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How to invest to make buildings green: five tips on funds and trusts

How to invest to make buildings green: Homes and workplaces are experiencing a ‘net zero’ renovation…here are five fund and trust tips to help you profit

Becky O’Connor is Director of Pensions and Savings at Interactive Investor. She has written a book called The IS G Investing Handbook, to be published this summer.

Buildings are an important part of our lives. What they look like and how they work is important for our own well-being, but also for the environment.

They can meet social and environmental sustainability goals. If done wrong, they can have a damaging impact on both.

A large part of the sustainability challenge for the industry is correcting past mistakes.

Green Property: Developers are trying to create houses and streets where people want to live, work and play.

Green Property: Developers are trying to create houses and streets where people want to live, work and play.

What areas offer promising investment opportunities?

After energy, property is the investment sector with the most power to save the planet.

It currently accounts for more than a third of carbon emissions, according to the International Energy Agency.

‘Creating places’ is the phrase of the day among big real estate developers, to capture the vision of creating houses and streets where people want to live, work and play.

Construction, materials and maintenance: A major change in the way buildings are constructed and operated is required to manage environmental and social impact.

This involves rethinking material supplies, such as the sourcing of concrete, steel, and wood, as well as energy use within residential and commercial buildings.

New and old homes: There are 23 million households in the UK. Household emissions are a big problem: Around 40 per cent of UK emissions come from households, according to the Committee on Climate Change, an independent government advisory body.

The average rating of the Energy Efficiency Certificate is D, on a scale of A–G.

Becky O'Connor: Property is a strong option for generating income and diversifying an investor's portfolio

Becky O’Connor: Property is a strong option for generating income and diversifying an investor’s portfolio

Incentives to install energy efficiency measures and new renewable forms of generation have so far had limited impact on the troubled economy of homeowners.

It just doesn’t add up for most people to pay for them, however investing in insulation and alternatives to gas boilers could have the biggest impact.

There is more progress in new-build developments, with Lendlease, Barratt Developments and Redrow leading the way, according to NextGeneration, an industry benchmarking organization.

Commercial buildings: Non-domestic buildings do not use as much energy or produce as many carbon emissions. However, they are part of the picture and minimum energy efficiency standards are also changing for offices, warehouses and stores.

What do green property investors need to know?

For investors, there are growing opportunities to support environmentally and socially sustainable properties.

Generally speaking, a reasonable allocation to commercial and residential properties in a typical portfolio would be around 2.5 per cent and is unlikely to exceed 5 per cent, although if you include the associated construction, materials and support industries, this could increase slightly.

There are not a huge number of funds focused on sustainable properties to choose from. However, investment funds are well represented, with a few focusing on social housing.

Some come with higher-than-average fees, which long-term investors might be willing to accept, as yields and valuations still look attractive relative to other asset classes.

Property is a solid option for generating income and diversifying an investor’s portfolio.

If you buy more than one fund or trust, take a look at the underlying holdings and if it is a global fund, the geographical areas, to avoid duplication and overexposure to specific companies or countries.

Risks for investors in sustainable properties are poor quality construction, for example the Grenfell Tower tragedy and associated cladding scandal, high-cost housing, and poor and hasty planning decisions.

What funds and trusts could you consider for your portfolio?

FP Foresight Sustainable Real Estate Values (Ongoing charge: 1.25 percent)

Global real estate fund that invests in North America, Western Europe and Asia Pacific, through REITS investment funds and closed-end funds.

Sarasin IE Global Real Estate Sustainable Equity (Ongoing charge: 1 percent)

It supports large and medium-sized companies that obtain income from property or land leasing and land development, taking into account aspects of ecological and social sustainability.

Civitas Social Housing (Current charge: 1.41 percent)

Invest money in and operate long-term homes for vulnerable people, including those with learning difficulties and victims of domestic abuse.

Target Healthcare REITs (Current charge: 3.03 percent)

Invest and rent modern nursing homes.

Schroder BSC Social Impact Trust (Current charge: 1.03 percent)

Invests in properties for vulnerable and disadvantaged people, tackling issues such as homelessness, domestic abuse and children on the edge of care.

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