“Green premium is clear” - Aviva Investors ESG boss tells property podcast

In the first of a special ESG series of Propcast, Ed Dixon, the investment firm’s head of ESG within its £47.3 billion real assets business, said that “we need to be ruthlessly focused on the value opportunity – as well as the risks – associated with climate. If we’re not, it will sail past.”

Interviewed by Blackstock Consulting’s Andrew Teacher as part of the popular Propcast series, Dixon said that analysis now proved the existence of a “green premium” in central London offices. “You would expect it to start in a market like that,” he said, referring to research from JLL, “but it will also permeate to the wider market and other sectors.”

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Last June, JLL analysis said that new central London offices with a BREEAM rating of very good or above achieved higher rents, with the average rental premium over the last three years 8 percent more than non-rated buildings.

Responding to the challenge of where rental growth will come from in a challenging market, Dixon said that the industry needs to think at least five years ahead, considering longer-term trends.

“There’s huge demand and need for green and sustainable products and that’s only going to increase,” he explained. “Regulatory pressures are also building, and this will push occupiers to demand more from their landlords.”

Dixon agrees that the public sector should be an “agent of change” that could have a halo effect on the wider supply chain “I think it’s a big part of the answer and what’s important is for Government to signal to investors where it thinks the future lies.”

“What’s really needed are clear subsidy signals from ministers that make emerging and complex technologies - like battery storage – more deliverable,” he said. “We saw exactly the same thing with wind power and solar and it’s had a transformative effect in attracting institutional finance that’s critically needed.”

One of the big challenges rarely discussed is how effectively supply chains can be managed to reduce impact in the design and construction of buildings. “A big part of the problem with materials is there’s no regulation and not enough understanding about what happens throughout the supply chain. It’s the same in fast fashion - with cheap jeans and shirts - as it is with complex mechanical engineering systems” Dixon explained.

The discussion comes after Aviva Investors unveiled a plan in January to “reach net zero emissions’’ across its real assets platform by 2040. The commitment covers multiple layers of the investment process and follows a proprietary Sustainable Transition Loans Framework, which Dixon said would ensure that loans issued as part of its sustainable lending strategy comply with principles set out by the Loan Mark Association.

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