Pandemic Increases Investments in Green Buildings

The bleak outlook created by the pandemic has a green-tinged silver lining. The market upheaval is creating opportunities to invest in environmentally sustainable buildings that will not only potentially make investors feel good but also deliver good financial returns. A recent report from property agent Savills cited. Research by asset manager M&G explains how environmentally sustainable buildings have operating costs that are 31 basis points above average due to their use of new technologies, but achieve an extra 53 bps of rental yield — which means the cash flows for distribution to investors are 19 bps higher. For a building that would ordinarily have cash flows worth £100m, the increase works out at £190,000 — well worth having in an age of zero and near-zero interest rates. Research carried out by Germany-based asset manager Warburg-HIH Invest this year found that 51 per cent of institutional investors globally now expect higher long-term returns on real estate where environmental criteria have been taken into account. Up to 70 per cent of these property investors said environmental, social and governance criteria were relevant to their decision making, or would be incorporated soon. Damian Payiatakis, head of sustainable and impact investing at Barclays Private Bank, also believes the trend to include ESG criteria is now being driven by returns. “Recent outperformance seen in sustainable liquid funds has provided the first live demonstration of the financial benefits of this approach,” he says. Others prefer to avoid equities and invest in other financial instruments, such as debt finance for green infrastructure. This is one way that HSBC Global Asset Management seeks to capture the opportunity. “We actively invest in renewable energy projects and sustainability is a key part of the credit assessments we make in our infrastructure debt investments,” says Melissa McDonald, its head of responsible investing.