Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
1
SUSTAINABLE REAL ESTATE INVESTMENT IMPLEMENTING THE PARIS CLIMATE AGREEMENT: AN ACTION FRAMEWORKFebruary 2016
$
2
ACEEE AmericanCouncilforanenergy-efficientEconomy
ASIC AustralianSecuritiesandInvestmentsCommission
ASX AustralianSecuritiesExchange
BBP BetterBuildingsPartnership
BREEAM BuildingResearchEstablishmentEnvironmentalAssessment
Methodology
CASBEE ComprehensiveAssessmentSystemforBuiltEnvironment
Efficiency
COP ConferenceoftheParties
EMS EnvironmentalManagementSystem
EPRA EuropeanPublicRealEstateAssociation
ESG Environmental,SocialandGovernance
GRESB GlobalRealEstateSustainabilityBenchmark
GRI GlobalReportingInitiative
ICGN InternationalCorporateGovernanceNetwork
IGCC InvestorGrouponClimateChange
IIGCC InstitutionalInvestorsGrouponClimateChange
INCR InvestorNetworkonClimateRisk
INREV EuropeanAssociationforInvestorsinNon-ListedRealEstate
Vehicles
ISA InternationalSustainabilityAlliance
LEEDS LeadershipinEnergyandEnvironmentalDesign
NABERS NationalAustralianBuiltEnvironmentRatingSystem
PRI PrinciplesforResponsibleInvestment
RealPAC RealPropertyAssociationofCanada
REIT RealEstateInvestmentTrust
RICS RoyalInstitutionofCharteredSurveyors
SASB SustainabilityAccountingStandardsBoard
UNEP FI UnitedNationsEnvironmentProgrammeFinanceInitiative
DISCLAIMER
ThedesignationsemployedandthepresentationofthematerialinthispublicationdonotimplytheexpressionofanyopinionwhatsoeveronthepartoftheUnitedNationsEnvironmentProgrammeconcerningthelegalstatusofanycountry,territory,cityorareaoritsauthorities,orconcerningdelimitationofitsfrontiersorboundaries.Moreover,theviewsexpresseddonotnecessarilyrepresentthedecisionorthestatedpolicyoftheUnitedNationsEnvironmentProgramme,nordoescitingoftradenamesorcommercialprocessesconstituteendorsement.
Glossary
3
Executive Summary
Why integrate environmental, social, governance and climate risks into investment decisions?
How to integrate environmental, social, governance and climate risks: An action framework
Framework for action
Asset Owners and Trustees and their Investment Advisors
Strategy:DevelopamaterialESGandclimatestrategy
Execution:IntegrateESGandclimateriskinrealestateinvestmentstrategy
Alignment:Advisersandconsultantsselectionprocess
Feedbackloop:Monitor,reportandbenchmark
Marketengagement
Direct Real Estate Investment Managers, Property Companies and their Real Estate Consultants
Strategy:DevelopamaterialESGandclimatestrategy
Execution:IntegrateESGandclimateriskininvestmentstrategy
Alignment:Contractorsandmanagerselection
Feedbackloop:Monitor,reportandbenchmark
Marketengagement
Equities, Bonds and Debt investors and their Financial Advisors
Strategy:DevelopamaterialESGandclimatestrategy
Execution:IntegrateESGandclimateriskinrealestateinvestmentstrategy
Alignment:Directassetmanager,propertycompaniesordebtportfolioselection
Feedbackloop:Monitor,reportandbenchmark
Marketengagement
Appendices
Bibliography
Content
4
8
11
14
16
20
24
28
31
32
34
38
44
48
51
52
54
58
62
66
69
70
74
4
Sustainable real estate investmentImplementing the Paris climate agreement: An action framework
Thisframeworkisdesignedtohelprealestateinvestmentstakeholdersidentify key drivers and overcome the most common barriers foraction to integrate ESGand climate change risks into their decisionmaking processes. It has been carefully prepared with input frommanyknowledgeable industryexpertsand resourcesproducedoverthepastfiveyears.
