Octopus Real Estate, a UK-based manager, has set targets to achieve net-zero carbon emissions by 2030 and 2040 for its £1 billion ($1.3 billion; €1.2 billion) Healthcare Fund.
The 2030 target is for all new developments in this fund, which develops care homes and is an Article 9 fund under the EU’s Sustainable Finance Disclosure Regulation. The 2040 target is for the vehicle’s 71 existing properties and 13 properties under construction.
“There will be cost implications for the fund, so there will be a negative impact to the portfolio’s performance,” Michael Toft, senior fund manager, told New Private Markets. These costs are to install carbon reduction technologies such as ground source and air source heat pumps and onsite renewable energy generation. “But we have capital reserves in the fund for that and we’ve been very open with our investors on that,” said Toft.
“We think there will be the opportunity to share the cost” with tenants – care home operators – so “we should be able to demonstrate savings to the tenants. If we can make their care homes more efficient, we can help them save money on their utility bills,” said Toft. However, he added that utility bills typically make up only 5 percent of care home operators’ costs, their biggest expenditure is on staff, so Toft does not expect to be able to increase rent significantly.
Octopus is not the only real estate manager to set net-zero targets before 2050. NREP is targeting 2028 for carbon neutrality, and Nuveen Real Estate, CBRE Global Investors and Ivanhoé Cambridge are targeting 2040.
But Octopus has not found useful frameworks or pathways to achieve carbon neutrality for its assets. “We’re having to create our own best-practice benchmarks. We’re looking at frameworks from the NHS and Finland,” said Toft.
“We’re a long-term landlord investing fund,” said Toft. “If we don’t do these works, the property’s liquidity, the investor demand and therefore the investors’ returns are going to suffer. We have a fiduciary financial and environmental responsibility to make sure these are put in place.
“There’s definitely going to be regulation coming in the future. There may be taxation liabilities if the buildings aren’t meeting the [government’s] targets. It’s our responsibility to position the portfolio to be ready for the future.”