Aviva Investors Goes Deep Green
The $500B global asset management business of Aviva plc has announced a commitment to originating £1B in sustainable transition real estate debt over the next four years, supported by the launch of its proprietary Sustainable Transition Loans Framework.
The initiative ratchets up the sustainability agenda in the UK property sector, and it comes just two weeks after Aviva Investors acquired the low carbon zero fossil fuel 25K SF Stylus building, 112-116 Old Street, EC1, in the heart of London’s Tech City.
The new office development has been constructed behind the retained facade of a former Victorian gramophone factory and is exceptionally energy efficient, having been awarded an EPC energy efficiency rating of A with no fossil fuel usage. Hot water and heating for the site is provided by air source heat pump technology, with solar photovoltaic panels.
The commitment also follows a £154M refinancing provided by Aviva Investors to CLS Holdings in September, with the facility structured to include targets explicitly linked to sustainability goals, including a reduction in margin on the loan dependent on meeting specific targets assessed annually throughout the life of the facility.
The CLS deal focused on 11 office assets across London and the South East, alongside a mixed-use scheme in Vauxhall, including hotel and student accommodation.
“We believe that by directly linking long-term financial incentives to measurable improvements in the environmental performance of the buildings we lend against, we can incentivise and engage borrowers to consider sustainability factors in a more meaningful way,” Aviva Investors Head of Real Estate Debt Gregor Barmert said.
Aviva Investors sees a growing stake in green buildings as a potential high-yielding but under-explored niche, particular in the tech cities like London, Manchester and Cambridge in which they are now concentrating their spending power.
“Despite the size of London’s office market there is a significant under-supply of grade-A office space such as that offered by Stylus, particularly in the Tech City submarket centred around Old Street Roundabout," Aviva Investors Managing Director Real Estate Daniel McHugh said. "We believe that, together, these characteristics add to the building’s appeal and should make it particularly resilient over the long term.”
Over the last five years Aviva Investors has been recycling its UK portfolio, selling in upward of 70 locations and reinvesting in its favoured core markets of London, Manchester, Birmingham and Cambridge. The process of disposals and acquisitions is now expected to have a much greener feel.
One of the first to feel the change will be Manchester, where Aviva is an aggressive player.
“We have got well over £1B invested in Manchester real estate across different mandates, and we’re big debt financers in the Manchester market, too,” Aviva Investors Head of Research Jonathan Bayfield told Bisnow.
“Our clients are looking at a five-to-20-year horizon, and UK real estate does look really attractive on a five-to-10-year basis.”
As part of the latest initiative Aviva Investors will embed measurable ESG commitments into its lending programme, setting out specific requirements for real estate borrowers to adhere to, in order to reduce carbon emissions from buildings, as it continues to support the transition to a low-carbon economy.
The new investment framework will be used by Aviva Investors to seek out sustainable real estate loan investment opportunities in line with the United Nations Sustainable Development Goals. It will focus on key sustainability targets such as energy efficiency and green initiatives including on-site renewables. Vigeo-Eiris, the environmental and sustainability rating and research agency, has provided second-party verification and accreditation for the framework, to ensure that the loans comply with the sustainability-linked loan principles.