Paris Climate Agreement, at COP 21, where 195 nations agreed to limit globalaveragetemperaturerisetowellbelow2.0degreesCelsius(3.6degreesFahrenheit),withanaspirationto limit itto1.5degreesCelsiusabovepre-industrial levels,andphaseoutfossilfuelsbytheendofthe21stcentury.LaSalleInvestmentManagement(2015).Research&Strategy.Availablehere
1
2
EXECUTIVE SUMMARY
Climate
On12thDecember2015historywasmadeinPariswhen195countriesagreed to work together to substantially curb global warming . Asinvestment buildings consume around 40% of theworld’s energy andcontribute up to 30% of its annual GHG emissions, the people whomanageglobalrealestateassets-valuedataroundUS$50trillion-arethereforeoneofthemostimportantdecisionmakinggroupsonearthtohearthisclarioncall.
Fiduciary duty
AspartofwidereffortstoimplementtheParisAgreement,everyrealestateassetowner, investorandstakeholdermustnowrecognisetheyhaveaclearfiduciaryduty tounderstandandactivelymanageenvironmental,social,governance(ESG)andclimate-relatedrisksasaroutinecomponentoftheirbusinessthinking,practicesandmanagementprocesses.
Long term
Failuretoactivelyaddresstheseriskswillnotonlyhinderglobaleffortsto address the climate challenge, butwill also hurt long-term returns,undermine economic sustainability and reduce the calibre of theinfrastructurepassedtofuturegenerations.
Time to act
The importance that investors, regulators, other stakeholders andoccupiers place on strategies to curb energy consumption and carbonpollution can only increase from here. So no matter where eachorganisationisonthejourneytoaddresstheserisks,nowisthetimetoreviewinvestmentprogrammesandbenchmarkcurrentpractices.
1
2
After Paris, time for action.
5
Framework for action: A step by step guide for property investors
Thisframeworksetsoutthemeasuresandactionsneededtosupportthe integration of ESG and climate risks into the business of realestateinvestmentandmanagement.Theapproachtakenisdesignedto transform aspirational measures into default practices for allstakeholdersinthepropertysector.
The info-graphic hereafter provides a summary of the key steps inthe investmentprocess,mustdoactionswithin this frameworkandrecommended resources to guide real estate investors and theiradvisers throughout the entire lifecycle of a real estate investmentportfolio.
Explains how informed and active asset management around these issues represents a clear business opportunity toimprovereturnsandfuture-proofthevalueofrealestateinvestments.Evidenceshowsthatmoreefficient“greener”propertiesincurloweroperatingexpenses,supporteffortstoachieve
topofmarketrents,havefewervacancyandvoidperiods,areatlowerriskofmortgagedefaultandmeettheincreasingneedsofoccupierstoprovidelivingandworkingspacethathelpstoimproveemployeeengagement,health,andproductivity.
Offers a Framework for all enabling alignment and interaction along often complex supply chains as there is no size barrier for organisations to addressing ESG and climate risk. Because it drivesenhanced risk adjusted returns at both theasset and portfolio level. Moreover, rather
likelowcarbontechnologies,thecostofintegratingESGandclimatechange risks, is fallingall thetime.This frameworkaddresseswhatcan be done within each component of the often complex supplychainsthatsupportpropertydevelopmentandmanagementinordertosetclearexpectationsandincentiveswhichwillaligntheactionsofconsultants,managersandserviceproviders.
Provides investors and their advisors/consultants with guidance on how to move from inquiry and requests for disclosure, to prescriptive requests focused on results: this includes givinginvestmentmanagers and consultantsmore
direct andprescriptiveguidance,providingdirect feedbackonbothprogrammesandperformanceandengagingdirectlywithrealestateinvestmentmanagersandconsultants.
Distils material from many sources into one guide that is easy to use and helps every type of real estate investor make sense of available resources. Dozens ofdetailed publications and potential practiceshave been reviewed so this guide highlights acommonsetofrequests likelytohavegreatestimpact.Differentsectionsaredirectedatspecific
audiencesandofalllevelsofexperienceincluding:AssetOwnersandTrusteesandtheirInvestmentAdvisors;DirectRealEstateInvestmentManagersandPropertyCompaniesandtheirRealEstateConsultants,andRealEstateEquityandREITS,BondandDebtInvestorsandtheirFinancialAdvisors.
