Why sustainable investing should be part of your investment strategy

While we’re all familiar with the term, for many of us, sustainable investing is still a complex area. We know that it should be part of our investment strategy, but can it deliver the same returns? And while we know which industries and practices to avoid, how do we know which ones to choose, and where do we find them? Here, we explore what it means to invest sustainably, and how property can form part of a sustainable investment strategy.

What is sustainable investing?

Broadly speaking, a sustainable investment is one that enables positive change for the environment and society at large. Sustainable investing is also known by other names, including:

• Socially responsible investing (SRI)
• Environmental, social, governance investing (ESG)
• Impact investing or investing for impact
• Ethical investing
• Values-based, or conscious investing
• Green investing

The breadth of investments that fall within these categories provide plenty of opportunity for investing sustainably; the first thing for any socially responsible investor is to decide which principles and practices you wish to support. You will need to navigate the plethora of seemingly interchangeable terms, such as Carbon neutral (any CO2 released into the atmosphere from a company’s activities is balanced by an equivalent amount being removed), Climate positive (refers to any activity that goes beyond achieving net-zero carbon emissions to create an environmental benefit, by removing additional CO2 from the atmosphere) or Net zero emissions (where a company balances the whole amount of greenhouse gases it releases, with the amount of greenhouse gases it removes from the atmosphere).

You may then prefer to invest solely in projects that generate renewable energy for example, or you may feel equally comfortable backing firms that offset their carbon footprint and have a genuine commitment to carbon neutrality.

Why is sustainable investing becoming increasingly important?

Sustainable investing has been around since the 1960s, when the term ‘ethical’ investing was coined to describe investors who supported the anti-war and anti-apartheid movements. More recently, ethical investing has tended to mean the exclusion of certain industries such as tobacco and arms manufacture.

Recently, as the world has become increasingly interdependent and connected, investors have taken a more inclusive and discerning approach to investing. Data from the World Economic Forum (WEF) shows that impact investing was valued globally at $715 billion in 2019.

Given that every major company nowadays has a clear policy on the issue of carbon reduction and a commitment to achieving it, opportunities for sustainable investing have increased significantly in recent years. The effects of the pandemic have also played a part in accelerating a shift towards SRI, as people have had more time to consider what matters most to them, and many have also had greater disposable income.

Firms that don’t embrace sustainability are likely to lose out in the long run, as Government regulation impacts working practices and investor appetite moves elsewhere. Industries that are known for their potential to cause harm to the environment, such as oil producers, will need to improve the way they work, as investors and regulators alike increasingly refuse to tolerate harmful practices.

And with the rise of social media, companies’ working practices and policies can be scrutinised more easily than ever before. For example, a retailer employing exploitative practices overseas while claiming to support ethical initiatives can no longer expect to conceal these from the public. It has never been simpler for people to invest according to their conscience.

Why is property a good area for sustainable investing?

While new-builds are significantly more energy-efficient than the vast majority of homes in the UK, the construction industry itself is a high carbon emitter. Currently, homes, both new and existing, account for 20-30% of the UK’s carbon emissions. Unsurprisingly, the Government has introduced tough targets to reduce this with legislation such as the Environment Act in 2021. The Future Homes Standard, requiring all new-build homes in the UK to be future-proofed, with low carbon heating and world-leading levels of energy efficiency, will be rolled out during 2025.

Consequently, housebuilders are now at the forefront of improving their carbon footprint and sustainable working practices. At Acorn, the majority of our projects involve brownfield sites. We repurpose existing buildings where possible, which reduces our carbon emissions and allows us to minimise the environmentally damaging effects of construction. All our new-build homes are designed to be as energy-efficient as possible, with features such as Air Source Heat Pumps, PV solar panels and triple-glazed windows. By August 2023 all our new-build homes will have an EPC energy efficiency rating of A, meaning they will produce 75% fewer CO2  emissions than the average UK home.

This combined approach that looks at construction and the energy efficiency of homes themselves, will enable us to reach our goal of becoming a certified carbon neutral company later this month.

Investors considering sustainable investing opportunities within the property space should research housebuilders’ claims relating to their green credentials prior to investing, such as:

• Design – which materials are used and why; is sustainability fundamental to the design approach e.g. are EV charging points or triple-glazed windows installed in new-builds as standard?
• Construction – constructing a new-build property can create up to 70 times more embodied carbon than an existing building, largely due to the manufacturing process of materials and their transportation. If a project requires demolition, is there a clear focus on managing the environmental impact?
• Long-term environmental impact – is there a commitment to ensuring that the buildings created will benefit their environment in the longer term? At Acorn, for example, we work with agencies and environmental experts to ensure that local biodiversity can thrive alongside the homes we build. This can include the creation of wildlife corridors, bat boxes and bee bricks, as well as incorporating green sedum roofs on selected homes.

Does sustainable investing mean forfeiting returns?

While impact investors may be prepared to forfeit returns to some extent in exchange for a positive contribution to the environment or society at large, evidence suggests that they may not have to. According to a report in the Financial Times in 2018, firms within the MSCI KLD 400 social index (covering firms with strong ESG principles) have actually outperformed the S&P 500 by half a percentage point since 1990.

Investing sustainably with Acorn

At Acorn, building sustainably has long been our focus. To find out more and explore our range of products offering income or capital growth, please visit Acorn Green or register for the latest opportunities. Alternatively, you can contact Investor Services on 0203 858 9981 or via email at investor.services@acornpg.org.

To invest with Acorn, you must be either a High Net Worth Individual or a self-certified sophisticated investor.

YOUR CAPITAL IS AT RISK IF YOU INVEST

Investment opportunities available via Acorn Property Invest are exclusively targeted at exempt investors who are experienced, knowledgeable and sophisticated enough to sufficiently understand the risks involved, and who are able to make their own decisions about suitability of those investment opportunities. All investors should seek an independent professional investment and tax advice before deciding to invest. Any historic performance of investment opportunities is NOT a guide or guarantee for future performance and any projections of future performance are not guaranteed. All investment opportunities available via Acorn Property Invest are NOT regulated by the Financial Conduct Authority (FCA) and you will NOT have access to Financial Services Compensation Scheme (FSCS) and may not have access to the Financial Ombudsman Service (FOS).