INSIGHTS: Across the property industry, sustainability and success go hand in hand
9 May 2022
If you’ve got a diverse workforce, like Qualitas, there are few things everyone in your organisation will agree on. Music, food, holiday destinations – we’ve all got different tastes. But at Qualitas we have found one thing that everyone does agree on, and that’s the desire to do the right thing by our planet and its people.
Three years ago, we set up a series of company-wide working groups to refine our environmental, social and governance (ESG) principles. Each group was asked to present its unvarnished views to the Board.
Today, the principles and policies that came out of these groups inform everything we do, and because this was a bottom-up process, not a series of commandments imposed from the top down, they are part of our DNA.
We know that embedding ESG considerations into our governance, culture and investing approaches is the right thing to do. But we also know that it will support better performance and play a role in our sustainable growth and success.
In the property sector, most of the early focus has been on the ‘E’ component of ESG. That is not surprising given the obvious impact – positive or negative – that a building can have on the environment. But that does not mean the S and G are any less important.
Internally, the most visible sign of Qualitas’s focus on sustainability is the ESG assessment process we run for every single debt and equity investment. This proprietary assessment tool is based off extensive research of global benchmarks. Externally, it was last year’s launch of our first (but certainly not last) sustainable investment strategy – the pioneering $1 billion green debt Qualitas Build-to-Rent Impact Fund (QBIF).
While some asset managers take a simple approach to ESG considerations – for example, by limiting exposure to certain unsavoury investment classes or sectors – our approach is more sophisticated and granular. Since mid-2020, we have run every prospective investment, across all of our strategies, through a tool that evaluates a number of ESG-related factors and contributes to the overall risk assessment of an investment. That means a total of $3 billion in debt and equity investments have been assessed through an ESG lens.
We use the tool to assess both the borrower or counterparty and the asset itself – typically an existing property or new development. For the borrower or counterparty, we want to understand where they stand on issues such as governance, materials sourcing and labour practices. For the property or development, we assess criteria such as energy efficiency, carbon footprint, water management and overall sustainability performance.
It goes without saying that the property sector has a long way to go on its ESG journey. But what is clear is that the industry is making genuine progress and that the investors who entrust fund managers like us with their capital are increasingly demanding the consideration of ESG-related factors when investment decisions are made.
The more enlightened have taken that one step further and are putting some of their money into dedicated impact funds focused on sustainability and social good – even to the point of sacrificing a point or two of performance for the greater good. In the Netherlands, several major funds have formalised this approach with a mandate requiring a certain proportion of total assets to be in the hands of managers in the impact investing space.
Qualitas certainly had no trouble attracting a seed investment into our first sustainable fund – QBIF – which will invest in medium and high-density apartments that reduce greenhouse gas emissions by at least 35 per cent more than required under the National Construction Code.
We were delighted that the Clean Energy Finance Corporation, which was established to increase investment on behalf of the Australian Government in Australia’s transition to lower emissions, came on board as a cornerstone investor in the QBIF with a $125 million commitment.
In July last year, the QBIF announced its first investment, providing debt funding to the 265-apartment Cordelia development, which will be Brisbane’s first high-density build-to-rent (BTR) development with sustainability at the forefront.
Obviously, there is a positive element to all BTR developments, which helps makes housing more accessible for many. But Cordelia will also be among the new wave of highly efficient and sustainable residential buildings going up around Australia.
Cordelia will target a 5-star Green Star design, an average NatHERS rating of 7.5 stars and a NABERS Energy for Apartments rating of 5 stars. It will have features such as high-performance double-glazed windows, an efficient centralised HVAC plant, high efficiency lighting complemented with motion sensors and solar panels. To truly create a ‘vertical community’, Cordelia will also boast a 25-metre rooftop lap pool, a commercial-sized gym, residents lounge, private dining rooms, wine room, library and sky gardens.
What Cordelia proves is that sustainability, liveability and commercial returns are not mutually exclusive. As CEFC Chief Executive Ian Learmonth said at the time, the Cordelia development “demonstrates that ambitious sustainability standards are financially and technically viable in Australia’s developing BTR sector, providing a cleaner, greener living experience for residents and unlocking further cost savings for BTR owners”.
While the QBIF is very much at the forefront of our ESG efforts, with further investments to be announced shortly, I am sure I speak for all of our people when I say we are committed to sustainability across all of our investments. As the architects of our ESG principles, they expect nothing less.
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