Schroders seeks to pivot REIT into brown-to-green strategy

The firm has proposed an amendment to the £466m vehicle that will put sustainability improvement and decarbonisation at the core of the strategy.

Schroders Capital is seeking to reposition its UK Real Estate Investment Trust (REIT) as a brown-to-green product focused on decarbonising existing buildings.

Schroder REIT manages a £466 million (€536 million; $585 million) portfolio comprised of 40 UK properties, according to the firm’s website. Schroders has now proposed an amendment to the REIT’s structure to implement “a sustainability improvement and decarbonisation strategy focused on adapting existing buildings into those that are both modern and fit for purpose”.

The REIT in question is traded on the London Stock Exchange, but the news is nevertheless relevant to private markets professionals. Nick Montgomery, who manages the vehicle, also oversees Schroders’ £16 billion real estate portfolio, the majority of which is private assets.

Schroders is also seeking to tie a portion of its compensation to sustainability objectives. The proposal includes a 5 basis points increase or decrease in the management fee depending on whether sustainability and income-related KPIs are achieved.

The change in strategy will allow the vehicle to “proactively respond to the UK’s net-zero carbon objectives, whilst optimising portfolio performance to seek enhanced total returns”, according to the proposed amendment. Shareholders are set to vote on the proposals at Schroders’ London HQ on 15 December.

Brown-to-green real estate strategies have been gaining momentum in recent months, in part due to growing confidence that such strategies can be classified as dark green under the EU’s Sustainable Finance Disclosure Regulations.