Environmental, social and governance (ESG) issues continue to hit the headlines. Charities investing in equities have a range of approaches open to them to implement their ESG policies, encompassing the traditional exclusion of certain stocks through engagement with company management to the increasing number of opportunities to invest specifically to achieve a positive impact as well as financial return, or use a combination of all approaches.
Charities who wish to allocate capital to commercial property as an asset class do not always have such flexibility. It is generally agreed, for small to medium-sized charities that an indirect exposure, as opposed to buying buildings directly, is the logical approach and gives charities a diversified and professionally managed portfolio without the stresses that direct property management can bring.
There are specialist pooled funds for charities that allow them to invest in commercial property but also retain the tax benefits of investing directly, principally being exempt from Stamp Duty Land Tax (SDLT), which is charged at 5 per cent.
Furthermore, there are an increasing number of ways in which property investment can be used as a force for good, in particular in the field of sustainability e.g. switching landlord controlled electricity to certified renewable suppliers and using refurbishments to reduce the environmental impact of buildings. Real estate is a significant contributor to carbon emissions, so it is vital that the industry is fully engaged.
Environmental issues are key but are only part of the picture, and, in the property world, ESG is often referred to as Responsible Property Investment (RPI). Property fund managers can engage with their investors and, as far as is possible, reflect the investors’ values in the properties they buy and the way they are managed.
By example of a way in which charities can look to use property to invest for the greater good, at Mayfair Capital, we operate a specialist fund, The Property Income Trust for Charities (PITCH), which has an Investors’ Committee with whom we consult in adhering to our ethical policy in the management and investment of the fund.
Reflecting our investors’ values, the fund does not invest in property assets where an unacceptable level of a tenant’s business turnover is derived from alcohol, gambling, armaments, tobacco products or the sex industry. These restrictions are kept under review on a regular basis. This is just an example of the way RPI principles can work to reflect investor’s ethical values.
So ‘Responsible Property Investment’ goes far beyond simply reducing carbon emissions and waste because property investors can choose the physical assets they invest in and who occupies them.
They can alter and improve their properties and engage with their tenants to have a direct positive impact on the environment. Just as in the equity markets, ESG in the property field can be proactive rather than just restrictive. Property investors can achieve their investment returns and at the same time have a positive impact on the world in which we live.
Clare Berthoud is a director of business development at Mayfair Capital Investment Management.