the wake of the Lehman Bros crash of 2008, to limit a repeat of the write-down of billions of value from managed property portfolios.  Much of this write down happen due to a disconnect between the quality of the asset and its book value.

 

 

Fiduciary risks in Property

In addition to the maintenance of visibility of quality, there is also the longer-term risk from climate change and the tsunami of legislation set to engulf property if we are to alleviate its continuing plunder of the world's natural resources.

 

Managed property funds exist to provide safe long-term investment.  In recognition of this, funders will be conscious of their fiduciary duties (duty of care to investors to protect against known 15 to 20-year horizon risks) to consider environmental, social and governance (ESG) matters during the investment process.

 

 

Already we are seeing the increasing importance to portfolio managers of the US-based Asset Owners Disclosure Project (AODP), AODP recently launched an initiative that could see members sue pension funds managers where they are perceived to be ignoring medium term climate and environmental risks. 

 

Similarly, the Global Real Estate Sustainability Benchmark (GRESB) is a now well established and increasingly important benchmark for city investor portfolios. The benchmark sets out to provide a risk rating for building property portfolios based on operational energy and sustainability criteria.

 

In 2015 GRESB has added occupant wellbeing to its benchmarking index for property portfolios. The report suggests that owners believe improved health improves employee engagement and productivity. Thus we are seeing the beginnings of a new property paradigm for investors, one that links the configuration of the property asset to the competitive advantage of the occupant's business. 

 

GRESB has over £8bn of certified property globally.  Membership which includes most of the most influential global pension fund managers.

 

All of this signals a greater attributed importance to getting buildings to perform well from the start and adds to the reasons why developers and developer contractors need to begin to think much more seriously when it comes to aligning commercial needs with customer's needs.  Customers and property fund managers will start to demand more stringent criteria before they accept a property investment, especially as the emergent impacts of COP21 begin to take hold. 

 

“Analysing a company’s attitude to these factors [fiduciary risks] can often provide insights into a company’s long-term vision, its strategy for implementing that vision and the probability of its success,”

​

 

Generation Investment Management