SETTING THE BENCHMARK
The environmental, social and governance (ESG) aspects of the operation of care homes is becoming increasingly important to investors. Having an ESG framework, and the policies and practices in place to support it, is something investors are now looking at when choosing to place their funds.
‘If you look at the capital we are investing, our investors are very concerned about ESG,’ said Mike Toft, senior fund manager at Octopus Healthcare. ‘The money coming into the market has ESG requirements.
‘Going forwards they have requirements coming through. If we didn’t have those ESG targets and requirements in place, we wouldn’t be able to raise the capital.’
So how can operators make their portfolios as attractive as possible to investors through ESG?
Target Healthcare goes through each ESG strand when deciding whether to invest in a property, using consultants to assess the whole ESG statement.
For environmental considerations, the REIT considers whether homes have heat pumps, are they thinking of solar panels, do they have double glazing, do they have great insulation, explained chief executive Kenneth MacKenzie.
He added homes also had to be sustainable, saying: ‘As well as having excellent quality of real estate, you want to have excellent quality of real estate at sustainable rental levels.’
Octopus provides a document to operators and developers about what a modern care home should look like for it to make an investment.
The fund is also in discussions with the wider Octopus Group, which includes an energy arm, about how to transition to green sources such as solar power, heat pumps and batteries.
Octopus is also aiming to build the greenest care home in the UK. ‘At a fund level we have set net zero targets and we are now saying as a fund by 2030 all new care homes coming into the fund will be net zero by that timeline,’ Toft said.
Anchor has appointed Liz Davenport as property sustainability director to bring a renewed focus on the environment to the care home and housing group. She said Anchor was now talking about how it achieves the pathway to net zero and how to mitigate environmental impact.
It is also seeking very high energy efficient buildings to protect residents from future climate adaptations and making sure current stock is upgraded.
Davenport said: ‘The E part has got a real shift away from its focus to a co-ordinated and synegistic programme, putting the organisation on that pathway to a set of outcomes, while continuing to do really good stuff in the meantime.’
That ‘good stuff’ on the social side includes support and wellbeing projects, which sit around its care services. ‘The social angle is a core part of Anchor’s DNA,’ Davenport said.
MacKenzie added that, for Target, wet rooms were really important to achieving that social aspect. ‘Social is about caring for people, holistic attitudes and, for us, part of that is providing a modern pur- pose-built home with wet rooms,’ he said.
‘Isn’t that what social care is about - that we care for our seniors in a dignified, holistic manner? Social is a big, big deal for us in terms of who we are and what we are trying to do as a business really.
‘Wet rooms are an essential ingredient in our view to an excellent S.’
For Octopus, it is whether homes make a difference in terms of the quality of care provided what defines a good S.
Toft said: ‘We are measuring the im- pact that we have in our market, whether it is the quality of care beds indicating whether we meet that societal need.
‘We are really proud of the impact we are having there and it demonstrates we have the ability to meet targets and we measure that to be at the apex of the ESG journey.’
He added Octopus takes the S very seriously and it forms a key part of its underwriting process, as they need to be comfortable with the quality of care and that there is little risk. ‘We want to own care homes we would want our loved ones to live in themselves. That is the benchmark we set ourselves,’ Toft said.
Both Target and Octopus have healthcare staff within their organisations to ensure that not just high-quality social care is provided, but also good governance is in place.
Target tests governance by meeting all levels of management from the owner to the care home manager and then walk the floors of the setting to see ‘if it is all aligned’.
MacKenzie said: ‘I think it is fair to say we are one of the very few fund managers that have four full-time healthcare people who physically visit all the homes and are continually considering best practice in all of the homes.’
Davenport said governance was central to what Anchor does. ‘That is not just because we are highly regulated both in the housing space and the care space but because of the nature of our relationship with our customers requires that level of trust,’ she explained.
‘I think what is interesting about the ESG world is a lot of the metrics investors look at is how do we treat staff, how diverse and representative is our work- force, our leadership and our board.
They will also look at those core business practices around how we manage risk or carry out business planning or succession planning, Davenport said.
She added: ‘They are not the big impact social or environmental hitters, but if you don’t have those things right in the marketplace we operate in where we do blend the social with the commercial, you are not going to be delivering the commercial outcomes and not going to be delivering for your purpose.’