Emphasises the physical impacts of climate change and highlights the potential socio-economic benefits of integrating climate and ESG :Bytheyear2070, 150million people will live in large coastal citiesat riskof coastalfloodingwhichhave$35 trillionworthofproperty—likelytobewortharound9percentoftheglobal GDP. Moreover, as more people migrate towardthese densely populated and predominantly low-lying
areas, city governmentswill beworkingwith the property industrytomake goodon their ownCOP21pledges tomitigate climate riskandreducetheimpactthatbuildingshaveontheenvironment.Howinvestors choose tomanage the built environment can also deliversocio-economic benefits given its materiality in terms of share ofglobalwealth,energyuse,greenhousegasemissions,anditsclimate,healthorproductivityimpacts.
Why use this guide?
6 7
‘Investing in a time of climate change’Mercer 2015
‘Developing an asset owner climate change strategy’, PRI 2015
‘Developing an asset owner climate change strategy’, PRI 2015
‘Climate Change Investment Solutions Guide’, IIGCC 2015
‘Climate Change Investment Solutions Guide’, IIGCC 2015
‘The-21st-century-investor-ceres-blueprint-for-sustainable-investing’Ceres 2013
‘The-21st-century-investor-ceres-blueprint-for-sustainable-investing’, Ceres 2013
Green Property Bonds Standards, Climate Bonds Initiative 2015
'Green bond guidance for real estate sector'GRESB
‘The-21st-century-investor-ceres-blueprint-for-sustainable-investing’Ceres 2013
‘Advancing Responsible Business in Land, Construction and RealEstate Use and Investment’, RICS / UN Global Compact, 2015
‘Advancing Responsible Business in Land, Construction and Real Estate Use and Investment’, RICS / UN Global Compact, 2015
‘Trustee’s Guide: Protecting value in real estate throughbetter climate risk management’IIGCC 2014
‘Trustee’s Guide: Protecting value in real estate throughbetter climate risk management’IIGCC 2014
‘Assessing climate change risks and opportunities for investors - Property and Construction Sector’ IGCC 2013
‘Unlocking the energy efficiency retrofit investment opportunity’UNEP FI 2014
‘Sustainability and commercial property valuation - ProfessionalGuidance Note, Global’, RICS 2013
ICGN model mandate initiativeICGN 2012
‘G4 Sustainability Reporting Guidelines: Construction and Real Estate Sector Disclosures’GRI 2015, Global.
‘PRI reporting framework – Asset Owners, Direct, Equity and Debt investments’, PRI, Global
'Global Real EstateSustainability Benchmark'GRESB 2015 (annually)
'Sector led operational benchmark and indexes for Direct Investors, Real Estate Companies and their Advisers
‘Aligning expectations: guidance for asset owners on incorporating ESG factors into manager selection, appointment and monitoring’, PRI 201
‘Sustainability metrics: translation and impact on property investment and management’UNEP FI et al 2014
‘Greening the building supply chain’ UNEP SBCI2014, Global
'Global Real Estate Sustainability Benchmark'GRESB 2015 (annually), Global
'Investing through an adaptation lens'IGCC 2015
'Investing through an adaptation lens', IGCC 2015
‘PRI Policy Frameworks for Long-Term Responsible Investment: The Case for Investor Engagement in Public Policy’, PRI 2015, Global
Execution: Integrate ESG & climate in Investment Strategy
Strategy: Develop ESG & climate Strategy
Alignment: Advisers andconsultants selection process
Feedback loop:Monitoring & Reporting
EquityBondsDebt
Owners & Advisers
Owners &Advisers
DirectInvestor
Directinvestors
Equity, Bonds, Debt
All
Market Engagement
STEP
SM
UST
DO
AC
TIO
NS
RECO
MM
END
ED R
ESO
URC
ES
Debt: Integrate ESG in due diligence at transaction, valuation assessment and include in loan documentation.
