How REITs are offsetting carbon emissions

Michael Morris, CEO of REIT Picton, answers ESG Clarity’s questions on the property sector


ESG Clarity

Michael Morris, CEO of REIT specialist Picton, answers ESG Clarity‘s questions on how the property sector is offsetting its carbon emissions and the impact of Covid-19

Morris has spent the past 25 years working across most aspects of the commercial real estate market and been involved with Picton since its launch in 2005.  As chief executive, he is responsible for implementing the firm’s strategy, which is currently focused on three key pillars: operational excellence, portfolio performance and acting responsibly.

Explain the rationale behind the Picton REIT and its objectives? How does it differ from other REITs?

We are called Picton Property Income because income is a key component of total return in the sector, generally accounting for over 70% of the total return.  Through an occupier focused, opportunity led approach we aim to be one of the consistently best performing diversified UK REITs. To us this means being a responsible owner of commercial real estate, helping our occupiers succeed and being valued by all our stakeholders.

The property sector is responsible for significant emissions – how do you offset/reduce this?

Most emissions either come through the construction process or how the buildings are subsequently used. There are many strands to this but essentially it boils down to:

  1. Improve the thermal efficiency of the building fabric.
  2. Improve the efficiency of mechanical and electrical systems
  3. Optimise the use of the mechanical and electrical systems (i.e. on demand building management systems).
  4. Procure energy from renewable sources.
  5. Reduce unnecessary redevelopment where existing structures can be retained (i.e. back to frame refurbishment rather than demolish and rebuild).
  6. Provide for and encourage sustainable travel to and from sites. 

How has this area performed during the Covid-19 downturn? Will this level of performance continue?  

I don’t think you can draw any Covid-19 conclusions yet, but clearly wellbeing, air quality and the environment have come to the fore in lockdown.  As occupiers revaluate space needs for the future, we think it’s obvious that buildings that offer what occupiers want, will lease better and in turn provide better returns.

How do you engage with local communities where you operate?

This tends to be more relevant to retail assets, which form a small part of our portfolio, but we have invested in a number of projects this year aimed at enhancing the ‘streetscape’, which help our assets fit in with and complement their town centre settings.  As owner, we need to think about making assets attractive to both our occupiers and their customers.  We also engage with office occupiers through workshops to enhance their use of the assets. These initiatives where we need to collaborate with our occupiers normally focus on areas such as cycle provision, changing facilities, and waste and recycling.

What are governance factors that need to be considered in your research/before you make an investment?

We undertake comprehensive occupier due diligence ahead of acquiring a new building or signing a letting. For a prospective tenant, this includes considering the implications of the type of business they are in and its longevity. We also undertake due diligence to ensure a building and environmental survey will be undertaken along with an assessment of the costs of upgrading/maintaining the building. 

Are there any particular rules/regulations you are lobbying for related to ESG? 

We are, along with many of our peers in the industry, lobbying the government for a comprehensive review of business rates, which we believe require wide-ranging reform, especially in the retail sector if our high streets are to have a chance of surviving into the future.

We have also been contributing to the work the British Property Federation have done around Covid-19 and its impact and in particular the Government Code of Practice for Commercial Property during the Covid-19 Pandemic.

One of the often overlooked issues around commercial property investment is that many of the investors are pensioners, who invest either directly or via mutual funds, so it is in the interests of everyone to find a workable solution.

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