Big cities are not always seen as being particularly environmentally friendly. They often account for high levels of greenhouse gas emissions, consume large amounts of energy and water, and urban regeneration schemes can sometimes result in unaffordable housing. So how can global cities be seen as a force for good in creating a sustainable environment? We spoke to Tom Walker, a fund manager who specialises in global cities.
What are the key considerations for cities and sustainability?
Tom Walker said: “It’s important to note that there is no perfect city; no city comprises totally new buildings that are all energy net positive. However, as investors we play an important role in enabling the energy transition. This could be from developing new energy efficient buildings or retro fitting older buildings to improve their efficiency.
“As investors in global cities we can make a real difference by looking for the best operators of specific assets, such as logistics, self storage, student housing or apartment buildings around the world. Those companies are at the forefront of the energy transition. We seek out the companies that can make a positive change and then help them to facilitate this transition as quickly as possible.”
How important is sustainability to global cities?
Tom Walker said: “Sustainability is vital to our decision-making process. From a city perspective, we believe you cannot be economically sustainable without being environmentally sustainable. We have a very sophisticated database which quantifies the most resilient locations.
“In addition, we assess companies based on ESG (environmental, social and governance) metrics. We are able to quantify energy efficiency across a company’s portfolio and determine if they are improving year by year. Companies with a sector-leading sustainability policy will often attract more capital .
“We believe that this then creates a virtuous circle, whereby the company attracts more capital to its share price, which means it has a lower cost of capital, allowing it to enact more change. This attracts more tenants who want to sign leases on sustainable buildings, leading to a further improvement in the company’s ESG score and a more resilient income stream.”
How can investors encourage positive change?
Tom Walker said: “As investors, we work with companies and encourage them to improve their sustainability metrics. A company with a weaker ESG policy can learn from companies that have sector-leading policies. By improving their sustainability they can achieve higher levels of investment, which in turn helps them to dominate their respective sub-sector.
“It is clear that there will be higher demand for real estate if you are able to demonstrate that the building is energy net positive.”
Which cities are at the forefront of sustainability?
Tom Walker said: “We see some countries and sub-sectors that are clear leaders in this field and, conversely, some that are very behind. Whilst there are exceptions, as a general comment, companies in Scandinavia, the Netherlands, Australia and, arguably, the US are very advanced in their sustainability policies.
“Companies in these countries are at the forefront of circular development, which is where materials from existing buildings are used to develop new buildings. They also tend to have the most aggressive and ambitious sustainability targets.”
What about China?
Tom Walker said: “Some headlines would lead you to believe that China is not environmentally focused. However, we would disagree with that.
“A city such as Shenzhen, for example, is one of the most sustainable cities in the world. The quantum of electric buses and the environmental footprint of all the individuals who live in the city contribute to its green credentials. It’s important to scratch below the surface to see the detail.”