LESIBA LEDWABA: Listed property makes progress with green and social issues

The listed property asset class has delivered steady income and capital growth over the long term. The predictability of income streams from underlying properties is fundamental to the investment merits and returns of this asset class and naturally informs investment decision-making. 

However, over the past few years there has been an intensifying focus on aspects related to environmental, social and governance (ESG) regarding property investments, with emphasis on the environmental part. 

According to a World Green Building Council global status report, buildings and construction together account for 36% of global final energy use and 39% of energy-related carbon dioxide (CO₂) emissions when upstream power generation is included. The energy intensity per square metre of the global buildings sector needs to improve 30% on average by 2030 (compared with 2015) to be on track to meet global climate ambitions set out in the Paris agreement. This is why there is a push towards a net zero emission strategy adoption by property owners.

The listed property sector has certainly made inroads regarding the environmental component, which was often necessitated by unreliable water and unsustainable electricity price increases from local government and Eskom. It’s for this reason that landlords have had to adopt technology and invest in infrastructure that provides more efficient and environmentally friendly use of resources such as water and electricity. Examples include:

• Building management systems that monitor and manage water and electricity consumption. Some of these have been adopted for a number of years but the technology continues to improve.
• The rollout of renewable energy projects by various funds is being accelerated after the increase in the self-generation cap from 1MW to 100MW.
• Despite obvious benefits to the environment, there is also a financial benefit as the cost of new technology falls and becomes more efficient relative to traditional sources of supply and methods. For example, a typical solar photovoltaic project is now reported to yield an attractive 20% to 25% return on cost.

The coronavirus pandemic has heightened the focus on ESG and put a greater focus on the “S” in ESG. This is especially relevant and important in a country such as SA, which faces significant socioeconomic challenges. Since the start of the Covid-19 pandemic the SA listed property sector has been at the forefront of providing substantial relief to small businesses and tenants to support jobs and ensure the survival of these businesses through the various lockdowns and waves of the pandemic. The SA Real Estate Investment Trust (Reit) Association estimates that the listed property sector has so far provided about R3bn in rental relief.  

What is often not clearly articulated is that property has always had a strong social utility, much of which is intangible and difficult to quantify. Think of mankind’s basic need for shelter, which is catered for by residential developments in inner cities as well as high-end mixed-use developments. Property is also a vital part of the supply chain that facilitates the global and local distribution of goods and large warehouse facilities springing up to fulfil this role. Retail centres, student accommodation and offices have always been places of social confluence in safe environments. 

Informal traders

One of the things to reflect on is how the ecosystem regarding rural and township retail centres plays a role in social dignity and upliftment of communities within which they operate. From their development up to operation, jobs are being created. These centres also create safe environments for the disbursement of social grants as they are located closer to communities. Transport costs to collect grants are reduced. Some form of informal trade also exists alongside these centres, typically small informal traders or retailers operating just outside their perimeter.      

To ensure inclusivity it would be ideal if property owners found a way to work with informal traders and make them part of the greater retail precinct instead of having them operate outside centres.

Local taxi operators are never left behind, benefiting from the footfall and infrastructure provided in the form of small taxi ranks. Communities also realise the role these centres are playing, as seen when they rallied to protect various centres during the civil unrest in July.

For investors and fund managers, it is important to also evaluate property funds against their social upliftment plans. Property companies must not only talk to their intentions but also provide tangible evidence and examples of putting this into action and advancing the social imperative. 

Investors must also engage with property companies to help them find ways to unlock the social values of properties and their role in addressing SA’s socioeconomic challenges.

• Ledwaba is head of property portfolio management at Ashburton Investments.