Data centres and cold storage are attractive real asset investments, but if these assets aren’t powered by renewable energy or don’t have a transition plan in place, then it becomes increasingly hard justify the investment, Ivanhoe Cambridge says
By 2025, Ivanhoe Cambridge will no longer invest in any real estate development that does not have a path to carbon neutrality.
With that deadline ringing in their ears, George Agethen and his team in Asia-Pacific face a conundrum of sorts when it comes to data centres, the most keenly sought-after assets for many institutional investors.
On the back of the digitalisation of economies, coupled with the prospect of widespread adoption of artificial intelligence, the inexorable growth in demand for data storage foreshadows a widening shortfall in data centres in coming years.,
George Agethen, co-head of Asia-Pacific at Ivanhoe Cambridge, tells [i3] Insights: “We have no doubt that demand for data centres is huge. The growth of the sector is amazing and there is a lot of development going on. I would say Asia probably has a longer runway for these centres.
“We’ve also seen governments in the region issuing orders to have data stored locally. This will create even more demand in all Asian countries, and this spells investment opportunity in the region – whether in Malaysia or the Philippines. For different reasons, it will be harder to invest in China.
“We have a few data centres in Asia. The challenge with them is the huge carbon footprint. From a sustainability perspective it is very difficult to invest in data centres if you are serious about your ESG commitments.”
Agethen says: “We have our targets, but we will need to fulfill a lot of preconditions before we are able to invest in data centres – for example the accessibility of renewables for the site.
“There are a lot of places round the world, including Asia, where temperatures are higher and cooling needs are higher. There are places where we just cannot invest in data centres.”
We’ve seen governments in the region issuing orders to have data stored locally. This will create even more demand in all Asian countries, and this spells investment opportunity in the region – whether in Malaysia or the Philippines. For different reasons, it will be harder to invest in China
Because of its ESG commitments, Agethen explains, Ivanhoe Cambridge is precluded from rapidly increasing its portfolio of data centres or cold storage facilities (in logistics) because of the need to get the energy mix right.
“We must look at where the energy is coming from – coal or renewables,” he says. “Certainly, without renewables, it is not an option for us because the numbers just don’t work in terms of hitting our sustainability goals. We aim to have our entire portfolio carbon neutral by 2040.”
Currently, Ivanhoe Cambridge has data centres investment in Japan and in Australia (the latter through its joint venture with Stockland at Macquarie Park, in Sydney’s north).
“Sustainability must come first in all our investment choices, not just in data centres,” he says. “That means assets must be resilient to change into the future.
“Yes, we want higher returns, but at the same time we also want to ensure global returns are resilient. We must continuously and actively look at that, because there is the obsolescence factor across industry – and real estate is no different.”
We must look at where the energy is coming from – coal or renewables,” he says. “Certainly, without renewables, it is not an option for us because the numbers just don’t work in terms of hitting our sustainability goals
Agethen adds: “Returns come and go. As an investor you don’t want major volatility. We are a pension fund. We need resilience.
“A couple of years before COVID, North America delivered a very strong performance. In contrast, Asia did not do so well. But that is not because it was weak. It was because that was where the cycles were.
“Currently, Asia is less affected by the global slowdown, so by the end of this year, Asia will outperform the US.”
To maintain resilience and consistency of returns, Agethen says, a global investor wants diversification of risk. For example, that logistics is seen as better than office and office as better than retail.
“But even if a sector is not performing well, there is a reason that the investor needs to have exposure to that sector. It is a case of not placing all bets in one basket.
“Over the last few years, we have reduced our exposure to retail and to office. We have been increasing exposure to industrial and logistics, multifamily and we have gone into life sciences in Asia as well as globally.
“But because real estate is illiquid it takes time to do the pivot. We will continue to pivot our portfolio from traditional asset classes to logistics and the new economy.”
Agethen tells [i3] Insights that as it reviews its assets, Ivanhoe Cambridge is simultaneously pivoting away from traditional markets into newer markets. And as Asia comes to the fore, it presents fresh opportunities and growth.
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.