Viewpoint – It pays to do good
The shared values of environmental, social and governance investing and Shariah screening have long been recognized, but now research from Knight Frank provides evidence that doing more than the minimum is both ethically and financially beneficial.
Knight Frank took a sample of 1,500 green-rated and unrated London office sales over the last decade. Its modelling considered the buildings’ many attributes, including size, height, age, leasehold or freehold and lease term, allowing the impact of the BREEAM rating to be identified.
For those not familiar with the BREEAM rating, led by UK-based Building Research Establishment, these have become an international standard of a property’s green credentials. A rigorous third-party assessment process considers an asset’s environmental, social and economic sustainability performance, delivering ratings from ‘Pass’ through to ‘Very Good’, ‘Excellent’ and ‘Outstanding’ at the top end.
While there was insufficient data to assess the impact of an ‘Outstanding’ rating, a situation which will no doubt change in the future, Knight Frank’s analysis concluded that there was a 10% value premium for ‘Very Good’ and ‘Excellent’ BREEAM-rated properties, compared with those with no such rating.
Providing a commercial rationale for such an outcome, Knight Frank identified that tenants are willing to pay a higher rent for green-rated accommodation, particularly as more and more companies commit themselves to a carbon-neutral future. Combined with reduced risk of future capital expenditure as government regulations change and an increasing preference for finance providers (Islamic or not) to lend to such properties as they get benchmarked against their peers, such a premium makes sense.
Under our own 90 North’s brand promise of “Doing great business. With a good conscience”, we have always maintained that responsible investing is essential to undertaking profitable real estate transactions. Whether it is investing in a green-rated property in the first place or, as importantly, working with an asset manager to improve the environmental impact of an existing asset, it is helpful to have a commercial rationale to support this.
Written by Philip Churchill, first published in Islamic Finance news Volume 18, Issue 49 dated 8th December 2021.