Real Assets are set to benefit from secular growth driven by digitalisation, demographic changes and, last but not least, the energy transition. In fact, the sector plays a key role in facilitating the global move towards a lower carbon economy. Recent US data show that 27% of CO2 emissions are from Utilities, and a further 12% from Real Estate1. EU statistics up to 2017 tell a similar story, with the energy producing industries responsible for the largest share (29%) of total GHG emissions across the bloc2. The opportunity for more sustainable pathways in this area is demonstrably clear.
Most recently, the Covid-19 global crisis has in many ways been a boon to public Infrastructure programmes. A determination to ‘build back better’ has seen Europe’s fiscal stimulus promise to direct significant capital towards rebuilding after the pandemic, while the US House of Representatives passed in July 2020 a package of public works improvements worth US$1.5 trillion.
Against this backdrop, Real Assets that take ESG factors into account offer investors a source of long term returns, often tied to inflation and so offering real returns from Real Assets. This paper will seek to help the reader understand what questions we ask at Kempen Capital Management (Kempen) to consider whether Real Assets are effectively managing ESG risks, capturing opportunities, what we can learn from the answers, and why we put ESG data at the heart of our investment decision-making.
Across this paper we will primarily explore examples of using data on the ‘E’ for environmental, rather than the full spectrum of ESG, which includes social and governance elements. The breadth and quality of climate-related data led by key players such as non-profit CDP (Carbon Disclosure Project) is in a much stronger position and has led to serious momentum in environmental and governance-focused investment. As of 2020, the same breadth and quality is lacking for the social dimension.
In future papers, we look forward to presenting our data for social and governance factors too. Last year, shocks such as the pandemic and social movements such as Black Lives Matter have brought the need to pay closer attention to these factors to the fore, and we forecast that there will be stronger data to back it up in the future.
Van Lanschot Kempen Investment Management NV (VLK IM) is licensed as a manager of various UCITS and AIFs and authorized to provide investment services, and, as such, is subject to supervision by the Netherlands Authority for the Financial Markets. This information should not be considered an offer and provides insufficient information upon which to base an investment decision.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. Past performance provides no guarantee for the future.
There’s a saying in Dutch, Kom verder, it means many things and it’s our business philosophy. It captures the way we work with clients but also the way we steer our investee companies to deliver shareholder value through active engagement.