Sesfikile: Greening properties is ‘not just the right thing to do’

The specialist real estate manager considers a company’s ESG performance as a fundamental indicator of its future attractiveness.
Anil Ramjee, global Reits analyst at Sesfikile Capital. Image: Supplied

Reducing carbon emissions in the real estate sector was one of the focus areas at the recent Cop26 summit. This is not, however, just about being on the right side of the climate crisis.

‘The real estate sector is one of the largest emitters in the world,’ said Anil Ramjee, global Reits analyst at Sesfikile Capital. ‘Focusing on reducing those emissions is important for all stakeholders – owners, tenants and investors.

‘It’s a big focus in Europe, and it is starting to become more of a focus in the rest of the world – especially the US. In countries where governments have pushed it, it has become a focal point. And for us, it’s becoming a significant factor to look at.’

This is because it could significantly impact a company’s performance.

‘We are looking at the impact of ESG on the fundamentals of the companies we invest in,’ said Naeem Tilly, portfolio manager and head of research at Sesfikile. ‘For example, we look at office buildings that emit too much carbon. Companies that reduce those emissions using technology will attract tenants and will do better in the long term. Those that ignore it, will lose out as their buildings become obsolete. So, we tilt away from companies that don’t implement these strategies to those that are doing so.’

‘For us, that is renewable energy,’ Tilly said. ‘Real estate accounts for around 40% of greenhouse gas emissions globally. Only the energy sector is a bigger emitter. A lot of that comes from residential, but it shows the importance of what needs to be done by landlords.

‘We are finding a lot of retrofitting on older stock in South Africa. The initial objective is to get electricity usage down, but a lot of energy expenditure has been quite enhancing from an earnings point of view.’

Redefine, for example, is looking for yields of 19% from solar power installations at its properties.

‘This shows that in many cases these conversions are accretive,’ Tilly said. ‘It’s not just the right thing to do.’

Water usage is another area where reductions make financial sense. Hyprop, for instance, is investigating the installation of vacuum toilets similar to those used in aeroplanes at some of its malls.

‘They are talking about the reduction in water usage paying back that investment in two years,’ Tilly said.

Apart from reducing costs, greener buildings are also more attractive to tenants. Landlords that don’t invest in this area therefore run the risk of losing rentals.

‘The evidence is that green buildings in the office space, on average, have lower vacancies and higher market rentals,’ Tilly said. ‘So tenant demand is there. And if demand is eventually only there for this type of property, others will become obsolete.’

To do this, it is important to appreciate the factors that matter most in the real estate setting.

Patrick Cairns is South Africa editor at Citywire, which provides insight and information for professional investors globally.

This article was first published on Citywire South Africa here, and republished with permission.


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This Anil Ramjee has a very intense slightly intimidating yet piercing look..I’m not sure whether it scares me or if i want to hug him… very interesting guy

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