Davenport added governance under- pins the effectiveness for E and S as well, while E adds more complexity to organisations. ‘It has made it easier to signal to the investor community that we are well governed and that we can drive additional value for investors through social and environmental impact,’ she added.
Toft agreed: ‘The G, in a way, if you set the processes in place, does take care of itself. A lot of it comes down to the collection of the data. It’s about trying to get away from these big statements and demonstrate the discernable change we are making.’
He added developers and operators are now realising they have to deliver all aspects of ESG.
‘The market is moving that way,’ Toft said. ‘They won’t be able the get the pricing they want unless they deliver these ESG criteria.’
Toft said operators are becoming more open to discussing ESG requirements but it was a must-have for funds like Octopus. ‘If they want to do business with us, they have to meet this requirement,’ he added.
Davenport added social care was a strong area for ESG investors to be focused on. ‘It is absolutely a good thing’, she said.
‘It is driving everyone to think differently about their business and about the future resilience and impact. The mechanics of it are going to change and develop.
‘As it iterates, it is going to get more sophisticated and that is a good thing because it limits the scope for things like greenwashing.’
CARE MARKETS: AUGUST 2022
Image: Ronan Furuta/Unsplash
TAKING THE HEAT OUT OF HEALTHCARE
As global leaders committed to reduce carbon emissions at COP26 in November, the Independent Healthcare Providers Network (IHPN) launched its own net zero pledge on behalf of its members.
The move mirrors the NHS’ target of reducing its ‘carbon footprint plus’ to net zero by 2045, including direct emissions and those caused by its supply chain.
Pressure to change is also coming in financial form. Private investors are demanding more action, while the NHS and Cabinet Office are including emission reduction as a requirement in their pro- curement process.
The IHPN also decided to go down this path in response to the ‘growing evidence’ of the impact climate change was having on people’s health, for example air pollution with links to conditions like lung cancer, out of hospital cardiac arrest and asthma, its head of policy Danielle Henry told HMUK.
Furthermore, as temperatures rise conditions such as Lyme disease and encephalitis are expected to become more prevalent.
Henry explained that IHPN members recognised that they had a role to play in changing this.
She said: ‘IHPN and our members acknowledge that we can make a real difference’.
They have agreed to scope 1, or direct emissions from their operations, to be net zero by 2035.
Scope 2, which relates to provider’s supply chain, sets a target of net zero by 2045.
This latter change is expected to be delivered through the procurement of supplies from companies who can demonstrate their products, equipment and services are carbon neutral.
Henry said the targets had been set to be ‘achievable and a challenge’.
She said: ‘Our members do not feel we should be playing it safe on this.’
However, the challenge in reducing emissions will vary between members. For example, for community nursing teams the focus will be on the vehicles they drive, while for a diagnostics provider it would be around the equipment used, and for hospitals efforts would need to concentrate on the buildings.
‘The hardest challenge is fear of the unknown when getting started,’ Henry said.
Leading the way are a handful of IHPN members that have already committed to becoming net zero by 2030.
Among them is Spire Healthcare. Group supply chain and procurement director Martin Alley, who leads on its environmental initiatives, told HMUK: ‘As a responsible corporate citizen, we are determined to do everything we can to reduce our impact on the planet.
‘For the past 12 months Spire has been implementing its decarbonisation strategy which is designed to achieve net zero carbon emissions by 31 December 2030.
‘To support this, we have ring-fenced some £16m of investment over the next ten years and this is already being deployed.
‘For example, Spire Cardiff has just completed the installation of 78 PV solar panels on the roof of its outpatients building. We are also now procuring 100% of electricity from renewable sources.’
Spire has signed a contract with Scottish Power for the latter to supply it with renewable electricity for the next few years.
Alley said its gas and power purchasing commitments had been made in accordance with Spire’s prevailing energy procurement strategy framework, which includes a commitment to only procure renewable electricity, and has been approved by the Board.
Procuring electricity from only renewable sources could make a real impact on energy intensive healthcare operations reducing their carbon emissions.
Director of future electricity systems at RenewableUK, a representative body for renewable energy generators, Barnaby Wharton said healthcare providers had a couple of options when making this transition.
They can take out corporate purchase power agreements directly with electricity generators under which they agree to by renewable energy for a specific number of years.
This is suitable for large companies with very high electricity demands,’ Wharton explained. They would also need a good credit rating so developers would be sure that they would be still operating at the same levels throughout the con- tract, he added.