Bonds: Require green property bonds to be certi�ed by recognised standards and information on assets' sustainabil-ity performance.
Equity/REITs: Select managers with proven active investment approaches; Be active in engagement & proxy voting.
Supply Chain: Work with occupiers to address split incentives and include ESG in sub-contractors agreements.
Active Management: Clear set of ESG, community and climate targets and minimum requirements for green developments.
Include ESG in investment calculations, due diligence with targets for green certi�cation & benchmarking.
Active engagement & proxy voting: Require equity and REIT investors to use shareholder power.
Passive mandates: Base selection on sustainability benchmarks and green property ratings.
Active ownership: Prefer investment managers with proven active management approaches.
Assess material risks and opportunities that impact value.
ESG in selection requirements: Require proven knowledge of sustainability; set clear and prescriptive ESG expectations.
Monitor delivery of ESG and climate strategies and targets, focusing on impact to value using Sustainability Management Systems.
Engage on public policy with sector organisations to ensure regulation matches with market needs.
Support research initiatives to understand risks and integrate ESG.
Report performance to clients and the public, on agreed frequency, using recognised industry standards.
Contribute to sustainability benchmarking at portfolio and operational levels and assess performance results.
Include ESG and climate expectations and targets in legal contracts for investment mandates & service agreements.
Incentivise and reward contractors based on delivering sustainability goals.
Develop ESG and climate strategy based on materiality and value assessment.
Set ESG and Climate targets at all levels of the investment process and across the supply chain.
WHY USE THIS GUIDE ?
Explains how informed and active asset management around climate
and ESG represents a clear business opportunity.
Emphasises the physical impacts of climate change and highlights
the potential socio-economic bene�ts of integrating climate and ESG.
O�ers a Framework for all enabling alignment along often complex supply
chains, as there is no size barrier for organisations addressing ESG
and climate risks.
Distils material from many sources into one guide that is easy to use and
helps every type of real estate investor make sense of available resources.
Provides investors with guidance for managers and advisors to move
from inquiry and disclosure to prescriptive requests focusing
on performance.
AudiencesReal Estate Investors
Sustainable Real Estate Investment Implementing the Paris Climate Agreement: An Action Framework
$
8
Why integrate environmental, social, governance and climate risks into investment decisions?
Howwechoosetomanagetherealestatethatconstitutesourbuiltenvironment is of crucial importance, both financially and socially.There are material asset value improvements and long-term riskreductionsthatcanbeachievedatlimitedcostthroughtheintegrationofenvironmental,socialandgovernance(ESG)andclimaterisksintorealestateinvestments.
Thebuildingssectorconsumesaround40%oftheworld’senergyandcontributesupto30%ofglobalannualGHGemissions.Atthesametime, the global universe of investable real estate is worth aboutUS$50trillion.OntheheelsofthehistoricParisClimateAgreementtolimitglobalaveragetemperaturerisetowellbelow2°C(3.6degreesFahrenheit),withanaspirationtolimititto1.5°Cabovepre-industriallevels, and phase out fossil fuels by the end of the 21st century,the importance that investors, regulators, other stakeholders andoccupierswillplaceonstrategieswhichreduceenergyconsumptionandcarbonpollutionwillcontinuetorise.Supportingtherealestatesector to accelerate the integration of ESG and climate risks intoinvestment decisions and to scale up energy and climate-relatedinvestments, including retrofitting, is a key factor in ensuring thesegoalsareachieved.
