In the property sector, the introduction of ESG principles has, to date, largely been confined to the design and redevelopment of ‘green buildings’. But a handful of fund managers has sought to integrate ESG in all aspects of their work. Property, more than most asset classes, is all about the long term, which is about sustainability.
Clarion Partners of the US, a global real estate manager, is a noted ESG proponent. Jeb Belford, a managing director and portfolio manager, visited Australia late last month to talk about trends in global real estate and the firm’s largest and core fund – the Lion Properties Fund – which represents a good example of integrating ESG principles throughout the asset class. The fund has about US$12 billion under management.
Belford said that while the US political instability had introduced some doubt in the property and other markets, the underlying direction was a solid foundation for investors. “Real estate, more than other asset classes, tends not to get so affected by politics,” he said. “We may have a divided country politically but underlying fundamentals, which are strong, are more important.”
Colin Taylor, sales director at Legg Mason, concurs, having spoken to many super funds about global real estate, as well as other globally affected investment strategies. Clarion Partners is one of the nine affiliate managers of Legg Mason.
Taylor said, while introducing Belford to local investors, that globalisation versus populism was a current macro theme, but when people looked at real estate – bricks and mortar – it was more About fundamentals. “I don’t think the macro risks are as important with real estate,” he said.
The “big four” asset class sub-sectors are office, apartments, industrial and retail. Retail is clearly the problem child at the moment. But Belford says there are other property types to be explored. These include: hotels; storage; student housing; seniors housing; and, medical offices.
That view is shared by other property specialists such as Heitman (see report this edition), which has just launched a “living” real estate fund focusing on Europe, that includes investments in student, seniors and multi-family dwellings.
Belford said that he believed that storage was the most interesting of these asset sub-classes at the moment. Partly this is because of the transition of former industrial properties to warehouses, which are catering for the growing demand for internet-purchase deliveries. They also cater for life events, such as retirement, divorce and increasing mobility around employment. “The one sector which has the most promise at the moment is industrial,” he said, “because of this transition.”
Clarion’s ‘corporate responsibility’ mission supports several important goals:
- Create value. Increase revenue through strategic capital investments and reduce operating expenses through active management of properties.
- Conserve resources. Reduce energy and water consumption, and waste creation through operating improvements at our properties.
- Invest in sustainable buildings. Integrate environmentally responsible practices throughout each investment’s lifecycle.
- Lead by example. Integrate the corporate responsibility approach in all aspects of operations; benchmark and communicate results; actively participate in the broader community; and engage business partners, tenants, investors and other stakeholders.
In its fourth year, the Clarion Annual Report outlines how the firm is working to deliver against its corporate responsibility mission and other ESG goals.
- Clarion was among the first commercial real estate firms to join and sign a five-year commitment to the PREA Foundation’s new ‘Real Estate Track’ initiative with the ‘Sponsors for Educational Opportunity’ (SEO), which is dedicated to increasing diverse employment in the commercial real estate industry, and hosted two interns as part of the program earlier this year.
- All three of Clarion’s open-ended funds earned GRESB’s’ ‘Green Star’ designation (GRESB is an international ESG benchmarking service).
- Clarion has delivered more than US$26 million in efficiency investments and US$20 million worth of solar power installations in recent years.
- Clarion maintains 71LEED-certified assets and ‘Energy’-certified assets.
- Clarion scored an A+ with PRI, which is the UN-affiliated organisation’s highest possible score for implementation of responsible investment policies.