CCLA believe that ESG criteria are likely to affect the longterm value of property assets. For this reason, it has affected our investment process in a number of ways throughout the reporting year.
First, we reject investment opportunities where we believe that poor ESG standards place value at risk. An example of this was a prospective investment in an industrial unit in Banbury. Having considered and debated the merits of this investment it was decided to abort our interest due to a number of environmental issues that had been revealed by the vendor. The issues centered on an historic spillage incident that resulted in the pollution of drainage systems and ground conditions with a threat to controlled waters and human health. This was caused by an industrial oil leak and was sufficiently serious to require the involvement of the Environmental Agency. This historic, long-standing and unresolved incident that required future remedial action to be implemented was deemed unacceptable and represented a high risk on many levels. It was decided that the investment should not be pursued and our interest was aborted.
Second, we place specific covenants within lease agreements and alter the price of our investments. An example of the latter was Bath Waterside (as it is known), a purpose-built hotel premises situated on the bank of the Kennet and Avon canal. The property is made up of the main hotel constructed in the 1980’s and later extended, and an old converted mill house. During the pre-purchase due diligence process an issue was identified concerning possible flood risk affecting an outbuilding on the site which impacted on buildings insurance for the property. A price adjustment of c.£50k was agreed to reflect necessary flood protection measures to the property which was agreed with the vendor.
Finally, due to the comprehensive nature of our due diligence process we sometimes identify ESG risks that we do not believe pose a threat to invested value. These are logged and prioritised for remediation through refurbishment (where possible)