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CAN YOUR ASSET HAVE IT ALL?

A balancing act

While it is now clear that climate change must be confronted head-on in the current holding period, it is not the only new consideration that investors must contend with when managing both their existing assets and investment strategies.

Health and wellbeing has become a much larger focus in recent years, with ample research demonstrating that the work environment has a direct impact on employee health, therefore affecting absenteeism, productivity, and the like. As occupiers in many markets struggle with stagnating productivity and tight labour markets, improving the quality of the working environment could potentially be an ‘easy win’ in terms of attracting talent and increasing productivity.

Whilst in many instances improvements to an asset’s sustainability credentials will also lead a better working environment – soft landscaping can improve a building’s sustainability credentials and has also been shown to improve mental health, for example – there are probably fewer synergies to be found between protecting against physical climate change and creating a healthier working environment.

This will inevitably create tension for investors, alongside the requirement to minimise running costs to improve returns. It can be challenging to strike a balance between the potentially competing objectives of improving an asset’s health and wellbeing scorecard, mitigating physical climate change risk, and keeping a lid on capital expenditure and running costs.

However, the value being placed on these metrics, through scorecards such as WELL, fitwel, BREEAM and LEED, as well as the risk of rising insurance costs if no action is taken, demonstrate that a balance must be achieved within these aims, as there is significant downside risk associated with not taking any action, either through transitional risk of government regulation, loss of liquidity, or both.

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