Inrealestate,thevaluepropositionhasbeenproventhroughnumerousresearchpublications,expertassessmentsandpracticalcasestudies.Moreefficientand“green”propertiescanreduceoperatingexpenses,support efforts to achieve topofmarket rents, reduce vacancy andvoidperiods,lowerriskofmortgagedefaultandmeettheincreasingneedsofoccupierswhoareusingtheirofficestomaketheiremployeesmore engaged, healthier, and productive. Given the business caseandfurthersupportedbythein-depthstudybyUNEPFIetal;whichshows thatfiduciaryduty is not abarrierorexcuse tonot considerESG in investmentdecisions, there shouldbenomoredoubtaboutthetimelinessandneedforthisframework.Thefollowingarethekeycomponents of the business rationale to integrate ESG and climaterisksintorealestateassetmanagementandinvestmentprocesses:
Material opportunities to enhance investment performance
There is growing evidence in multiple geographies that a climate-friendly and sustainable real estate sector can both preserve andincrease asset value. Indeed, there is growing market, expert andacademicevidenceofanemergingcorrelationbetweengreenbuildingcharacteristicsandinvestmentperformance.Buildings,whichdonothave such characteristics, may in some cases suffer from ‘browndiscounting’.Themaindriversthatexplainthisare:
• TheunderstandingthatESGandclimateexternalitiesarematerialinsizeand,whileinitiallyhardtoquantifyforeachinvestmentandstakeholder,impossible,now,toignore.
• Thegrowingevidencethatconnects“greenrealestate”positivelywithinvestment fundamentals; including increased client demand, lowervoid lengths, lowerobsolescence,reducedratesofdepreciation, loweroperationalcosts,andhigherliquidity;recentdataalsoshowsthatgreenandenergycertifiedofficeandresidentialbuildingshavealowerriskofmortgagedefaultcomparedtothatofnon-certifiedproperties.
• Tightenedregulation,posingarealthreatofregulatoryobsolescence.
Moreover, increasingly, the real estate sector is recognising thecommercial potential of energy efficiency and climate relatedinvestmentswhichbothreduceenergyconsumption,improveenergyproductivity and efficiency and associated expenditures, as wellas exposure to current and future climate change legislation. Thefollowingmarkettrendsillustratethisshift:
• Technologyandoperatingprocessesarecurrentlybeingusedtoimproveenergyefficiencyofexistingbuildingportfoliosbya further2-4%eachyearandareestimatedtocontinuetodosofortheforeseeablefuture.
LaSalleInvestmentManagement(2015).Op.Cit.
Non-exhaustivereferences:PRI(2012)‘Theenvironmentalandfinancialperformanceofbuildings;Eichholtz,Kok,Quigley(2011&2);Eichholtz,Kok,Younder(2012);EUCommission(2013);MSCIindices(2014&
2015).Onmortgagerisksee:AnXandPivoG,DefaultRiskofSecuritizedCommercialProperties:DoSustainabilityPropertyFeaturesMatter,RealEstateResearchInstituteConferencePaper,(2015);KazaN,Quercia
RG,andRianCY,HomeEnergyEfficiencyandMortgageRisk,Cityscape16,1,(2014)
Frankel,Ari(2015).Greenmeansgo–Butwhatcolouristhelight?RIInsight,ResponsiblePropertyInvestment,Oct15
Evidence of impact to investment performance: ACADEMIC & MARKET RESEARCH ACADEMIC&MARKETRESEARCHPRI‘Theenvironmentalandfinancialperformanceofbuildings’–2012:“Onthewhole,evidencefromtheUS,theNetherlandsandSingaporehasbeguntodemonstrateaconvincingcasethatthefinancialperformanceofcertifiedofficebuildingsissuperiortothatofnon-certifiedproperties.”
ImpactofUSLEEDSandGreenEnergyStar:Eichholtz,Kok,Quigley,2011.Eichholtz,Kok,Younder,2012,US:RentalandsalespremiumforgreencertifiedLEEDs,EnergyStarbuildings.
PatMcAllisterandFranzFuerst.(2011a),Eco-labelinginCommercialOfficeMarkets:DoLEEDandEnergyStarOfficeObtainMultiplePremiums?,1999-2009–And(2011b),GreenNoiseorGreenValue?MeasuringtheEffectsofEnvironmentalCertificationonOfficeValues.1999-2008
ValueimpactintheUK:Chegut,A.,Eichholtz,P.,&Kok,N.(2011),2000-2009,UK:Supply,Demand,andtheValueofGreenBuildingsshowspositivecorrelation
MSCI/IPDindices,2014&2015:out-performanceforAustraliaNABERS,andFranceHQEcertifiedbuildingsduetocapitalappreciation
JapanCASBEE2015:outperformanceshowninresearchcarriedoutbyJapan’sSmartWellnessOfficeResearchCommittee,showedthatCASBEEratedpropertiesdeliveredhighercomparedaveragerentsthannon-CASBEEratedassets,without-performanceof3.64%.WhenbasedonCASBEEratings,propertieswithhigherCASBEEratingsdeliveredhigher rentswithout-performanceof1.70%perrating(S,A,B+,B-,Cornon-CASBEE).
