Head of Responsible Investing
For information purposes only. The views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
Looking to 2023 and beyond
With COP27 (Conference of the Parties) done, dusted, and somewhat delivered. We want to focus in this insight note on the hosts for COP 28 – the United Arab Emirates (UAE) – who will welcome delegates from around the world in November and December this year.
But why focus on COP28 so soon?
The UAE micro-mirrors many of the challenges that we face on a global scale. The UAE, founded in 1971 has developed into one of the most rapidly growing countries in the world. For centuries Dubai was a fishing village and trading port, small and poor. Then oil and a wild property boom transformed it into a city that sports the world’s tallest building, one of its densest collections of skyscrapers, and its third busiest airport.
Their focus on economic growth has been fuelled by their exploitation of their gas and oil resources – like many countries that have shifted from a developing to developed nation Historically they have never been particularly interested in tackling climate change, again remarkably like many western countries pre-1990’s. While the UAE’s oil will not run out any time soon, since global warming has intensified and its physical impacts on the UAE have got worse, they are making significant changes to tackle climate change.
How is the UAE tackling these?
The UAE’s ability to innovate and embrace technology to manage changes in the natural environment must be looked at more closely, although clearly not every country is in such an advantageous position to be able to do this, nor would we hold their answers as the only response to the environmental challenges we face.
We have seen impressive solar developments in the UAE with the Mohammed Bin Rashid Al Maktoum Solar Park in Dubai, and recently in Abu Dhabi where its planned 350MW solar PV plant received extremely competitive bids, with the lowest bid offering a new global record low price at the time of 2.99 US cents/kWh.
The UAE is also developing waste-to-energy projects. In January 2021, the Emirates Water & Electricity Company (EWEC) announced plans to construct two of the region’s largest waste-to-energy power plants, aiming to reduce waste to landfills and decrease carbon emissions.
Modern waste-to-energy plants are vastly different from the ‘rubbish’ incinerators that were commonly used until a few decades ago. Unlike modern ones, those plants usually did not remove recyclable materials before burning. These incinerators endangered the health of the plant workers and the nearby residents, and most of them did not generate electricity. Waste-to-energy generation is increasingly looked at as a potential energy diversification strategy, The typical range of electrical energy that can be produced is about 500 to 600 kWh of electricity per ton of waste incinerated with the added ability to collect particulates.
Dubai’s goal is to cut its carbon emissions by 30 per cent by 2030 and become carbon neutral by 2050. The UAE was the first country in the region to sign the Paris Climate Agreement and is starting to build some environmental credentials including being home to the International Renewable Energy Agency (IRENA). It is their approach to the key Sustainable Development Goal (SDG) 11 of ‘Making cities and human settlements inclusive, safe, resilient and sustainable’ that has caught our attention as ESG focused investors.
What does a sustainable city look like?
The Sustainable City in Dubai, UAE is a scalable working residential area with almost 3,000 residents. It supplies a framework for the UAE to achieve neutral carbon status by 2050. The UAE understands that given the combination of their challenging climate and focus on property construction, if they are to reach their ambitious climate change commitments green buildings and sustainable cities will be an important part of the solution. The World Bank estimates that the construction sector accounts for approximately 17% of greenhouse gas emissions in the Gulf Cooperation Countries (GCC). Adopting best-practice building techniques can have a tremendous impact on global warming.
In the Sustainable City, solar panels top all the buildings and car parking spaces, generating enough energy to meet most of the community’s needs. South-facing facades are closed to block the sun while well-insulated windows are placed on the northern frontages. All surfaces are light-colored to reflect the sun and reduce air-conditioning loads.
A ‘green spine’ runs down the middle of the community supplying space for several biodomes housing kitchen garden plants and vegetables for local consumption. Sustainable City Management reports the ability to grow up to four tons of strawberries in a single container-sized vertical farming facility. Residents are also encouraged to grow their own food in allotments next to their properties using organic practices.
Sustainability makes good business sense
The Sustainable City holds the title of Dubai’s working zero net energy city, we know however that a long-term success requires financial sustainability. Sustainable City is a low-carbon business model for mixed-use property development. Buildings are constructed from eco-friendly materials and cleverly positioned and insulated to significantly reduce air-conditioning requirements.
According to the World Bank in 2021, the Sustainable City community avoided more than 8,000 tons of CO2e roughly equivalent to removing 853 cars from the roads for a year. Average daily water consumption stands at 162 litres/capita compared to Dubai’s average of 278. And more than 80% of household waste is sorted and recycled.
What long term investment themes do we see here?
Investments in green buildings, smart transportation and smart city technology can make cities inclusive, safe, resilient, and environmentally sustainable, aligned to the UN’s 11th Sustainable Development Goal.
The green building market supplies investment opportunities given its potential for future growth. According to a Market Research Future (MRF) report, the global green buildings market is set to grow at a compound annual growth rate of 14.3% between 2020 and 2027.
Looking at research by NextCity.org, almost 75% of the infrastructure that will exist in 2050 does not exist today allowing for some real opportunities here. Green buildings, smart transportation and smart city technology are only a few of the sectors offering the potential for a positive societal impact.
How we think about sustainable cities and communities
At Premier Miton we understand an estimated 39% of global carbon emissions are derived from the operation and construction of real estate, as reported by the World Green Building Council. We see this as both a risk and an opportunity for the property sector. Proprietors and property owners that are not working to improve the sustainability credentials of their assets will likely be subject to tighter regulatory and tax burdens. We also expect to see downward pressure on rental and capital values as occupiers and investors increasingly shun properties in favour of high quality, sustainable buildings.
Indeed, this shift creates investment opportunities for teams that are able to buy discounted “brown” assets and convert them into highly sought after “green” buildings, whilst also contributing to the transition to more sustainable cities. In the UK 30% of our carbon emissions are caused by the built environment, such as domestic and office property.
We consider a company’s approach to reducing carbon emissions within the investment process in our Premier Miton Pan European Property Share Fund. In addition, across our range of sustainable funds. one of our investment themes is sustainable cities and communities which we access through companies that help make human settlements safe, resilient and sustainable.
Additionally, we expect to invest further in this theme within the Premier Miton Emerging Markets Sustainable Fund, the most recent fund to be launched in our responsible and sustainable fund range.
In this fund under the theme of sustainable cities and communities we consider investments in areas such as residential housing, direct connections to sanitation, household recycling, EV charging points, improvements to air quality. One current holding is a Chinese electric 2-wheeler business. They manufacture and sell both e-bikes, e-mopeds and small motorbikes. Their R&D focus includes investment into battery life, range and safety to drive faster adoption outside of their home market.
The opportunities in our cities to invest in their future are endless
So, while COP28 will be based in the site of the current EXPO in Dubai, I hope the delegates are whisked out into the desert to consider what a sustainable city could look like. Energy and waste management, public transportation and green areas, socio-economic and cultural integration; and localized food production – the opportunities in our cities to invest in their future are endless.
It starts with planning, understanding what constitutes a resilient and self-sustaining community and putting in the building blocks upon which the city can thrive.