A Day in the World of Ethical Investment
In January, Phil, Lisa and Andy travelled to London to meet with Kames Capital (who manage the Kames Ethical, Ethical Cautious and Ethical Corporate Bond funds) and Jupiter Asset Management (who manage the Jupiter Ecology and Responsible Income funds). These funds feature in most client portfolios. Meeting with fund managers is an important part of our on-going portfolio review service and we felt that there were a number of interesting points and positive messages to share with you which is why we have prepared this winter update.
Kames – Can Property be ethical?
The first meeting was with Kames Capital who had put together a presentation with the title – Can Property be Ethical? This was intriguing because in the past we have always felt that property was more of a ‘neutral’ investment from an ethical perspective and whether to include or exclude property from portfolios remains a regular discussion topic with clients.
Commercial Property has always featured as part of a well-diversified portfolio but it is important to understand that there are really two forms of property funds available to investors. The first is the proper ‘bricks and mortar’ funds which actually hold physical buildings, the second type of property investment focusses on investing in the shares of property companies and as a result are effectively specialist equity funds. At Investing Ethically we prefer the funds which hold the actual buildings. However, commercial property is not ethically screened and we generally consider it ‘neutral’ from an ethical perspective. We appreciate though, that some clients are not comfortable with investing in property funds.
Until recently, commercial property was not especially concerned with ethical issues but this has started to change. Investors, owners, tenants, regulators and other stakeholders are asking for greater levels of transparency in general, and specifically with respect to environmental, social, and governance (ESG) issues. This trend is fuelling demand for disclosure and information on the sustainability performance of property companies and fund managers.
We continually undertake research into the property funds and whilst in London we met with the head of commercial property at Kames Capital, Phil Clark. There is considerable divergence between the fund management companies in how they incorporate environmental, social and governance (ESG) issues. The industry is aware of this and has to this end set up GRESB (Global Real Estate Sustainability Benchmark) which is an industry-driven organisation committed to assessing the ESG performance of real assets globally, including real estate portfolios and infrastructure assets. Last year 637 property companies/funds submitted to GRESB to have their properties assessed. The ideal outcome is to receive a Green Star and last year less than a third of submissions received this, so there is plenty of scope for improvement. It is a considerable undertaking to submit for an assessment but GRESB is gathering traction. Legal changes are aiding this: for example, from 2018, any commercial property with an EPC rating of F or G will no longer be able to be leased or sold. The GRESB assessment covers issues such as Climate Risk and Resilience, Energy, Water and Waste, Health and Well-being and Tenant and Community Engagement.
The Kames Capital Property team are also examining how to report on the ethics of the property tenants. We will be monitoring the property funds we use in relation to GRESB and encourage these developments.