Smaller companies can still be supplied with purchase power agreements by asking an energy company to supply them only with renewable energy.
He explained: ‘Because the supplier is buying loads of renewable energy, they can say across the year we have bought this amount of renewable energy and we can assign that to you. These supplier PPAs are much easier to do.’
However, there will be some periods were there isn’t enough renewable energy generated, so it is necessary to look at the source over the year.
‘It is very important for suppliers that they can correlate the power they have used with power they have bought’, Wharton said.
Healthcare providers can demonstrate that they are using energy from renewa- ble sources through Renewable Energy Guarantee of Origin (REGO) certificates.
The government has just closed a consultation to make this process more transparent.
‘What is really important is to make this a much more transparent process so you can be confident when you are buying renewables,’ Wharton added.
By ensuring the money goes back to renewable energy providers, it will allow the industry to expand and supply power at lower prices, he said.
Spire has also appointed a ‘carbon champion’ at each of its 39 hospitals, who are responsible for working with colleagues to identify, develop and promote initiatives at their site which will reduce carbon consumption and create a ‘carbon culture’.
Alley said: ‘Each Carbon Champion is provided training to understand the relationship between energy use and carbon emissions and is equipped to identify some simple energy savings opportunities as well as be able to recognise and act upon bad energy management practices.
‘Examples of initiatives which the champions have in train include reduction in hours of car park/street lighting as well as the identification of capital investment needs such as insulation upgrades.’
Progress towards its net zero targets will be monitored via regular updates to the Spire board, as well as regulatory reporting requirements.
In addition, Spire anticipates that its investment of £16m will be offset by the benefits to be derived through reduced energy consumption.
However, for many, smaller healthcare providers or those with more complex operations, the journey towards net zero may be more challenging.
A year ago, IHPN set up a climate change group to support members on their own journey. This centred around providing information, sharing best practice and ambitions to become net zero. Henry said that when you started to break the latter down into stages, IHPN members have found it becomes less challenging.
However, despite providers’ best efforts, there will always be carbon emissions that will be impossible to eliminate. Henry said that these will have to be off-set but the focus among IHPN members is very much reduction.
Also new, unforeseen challenges will emerge over time which could stall progress on reaching
the targets on time, or even hinder them being achieved at all, so plans need to be flexible.
But Henry said the will is there to make a difference with momentum growing from staff to implement carbon reduction measures. She said that healthcare providers’ green credentials are increasingly coming up during interviews with potential employees and that a rising number of patients are asking about environmental standards when choosing a provider.
‘Every provider I have spoken to said: ‘It was easier than I thought’, Henry revealed. ‘The costs weren’t as great as providers’ feared and the costs of not doing it is huge. They cannot afford to be not involved in this.’
HEALTHCARE MARKETS UK: FEBRUARY 2022
Image: Renewable UK
LAST MINUTE COAL FUDGE PRICE OF WIDER COP26 AGREEMENT
Close to 200 countries attending the COP26 climate summit in Glasgow reached a deal last weekend that for the first time cuts back coal use and commits to revisit nations’ emissions reduction plans within a year.
However, watered-down pledges on coal and fossil fuel subsidies left many disappointed.
Delegates agreed to a last-minute change in the text proposed by India and supported by China to “phase down” rather than phase out coal. Several countries registered their unhappiness with the revision but accepted it to save the rest of the package.
COP26 president Alok Sharma said the text is “imperfect” and that he was “deeply sorry” for the way the process unfolded. UK Prime Minister Boris Johnson was more positive, claiming it was “beyond question” that COP26 had “sounded the death knell for coal”.
RenewableUK chief executive Dan McGrail said the final wording in Glasgow should have gone further to commit to phasing out coal but significant progress had been made at the two-week conference.
“It is clear that we still have a mountain to climb to limit global warming to 1.50C. That is why it is so important for countries to revisit and strengthen their plans to reduce emissions at next year’s COP in Egypt instead of waiting until 2025,” he added.
“We also need to see clearer roadmaps from each country on how they plan to reach net zero with more ambitious targets for rolling out the clean technologies that will do the heavy lifting on decarbonisation.”
McGrail added: “Accelerating the deployment of renewables worldwide right now and over the course of this decade is a take to help to get us back on track towards that goal of keeping 1.5 alive.”
