Achieving net zero: abrdn Property Income Trust’s new reforestation project

Jason Baggaley, abrdn Property Income Trust manager, explains more about the exciting and ambitious ecological improvement project the Trust has recently undertaken.

• abrdn Property Income Trust has embarked on a reforestation project
• The project includes reforestation, peatland restoration and biodiversity improvements
• It should improve air quality, flood mitigation and enhance the natural landscape

 
The UK commercial property sector is a significant contributor to climate change, responsible for around a quarter of all carbon emissions. Fund managers have a vital role in improving the carbon footprint of the buildings they own, by bringing energy efficiency measures, installing renewable energy sources and improving building materials, but these activities will not be enough to realise net zero on their own.

Assessing a building’s environmental, social and governance credentials has become part and parcel of abrdn Property Income Trust’s approach. Tenants increasingly use it as part of their decision-making process. We have upgraded our property assets where possible, with carbon emissions, staff welfare and biodiversity as key considerations in our refurbishments.

However, we recognise the need to go further and faster. These upgrades often cannot happen fast enough to achieve our net zero ambitions. And, despite the significant improvements we have made to our assets to reduce their impact on the environment, they will always have some residual unavoidable emission.

To address this, we have embarked on a pioneering nature-based removal strategy. We concluded that some measure of carbon offsetting was necessary. We wanted a UK based, high quality solution. With this in mind – and in consultation with in-house experts – we embarked on an exciting and ambitious ecological improvement project.

It took us a year to find the perfect site. We have a number of principles we apply to site selection, for example; we prefer land with no homes on it, and we do not want to acquire land that has productive food provision use. We don’t want to disrupt anyone’s way of life, or impair their livelihood.

We will use local labour where possible and hope to generate community support and engagement over time. The site also had to fulfil our sustainability criteria, be suitable for planting and answer our decarbonisation needs. While we were not looking for a commercial return, we needed it to fulfil its carbon capture brief.
 

Far Ralia

 
We ultimately found the 1,400 hectare Far Ralia site in the Cairngorms. It is non-productive open moorland, having previously been used for grouse shooting and stalking. We have worked extensively with our Scottish forestry partner, Akre, to create a planting schedule for more than 1.5 million trees, one of the largest native woodland projects in Scotland.

Using a combination of natural regeneration and planting native broadleaf trees and Scots Pine, the woodland has been designed to emulate a native Caledonian forest.

Akre has undertaken seed collection from the site to ensure the provenance and genetic integrity of the woodland. The trees from these seeds are being grown in the firm’s carbon-negative nursery in Fife, before returning them to the site over the next few years.

Ultimately, there will be woodland across 850 hectares. As part of the project, we will also restore 150 hectares of degraded peatland. Peatlands store vast quantities of carbon, an estimated 3.2 billion tonnes in the UK alone.

We have pioneered the use of the Natural History Museum’s Biodiversity Intactness Index (BII) to inform our land use change. This tool assesses the land and gives it a score between 0 and 100, 0 being a car park and 100 being a rich and untouched habitat.

The land at Far Ralia is currently sitting between 30 and 40 on the BII. The land use changes we have begun and outlined in our project roadmap will push the BII to 94 over 100 years. This more than surpasses the planetary boundary of 80 and helps us demonstrate the co-benefit to biodiversity of our design.
 

Starting work

 
After a year of careful consultation, design work and obtaining the necessary approvals, we are ready to start work. Inevitably, there will be some disruption with heavy machinery on site in the short-term, but we hope to keep this to a minimum. The work is starting with improvement to the access tracks and installing a new bridge to protect the historic one, plus a fencing project on one of the boundaries.

We recognise that the prospect of a large asset management group intervening in the natural landscape is a worry for some local residents. We are keen to reassure them that we have taken the very best advice to enhance and regenerate the landscape, while improving access to the hill for the local population.

We believe business and government need to work together with local communications to deliver ecological change sensitively and want to play a role in shifting the economy from extractive to regenerative.

Change can be difficult and needs to be done with the region’s best interests at heart. This is our goal at abrdn Property Income Trust. This project should bring long-term benefits to the wider community through reforestation, improved air quality, flood mitigation and improved biodiversity. This is important for the region and for the planet.
 

 

Important information

Risk factors you should consider prior to investing:

• The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested.
• Past performance is not a guide to future returns.
• The value of property and property-related assets is inherently subjective due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the valuations of Properties will correspond exactly with the actual sale price even where such sales occur shortly after the relevant valuation date.
• Prospective investors should be aware that, whilst the use of borrowings should enhance the net asset value of the Ordinary Shares where the value of the Company’s underlying assets is rising, it will have the opposite effect where the underlying asset value is falling. In addition, in the event that the rental income of the falls for whatever reason, including tenant defaults, the use of borrowings will increase the impact of such fall on the net revenue of the Company and, accordingly, will have an adverse effect on the Company’s ability to pay dividends to Shareholders.
• The performance of the Company would be adversely affected by a downturn in the property market in terms of market value or a weakening of rental yields. In the event of default by a tenant, or during any other void period, the Company will suffer a rental shortfall and incur additional expenses until the property is re-let. These expenses could include legal and surveying costs in re-letting, maintenance costs, insurance costs, rates and marketing costs.
• Returns from an investment in property depend largely upon the amount of rental income generated from the property and the expenses incurred in the development or redevelopment and management of the property, as well as upon changes in its market value.
• Any change to the laws and regulations relating to the UK commercial property market may have an adverse effect on the market value of the Property Portfolio and/or the rental income of the Property Portfolio.
• Where there are lease expiries within the Property Portfolio, there is a risk that a significant proportion of leases may be re-let at rental values lower than those prevailing under the current leases, or that void periods may be experienced on a significant proportion of the Property Portfolio.
• The Company may undertake development (including redevelopment) of property or invest in property that requires refurbishment prior to renting the property. The risks of development or refurbishment include, but are not limited to, delays in timely completion of the project, cost overruns, poor quality workmanship, and inability to rent or inability to rent at a rental level sufficient to generate profits.
• The Company may face significant competition from UK or other foreign property companies or funds. Competition in the property market may lead to prices for existing properties or land for development being driven up through competing bids by potential purchasers.
• Accordingly, the existence of such competition may have a material adverse impact on the Company’s ability to acquire properties or development land at satisfactory prices.
• As the owner of UK commercial property, the Company is subject to environmental regulations that can impose liability for cleaning up contaminated land, watercourses or groundwater on the person causing or knowingly permitting the contamination. If the Company owns or acquires contaminated land, it could also be liable to  third parties for harm caused to  them or their property as a result of the contamination. If the Company is found to be in violation of environmental regulations, it could face reputational damage, regulatory compliance penalties, reduced letting income and reduced asset valuation, which could have a material adverse effect on the Company’s business, financial condition, results of operations, future prospects and/or the price of the Shares.

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen’s Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK.

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