The S in ESG is often overlooked or misunderstood

Please tell us about Savills Investment Management

We’re a global real estate investment manager with around EUR 20 billion of assets under management all over the world. We have a 30 year track record with a portfolio of over 40 mandates made up of pooled funds, segregated accounts and strategic partnerships. We invest in the retail, office, industrial and logistics, and alternative asset classes to varying weightings across our funds.

How has the approach to ethical investment evolved over time?

We first launched the Charities Property Fund over 20 years ago as the first fund of its kind giving charities in the UK the ability to invest directly in UK commercial property. The focus back then was negative screening: excluding investments which did not comply ethically. Today, the approach is all about proactive screening and demonstrating progress with environmental or social criteria, along with identifying opportunities, be they in life sciences, education, pharmaceuticals, the NHS or the new green economy: anywhere with strong growth and a good ethical story.

Are investors compromising their returns by going down the ethical investment route?

All clients want a return and ESG brownie points, but they don’t necessarily go hand in hand. These types of investment aren’t for everyone, but those who do it, embrace it and are clearly in it for the long-term will be rewarded. Returns may not be instant, but these assets will be much more sustainable in every sense whilst other assets may become stranded.

There is a trade-off in a small reduction in returns compared to other funds as a result of the relatively narrow horizon of investment, but this is offset by the long-term returns. Sectors such as life sciences, healthcare, and vaccine productions will be relatively unaffected by COVID-19 and are well placed to ride through the pandemic unscathed. And don’t underestimate the power of peace of mind that comes from doing good and making a positive contribution to society.

Are we seeing landlords take a more responsible, ethical approach to development?

Undoubtedly. They were before the pandemic, and we can only see this trend accelerating and moving forward. However, with landlords taking different approaches, we are starting to see a two-tier market of buildings which are being properly future-proofed and those getting left behind. Clearly it is the former with the long-term future as the occupier mindset moves from sustainability as being a “nice-to-have”, to becoming a fundamental and expected priority. With building regulations set to become more stringent and with increased emphasis on reporting energy and data consumption, the gap between this two-tier market will become increasingly profound.

We are also seeing a change of mindset towards the future-proofing of buildings, which doesn’t necessarily mean knocking the existing building down and replacing it with a new shiny office building, but looking to repurpose buildings several times and recycle the structure and materials.

While we are seeing landlords leading best practice in ESG in developing and retrofitting new and existing buildings, the responsibility is on everyone in the chain to work together to drive meaningful change.

Can you tell us about one of your schemes which brings both environmental and social benefits to the occupier and local community?

Warehouses are perhaps not as strongly associated with best practice in these fields as offices, but we are particularly proud of our new industrial scheme in Didcot. The units incorporate refurbed office space combined with industrial space, while outside we created a green zone featuring a walking and running track, landscaped gardens, ponds and even an amphitheatre for workers to enjoy during breaks. Wellness and the importance of the workspace in the war for talent is much talked about in the office sector, but why should warehouses be any different? The principles are the same.

The S in ESG is often overlooked or misunderstood, but we are big believers in the social impact our workspaces have on our communities.

We encourage our contractors to engage with local schools and community groups, ensure regular two-way communication with the neighbours, run local apprenticeship schemes and donate space free of charge for worthwhile local projects, such as food banks.

What next for Savills Investment Management?

We believe COVID-19 will accelerate what was already a growing trend towards the sector adopting a greater social purpose and more ethically focused investment.

We will be launching a new ESG fund which will be a hybrid and also demonstrate impact. We believe there is a gap in the market at this moment in time to meet investor appetite for an expansive commercial fund across multiple asset types, with ESG at its core. Other funds in this area tend to be a niche offering with a single investment focus, such as affordable housing.

Building on our experience of the Charities Property Fund, the aim will be to secure immediate income through existing assets let to the NHS, charities, healthcare amenities and key worker housing, before going on to forward fund and develop new buildings which are environmentally excellent and make a significant social impact in the communities in most urgent need of regeneration.