Quilter Cheviot has completed the third phase of its long-term investment thematic engagement, focused on real estate investment trusts (REITs).

During the third phase, the wealth manager met with a selection of the chairs, senior independent directors, investment committee members and non-executive directors of eight REITs and three open ended property funds.

The firm is working to enhance corporate governance practices and responsible investment disclosures within the investment trust sector.

In this, it highlights three areas: board composition, board effectiveness and disclosures.

Quilter Cheviot stated that it "advocates for fully independent boards" to best protect shareholder interests.

During this process, it encountered a REIT board with a non-independent director, who was a manager representative. The firm reiterated its preference for fully independent boards, working with board, but adding that it was “"prepared to escalate against certain directors" if progress is not made.

Property analyst at Quilter Cheviot, Oli Creasey, said: "The standards of governance between closed and open-ended vehicles were very different. Open-ended fund boards tended to be harder to get in touch with, showed less diversity, and had directors who served on dozens of boards at a time. This contrast underscores the need for robust governance practices in all investment vehicles to ensure accountability and effective oversight."

The firm also emphasised the "importance of effective communication" between boards and shareholders, stating that while the engagement revealed that most boards are effective, some investment advisers were "reluctant" to arrange meeting with the chair without their presence or wanted pre-calls before doing so.

Quilter stated that while these instances are "rare", they highlight the need for improved board practices and effectiveness.

Finally, it added that REITs have made "significant strides in ESG-related disclosures", but stated that there is "still room for improvement".

Quilter Cheviot found that while many investment trusts report ESG integration post-acquisition, there is a "notable lack of transparency" in the due diligence process prior to acquiring new assets.

Responsible investment analyst at Quilter Cheviot, Ramón Secades, concluded: "Effective disclosure can be achieved through various platforms, with sustainability reports serving as a viable alternative to traditional, lengthier annual reports. The social impact of property investments cannot be overlooked, and strong social practices can mitigate reputational risks and contribute positively to communities.

"Open communication between boards and investors is the cornerstone of the sector. Our engagement has highlighted the need for managers to facilitate this dialogue and not impede it, ensuring that investors can have independent discussions with the board."

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