South African REITs to get environmental ratings — MSCI

Stan Garrun, executive director at MSCI in SA says MSCI ESG Research’s ESG rating signal will prove a valuable resource for investors looking to take the next step in ESG integration in this market

MSCI Inc. (NYSE: MSCI), an investment research provider, on Thursday announced the availability of ESG ratings coverage for South African Real Estate Investment Trusts (REITs) as part of its global coverage of companies in this sector.

Increasingly, institutional investors around the world are considering the environmental, social and governance (ESG) impacts of their investments, as evidenced by the growth in PRI signatories in recent years.

The United Nations Principles for Responsible Investment (PRI) call on investors to incorporate ESG factors into their investment processes. Assets under management by PRI signatories are now approximately USD 45 trillion, up from USD 4 trillion in 2006.

"There is a groundswell in SA’s institutional investment circles, where large asset managers and pension funds are increasingly seeking information about ESG (environmental, social and governance) issues when making investment decisions," Stan Garrun, executive director at MSCI in SA, said.

"We believe MSCI ESG Research’s rating signal will prove a valuable resource for investors looking to take the next step in ESG integration in this market," he said.

MSCI ESG Research covers over 5,000 publicly traded companies with MSCI ESG IVA, an ESG rating that indicates how well a company is prepared to manage ESG risks and opportunities based upon industry-specific key issues.

For the REITs sector, key ESG issues include green building investment and green leasing at the property portfolio level, and corporate governance and human capital development at the corporate level.

As part of its global coverage of over 260 REITs, MSCI ESG Research provides a rating for 13 South African JSE-listed REITS.

South African institutional investors may use the ESG rating to understand and manage ESG-related risks of local REITs.

They will also be able to compare South African REITs’ ESG performance with that of REITs in other countries.

The conversion to Reit status, to comply with tax dispensation used in various countries, has placed SA’s property funds under the attention of more institutional investors.

SA’s property funds converted to Reits last year as they looked to align themselves with Reits from abroad. Reit status replaces the property loan stock and property unit trust structures, and creates a uniform tax dispensation for the South African-listed property sector.

Property loan stock and property unit trusts had created confusion among investors as they were taxed differently.

SA’s listed property funds, especially its two largest, Growthpoint Properties and Redefine Properties, are also looking to grow their shareholder base to include offshore investors. By being Reits, investors can understand how these companies operate and invest in them as they would in other Reits.