Audrey Klein: The needle has shifted for capital allocation

Audrey Klein: The needle has shifted for capital allocation

Institutional and private capital funds alike are now putting responsible investment front and centre of their strategies, says Audrey Klein.

I’m delighted to join the Advisory Board of Real Asset Impact and, in my first column, wanted to share some thoughts on the evolution of the industry in terms of ESG, but also look specifically at pension funds, private equity and global capital.

Capital and pension funds have been on an evolutionary journey in terms of ESG alongside the whole market. In Europe, just about every group I know has hired some kind of consultant or ESG specialist to help them build out their ESG platform.

Some have done this more extensively than others. Some are looking to get a GRESB rating, which is not easy, and most have signed up to the UN Principles of Responsible Investment (UN PRI) – which is pretty much the first step to committing to an ESG strategy.

There is also more of a focus on responsible investment and areas like social impact. These topics have been catapulted to the forefront as a result of the covid pandemic. The ideas have been brewing for the past five years, but in the last 12-24 months there has been a real emphasis and a will to execute them.

Diversity is a good example of where there is a growing focus and demand from the capital that it is incorporated far more in the businesses that they’re working with. It all goes hand-in-hand and certainly a lot of the big pension funds and other sources of capital are calling for more diversity on the teams they are working with. There needs to be a commitment to ESG and sustainability and that is recognised widely in Europe.

European Taxonomy

The legislation that is coming down the tracks is also really making people pay attention. Many companies are aiming to get ahead of European Taxonomy rather than get stuck behind, but there’s still a long way to go and a lot of people who are still way behind.

There are also differences in terms of the geographic sources of capital, with Europe leading on sustainability and North America on diversity. But this is now beginning to change. I’m writing this column from the AFIRE (Association of Foreign Investors in Real Estate) conference in the US and there is definitely a growing focus on ESG and climate change in the programme and a clear view that we are going to have to start factoring climate change into all of our predictions.

‘Even when people feel there’s a cost to implementing an ESG strategy or being more sustainable or more diverse, in the long run it’s going to prove a good investment.’

Audrey Klein, SFO Capital Partners

If I look to the next 12 to 24 months, this trend is going to accelerate, driven by the legislation, but also momentum in the market. There have been significant resources put behind ESG, platforms and execution. Just about every major group that I know of either has a head of ESG, or they’re planning for it.

This can also be seen in the growing focus on the role real estate can play, not just in the carbon discussion but also in terms of social impact and liveable cities. This has to be positive for the sector as a whole.

A sound investment in the long run

Even when people feel there’s a cost to implementing an ESG strategy or being more sustainable or more diverse, in the long run it’s going to prove a good investment. It is likely to cost you less than the amount you may have to invest or lose if your assets become stranded.

If you invest in sustainability, in the long run it actually works positively towards your balance sheet and it’s been proven already that companies that are more diverse do better. Different perspectives should help bring a more positive outcome.

Audrey Klein is a non-executive board member and chair of the ESG Committee at SFO Capital Partners and Planet Smart City. She also has a long association with Great Ormond Street Hospital Children’s Charity as a member of the Corporate Advisory Board.