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Why net-zero targets can be better done fund-by-fund

Most fund managers set blanket net-zero targets for their entire portfolios, but some like real estate manager Fiera are finding advantages to setting fund-specific targets.

Fiera Real Estate has set a target to reach net-zero carbon emissions by 2035 in its long income fund. FRELIF, an open-end fund launched in 2009, has £259 million ($328 million; €307 million) invested in 28 industrial, retail and office assets in the UK.

Getting the fund’s assets to net zero will involve installing solar panels, establishing renewable energy sources and retrofitting properties for resource and energy efficiency, Fiera’s global head of ESG, Jessica Pilz, tells New Private Markets.

Some of these costs could be borne by tenants, says Pilz, adding: “Tenants have implemented their own net-zero strategies and targets, and they’re willing to pay extra for things like renewable instead of fossil fuel energy. We engage with our tenants one-on-one to understand what their net-zero targets are and fold that into our strategy.”

“Long income funds have a really unique opportunity to generate income streams from renewable energy”, by installing solar panels, says Pilz. “And if you’ve negotiated a good PPA with the tenant, you can earn income off that. Our valuers will take that income stream into account when they do their valuations for the property.”

Most fund managers setting net-zero targets do so for their entire portfolios, says Oliver Light, real estate commercial director at Carbon Intelligence, a consultancy advising Fiera on the firm’s net-zero target. But like Fiera, other fund managers – such as Apax, Octopus and Hines – have also set fund-specific rather than total-portfolio net-zero targets.

Fund-specific net-zero targets can have their advantages, Light tells New Private Markets. “Each fund is different, and a portfolio-wide target can be too generic for [a specific] fund. A fund target pushes the client to consider the assets’ nuances, develop a more bespoke pathway and quantify costs better,” he says.

Fiera also has an Opportunities strategy of closed-end funds and has closed its fifth Opportunities fund at £180 million. “For our opportunities funds, we wouldn’t necessarily set a net-zero carbon date because the whole premise of the funds is that we develop – we build high-quality buildings and then we sell them on. Those assets won’t be in our control by 2035 or 2040,” says Pilz.

On its segregated mandates business, Pilz says Fiera does not plan to set net-zero targets because “different investors have different appetites for sustainability”.

Fiera manages assets worth $5.5 billion and has operations in the UK and Canada. “It’s really critical for long income funds to act now because you’re going to have these assets with leases that you’re tied into for so long, there’s not going to be many opportunities for changes in the future, so it’s really imperative that those steps are set now,” Pilz concludes.

In related news…

Buyout firm Montagu’s portfolio net-zero targets have been validated by the Science Based Targets initiative. As part of this validation, the firm has committed to setting net-zero targets at 55 percent of its portfolio companies (by investment size) by 2026 and 100 percent of portfolio companies by 2030.