When it comes to real estate investment trusts in England, Schroders is by no means the biggest or most notable. Schroder has only 41 properties in its portfolio, which it estimates to have a value of £466 million. But this small asset manager is making big waves in the industry after it announced that it outlines plans to change its investment mandates to include sustainability metrics. The board has unanimously recommended that its shareholders vote for changes that would put these metrics at the center of not only its investment strategy but its fee structure as well.
The company is making these changes ahead of changes being made to the country’s Financial Conduct Authority’s Sustainable Disclosure Requirements that are meant to cut down on “greenwashing.” Now, public companies, including investment vehicles like REITs, are prohibited from making misleading ESG claims and must show progress towards a clearly stated goal to be considered a “sustainable improver.”
Schroder is hoping that these stringent new reporting rules will knock some of their competitors out of the running for the growing number of investors with their own sustainability mandates. The change to their charter is being pitched as not only the right thing to do but the most potentially profitable as well. This would be a welcome change for investors in the company, whose current market cap is just above $200 million.
The change will also put some concrete incentives for the company to follow up on its promises. They have proposed a five basis point increase or decrease in management fees depending on how they perform on income and sustainability-related KPIs.
Schroder’s proposal will give us a good look at how investors are feeling about companies pursuing the “triple bottom line” approach. If they are able to push this change through, then it is a good sign for other companies thinking about doing the same. More importantly, if they are able to use this strategy to boost investor interest and take advantage of what they call a “green premium,” it could persuade other real estate companies to wade into the murky waters of sustainability-focused real estate strategies.
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