Making greener decisions: capturing responsible value from land assets

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Changing how we use land will play a major role in getting to ‘net zero’. Ian Powell, Managing Director of Saffery Champness Fund Services, looks at what this means for investors and landowners.

As the 2020s get underway, tackling climate change via the transition to ‘net zero’ carbon emissions is one of – if not the – defining issue of the next decade. The UK is signalling strongly that it wants to take the lead on the issue, having set itself some of the most ambitious targets in the world. With the COP26 UN Climate Change Conference being hosted in Glasgow later this year, pressure to act to halt what many see as a looming existential emergency is becoming more and more intense.

Many factors will influence the success or failure of our shift to a carbon neutral future, with the recent news that the government is set to accelerate its ban of petrol and diesel vehicles being the latest policy announcement to attempt to put words into actions.

The transformation of land use is another – as last month’s publication of the Committee on Climate Change’s (CCC’s) report Land use: Policies for a Net Zero UK makes clear.

In it, the CCC considers what changes may be required in the way land is farmed or otherwise managed across the country, recommending a range of measures from tree-planting to low-carbon farming practices, encouraging ‘bio-energy’ crops, and restoring peatland. There is clearly much that can – and should – be done.

This drive towards an increasingly responsible and future-proofed approach to land management, geared around stewardship, has significant implications for landowners and investors. In the attempt to make our green and pleasant land, well, “greener”, there are a number of innovative solutions and opportunities beginning to emerge.

Financial and environmental rewards

Investors and landowners are clearly taking a closer look at the long-term impact of their assets and are increasingly conscious of having a patient approach to capital and asset management. There is a growing realisation that there are numerous benefits, beyond altruism and environmental responsibility, to the greening – so to speak – of portfolios.

For many of the major investment funds, the direction of travel is clear. The world’s largest fund manager, Blackrock, recently made its intentions plain when it announced a radical commitment to sustainable investing which would re-shape its business. Also, Janus Henderson’s UK property fund has recently pledged to become carbon neutral by the end of this decade.

As they tap into the zeitgeist, reputation and returns are both front of mind. The investment community is starting to see the opportunities presented by eco-innovation and the potential financial as well as ethical rewards.

This in turn creates real food for thought for landowners and we are seeing new fund concepts begin to emerge which are providing real opportunities to take a different approach to the use of land – incorporating environmental responsibility with revenue generation and long-term value creation.

For example, we are seeing increasing interest in investing in assets such as solar panels – which for instance, might be incorporated into livestock land and even in some cases landfill or contaminated sites to maximise the value of under-utilised spaces.

By baking in mechanisms that deliver tangible and immediate returns or income streams, investors are better able to take on the capital risk that often comes with more cutting-edge investment options where the ROI is unproven or where yields are deferred to the next generation.

Similarly, forestry assets are of interest too. They might incorporate a lifestyle or wellness offering, like hiking trails or glamping, which provide income along with environmental value and a broader approach to carbon off-setting.

Meeting today’s and tomorrow’s needs

Sustainable investing requires long term vision and patient capital. It therefore aligns well with the aspirations and needs of high net worth (HNW) investors and family offices whose guiding principle is to steward assets conscientiously and leave a lasting legacy for their beneficiaries.

As Millennials and Gen Z become wealth creators in their own right or prepare to take over the reins of family assets, environmental, social and governance (ESG) concerns are likely to feature increasingly prominently on their list of priorities. Institutional investors such as pension funds, too, must consider how the pensioners of tomorrow want their money to be invested today and there is a growing realisation that deriving value from responsible investments makes for a more resilient asset portfolio.

There are many positives and pitfalls to the green investing movement. Issues such as carbon offsetting are complex. New products may offer ‘first-mover’ benefits and risks which need to be properly understood. The proliferation of ‘green’ and socially-aware investment labels (ESG/sustainable/ethical/responsible/impact investing) may not be well-defined, raising the prospect of greenwashing. These are just some of the factors to bear in mind.

But, as innovative approaches to responsible land use develop apace, investors and landowners will want to be proactive, while ensuring that strategies are robust enough to deliver real economic – as well as social and environmental – value.

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