Investing in real estate: are you building a greener future?
When faced with high inflation, many investors turn to real estate - seeking comfort in index-linked yields. It can also be a popular choice for those approaching the end of their investing journey and focused more on income than capital growth.
While we’ve all seen pictures of buildings with hanging gardens and windmills on the roof, the reality is that most property has a significant impact on the planet. Construction materials, the construction process itself, ongoing property management - it all creates waste, uses water, and emits carbon. In fact, property accounts for 39% of global carbon emissions, the majority from ongoing management.
What can you do if you want to invest in property but are concerned about its environmental footprint?
A common way to invest in property is through a real estate investment trust (REIT). There are currently over 50 REITs listed in the UK, investing in a wide variety of sectors, but none have a specific strategy to invest in sustainable buildings.
An alternative approach is to invest via a REIT ETF or mutual fund. These can be a cost-effective way to diversify your exposure across sectors and regions and access different investing objectives (e.g. capital growth or income). And some good news: there are several ‘green building’ thematic ETF/funds. These use specific criteria to invest in REITs and companies across the real estate sector that are committed to sustainable practices, such as carbon and water reduction, exclusion of fossil fuels, energy efficiency, and transparency/disclosure. For the moment, these are only available to US investors - but watch this space for them to cross the Pond soon.
For all investments, whether they are labelled as ESG/sustainable or not, investors should satisfy themselves that the product is genuinely green. Online ratings agencies typically disclose red flags and overall ESG scores, but these are not always comparable between investment products. And while the annual report of individual REITs or funds should give more granular detail, they can be fertile ground for greenwash. When going down this route, look for quantifiable metrics and question everything.
A minority of REITs report their emissions to CDP - a not-for-profit that runs the global disclosure system for investors and companies. This is a good rule of thumb to show that a REIT takes its emissions seriously.
And, of course, there’s Sugi. We provide personalised impact for over 70% of UK listed REITs, as well as a large number of international REITs. We also cover UK and global property ETFs and funds - as well as thousands of general stocks, ETFs, mutual funds and investment trusts.
So next time you’re looking at greening your portfolio, come to Sugi and check your impact!