COMMENT: The past 12 months has represented an important tipping point. Intense focus is being cast on individuals and corporates alike, and how each is tackling its environmental and societal impact. But last month the real estate industry nailed its colours to the mast. Business chose to prioritise wellbeing over dealmaking by pulling out well before MIPIM was postponed. In the same week, the PIA united £1.6tn of commercial property to back its seven ESG principles. In an increasing tug of war between profit and purpose, purpose might now be starting to tip the scales.
LGIM Real Assets was an early adopter of sustainable investment and has championed ESG values since 2008. We were an early participant in the Global Real Estate Sustainability Benchmarking initiative and now have a renewables portfolio of £1.1bn.
In the past two weeks, we have further stepped up our commitment. As well as backing the PIA’s framework, we have announced three deals that break new ground in the ESG space: our first solar PV investment in continental Europe; the expansion of our partnership with Croydon Council, providing 250 homes for homeless families; and deploying £100m of UK pension money directly into developing affordable housing. We are backing our pension promises with social investment, in what we call inclusive capitalism.
A large load to bear
Globally, there is $14tn earning negative nominal returns. Inclusive capitalism is about delivering better returns for investors by unlocking this money to build better societies. Our industry, which creates communities for people to live, work and play, has a large load to bear.
This is why the PIA’s announcement, uniting such a large cross-sector of the industry, is so important. Schemes should facilitate universities to work alongside business; improving productivity, while creating jobs and homes and attracting new residents – all in a sustainable way. Diversity and inclusion, transparency and responsibility around data also need to be tackled.
Last year, the OECD invited Legal & General to play a leading role in developing its Business for Inclusive Growth initiative. This public and private sector collaboration across the G7 provides an opportunity to address common challenges and drive opportunities for inclusive growth.
Of course, as one of the UK’s largest investment managers, we are fortunate to have financial firepower that some don’t have. But there are other companies with huge commercial resources still investing in side projects while their corporate machinery rumbles on untouched. Guiding principles and initiatives aside, there is more work we need to do.
Image problem
To the wider world, our sector is not deemed to be the most responsible investor. This is an image problem we have struggled to shake. Large new developments can lead to local fear over negative implications, such as increased traffic, loss of natural space and light, noise pollution and so on.
There is a feeling that developers swoop in and build more for profit, without considering the affordability, local amenities, transport or infrastructure needed to improve the local area. There is a perception that development profits are kept exclusively for a few, rather than shared out across millions of savers.
Clean energy infrastructure is another good example. The climate crisis may be a top priority globally, but unsightly design, such as large-scale wind farms, often result in planning objection and outcry. How to overcome this image and wider objections is our next big challenge. Daily struggles with planning consents and securing sites could be relieved by a new progressive approach, meaning development is welcomed, not vilified.
As an industry, we need to instil trust and confidence in investors, local councils and communities. The PIA’s ESG principles are a first step, but for real change we need a sector-wide adoption of a transparent framework to measure impact.
Winston Churchill said capitalism was the “uneven sharing of blessings” but inclusive capitalism can change communities and lives for the better, while also enhancing performance. For investors, employees and occupants, this is now a must – not a nice-to-have. A year of upheaval and the PIA have carved out a path to monumental change. Let’s not lose this momentum.
Bill Hughes is head of real assets, Legal & General Investment Management
