With 700-plus properties valued at more than £21bn, the UK real estate portfolio at Legal & General Investment Management is a critical segment of the group’s path to being net zero by 2050. Shuen Chan, head of environmental, social and governance for LGIM Real Assets, knows the challenges well – but also the possibilities.
“We are in a great position because of our scale,” says Chan. “We do see this as an opportunity, first and foremost because for us there’s no trade-off any more between sustainability and investment performance. You actually are seeing companies with better environmental, social and governance [metrics] perform better than companies without.”
With the UK legally required to meet net-zero carbon emissions by 2050, LGIM Real Assets is focusing on how to ensure not only that new projects are in line with the goal, but also that its existing offices, warehouses, shops and homes across the UK are part of the pathway. “We need to adapt and tailor our approach to the different sectors and types of asset class,” Chan says.
There are quick wins, including encouraging the use of green energy, Chan says. But there are also longer-term initiatives that call for changes in the fabric of buildings. “That will require more time and engagement with a variety of our stakeholders in the value chain – one of the most important being the occupier,” she adds.
On the same page
The relationship between asset owner and occupier is crucial, Chan says, not least because half of the company’s portfolio is managed directly by tenants. She and the LGIM Real Assets team are confident that “a lot of our occupiers, especially the large corporate occupiers, are on the same page with us”, but there is still work to be done to ensure the message spreads through every part of an occupier’s business.
“This is all happening really quickly – it’s coming like a bullet train,” she adds. “[An occupier] can have corporate HQ make that [net zero] commitment, but it needs to filter down through the organisation to the people that we are dealing with and making the decisions on the lease itself and the contract. It’s really important for us to join up all the dots. When we do – and we are making some good traction – we start having a peer-to-peer dialogue around how we get to net zero together.”
The company is now gathering data on energy usage from its occupiers and other stakeholders (“You can’t reduce what you can’t measure,” Chan notes), and has worked with consultancy Evora Global on an integrated data platform that consolidates data on energy consumption, gas consumption, water waste and other metrics across assets and funds.
“If data is in different parts and pieces, it doesn’t provide a complete picture,” Chan says. “If you don’t know where you are today, you’ve no idea how to get to the destination.”
Carrot and stick
Although that system is LGIM-specific, Chan is eager for industry-wide collaboration. “We can’t do this on our own,” she says of the broader net zero journey. “It has to be a collective. I take my hat off to the Better Buildings Partnership as a coalition. They’ve done, and continue to do, a fantastic job in bringing the industry together, looking at best practice, and having very frank, open conversations about the challenges that we all face and sharing how we can overcome them together.”
If only Chan could say the same of government. Like others in the industry, she was disappointed that the recent Budget did not include more in the way of support for green initiatives.
“We need government to be more joined up,” she says. “High-level, strategic commitments need to filter down into policy, regulation and guidance that can really help. It’s a bit of the carrot and the stick – really incentivise the private sector and consumers to make the right decisions and to start making them now.”
Chan is fully on board with the government’s goal to “build back better” after the pandemic. But it’s not enough, she adds: “We need to build back greener as well – we mustn’t forget that.”
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