The pledge to phase down coal-fired generation and end support for new coal power plants will “free up the space for renewables”, according to Global Wind Energy Council chief executive Ben Backwell.
The conference’s 190 signatories also pledged to scale up clean power by using resources to “enhance what can be delivered by the private sector”.
Many of these countries are growing economies so will need renewables to fill the void created by the elimination of coal, Backwell noted, adding wind and solar will have to comprise 70% of the energy mix to hit climate targets.
Governments are committing to nationally determined contributions or NDCs and then reverse engineering how much renewables they will need.
“The progress that we have seen with NDCs is translating into interest in wind and solar,” Backwell claimed.
Iberdrola chairman and chief executive Ignacio Galan called for tougher action against coal production.
“We need to close down coal completely and demolish those stations. Otherwise when we have short term market issues there is always a temptation to run them again.”
RENEWS: NOVEMBER 2021
CARE CAN GO GREEN
With minimal fee increases and rising costs, making sure a care home is eco-friendly is often not at the top of providers’ to-do list. But some operators are grasping the nettle and attempting to make their care homes as green as possible.
Dormy Care’s four sites have all received a green makeover to ensure they are environmentally friendly. By looking at how they were spending money and what changes could be made, they decided to reduce their use of plastic, recycle and compost waste, use a low temperature laundry system and swap normal lightbulbs for LED versions.
The provider has tried to reduce its carbon footprint by sourcing all its supplies, including food, locally. In addition, it only uses suppliers who are socially responsible, for example, those who donate leftovers to food banks, and who minimise plastic packaging. CEO Helen Davies-Parsons said this also helped promote the business to potential residents in the area.
Minimising environmental damage and the company’s carbon footprint is something Davies-Parsons is passionate about. She explained: “Recycling is something that is very important to me. “It is a culture thing. If we embrace it from the management down, everyone takes it on.”
Arguably the biggest change it has made is installing an Ozone water cleaning system, which cleans without chemicals. It removes all bacteria without being harmful to staff and residents. Dormy Care now uses 80 per cent fewer chemicals than the average care home, she says, which has also helped to cut down on waste of plastic bottles that contain cleaning products.
“We were the first care home to have implemented it”, added sales and marketing director Wendy Westbury. “The housekeeping team love it as it is not risking their skin.” By using the system, Dormy Care says it has reduced spend on chemicals by 75 per cent.
Westbury admitted it was difficult for the older generation to get on board with the recycling and other green efforts but, when speaking to their families, they are very supportive. “It is something that we make clear to everyone”, she said.
Engaging residents in recycling
Resident engagement is a problem that Community Integrated Care (CIC) believes it has solved. Finding that many recycling guides were inaccessible to working age adults with support needs, it decided to produce its own.
Renata Davies, project lead for its Re-Use and Recycle Project, explained: “Recycling is an important piece of independence, allowing people with support needs to have control of their own lives and giving people a chance to integrate and contribute to their local community.
“Our charity has worked with our experts by experience, our vocational support specialists and leading recycling organisations to produce a recycling guide targeted at people who receive support and their care workers that can be used as a person-centred tool.”
As well as funding the guide, the Merseyside Recycling and Waste Authority Community Fund also awarded CIC a grant to employ a recycling specialist, John Cresswell. Creswell has been supporting its care homes, offices and supported living services to recycle and focus on their environmental sustainability. He has trained a team of people to become environmental champions and has worked with local community groups to deliver education programmes across the Liverpool City Region.
Davies continued: “John has had a long-term mental health condition, so taking part in this project and having the opportunity to gain paid employment in area which he’s so passionate about has been absolutely transformative for him. Not just this, but his work has seen him empower other people with support needs to understand the difference they can make to our planet by taking part in recycling.”
CIC has published the guide online as a free resource for other care providers to help them make this green transition.
Care homes can do simple things to make their homes more energy efficient to save money and the planet at the same time. According to Bristol Energy, by fitting thermostatic radiator valves, ensuring the roof is sufficiently insulated, particularly in older buildings, and switching to LED lights, less energy is used meaning lower bills. It also suggests giving regular meter readings and making sure the home is on the correct tariff to get the best deal.
“If more providers can adopt an environmental approach, it would be amazing”, Westbury added, “but it all comes down to cash.” However, she said despite the initial outlay for the environmentally-friendly measures in the home, long-term savings had been made.