3
4
3
4
5
5
9
EuropeanCommission(2014).Directive2014/95/EUasregardsdisclosureofnon-financial&diversity
informationbycertainlargeundertakingsandgroups.
SASB(2015).http://www.sasb.org
UNEPFIetal.(2015).FiduciaryDutyinthe21stCentury.
• Overthelong-term,theseefficiencygainsdrivereducedoperatingcostsfor commercial and residential buildings, resulting in enhanced assetvalues.
• Newbuildings can readilybedesigned touse30-50% lessenergy thanrequiredbymost2005energycodesandincreasinglycanachievezeronetenergyconsumptionateverlowerinvestmentcosts.
Regulatory changes affecting investors
WiththeadoptionoftheParisAgreementatCOP21,wecanexpectallratifyingcountriestoincreasinglypursuestrategiesaimedatreducingGHGemissionsandtransitioningtowardsalow-carboneconomy.Theinvestmentcommunitywillbe impactedthroughmoreregulationascountries implement their nationally determined action plans, andtherewillbeastrongerfocusonthecarbonfootprintsofinvestmentsandtheirexposuretofurtherregulationand,potentially,restrictionsonbusinessexpansion.
Similarly,wecanexpecttheanalystcommunitytobeplacinggreateremphasis on carbon risks and the possibility of stranded assets inanalysingpubliclytradedsecurities.Thisislikelytogivewaytoaspillover effect where all entities seeking investment capital, whetherpublic or private, are analysed from a climate perspective.We canexpecttoseegloballygrowingrequirementsformandatorydisclosure,benchmarking and public dissemination of carbon production datafrom private entities and utilities, as that information can be usedtoprovideabaselineforcapandtradesystemsandsupportclimateregulation. For those jurisdictions that choose a carbon tax over acapandtradesystem,theimpactofsuchataxwillalsobeafocusofanalystsandinvestors.
There is an increasing community expectation that corporationsand investment funds will take into account ESG issues. This trendhas grown considerably since the introduction of the Principles forResponsible Investment in 2006. That expectation is particularlyprominent in the pension fund and superannuation sector, withgrowingpressureonfundstoallocatetheirinvestmentstosustainablebusinessorganisations. Inparallel, investors in listedcompaniesandstockexchangesthemselvesaredemandinggreatertransparencyandreportingon“externalities”-suchasESGandclimate-whoseimpactsareofteninvisibleinstandardfinancialaccountsandyeteconomicallymaterial.
Inordertocreateandsustainlong-termvalue,andtoavoidlosses,manyinstitutionalinvestorsandtheirstakeholdershavealreadyrecognisedit as their fiduciary duty to understand and actively manage thesefactors.ByintegratingESGandclimaterisksintotheirbusinesses,realestate investors are better able to understand and activelymanagethese market shifts, including occupier preferences and changingbehaviour, market externalities, new regulatory frameworks andlegalrequirements.FailingtoconsiderESGintegrationisafailureoffiduciaryduty.
ThefollowingexampleshighlightthisregulatorytrendwhichcanbeobservedinEurope,theUS,China,Japan,BrazilandAustralia:
• InEurope,theEUnon-financialreportingdirectiveondisclosureofnon-financialanddiversity information isdriving integratedreportinganddisclosureofESGandclimaterisks.
• InAustralia,SASBenvisionsaworldwhereasharedunderstandingofcorporate sustainabilityperformanceallows companiesand investorstomakeinformeddecisionsthatdrivevalueandimprovesustainabilityoutcomes . The policy framework is evolving to mandate moretransparent disclosure across numerous jurisdictions. New reportingguidelinesandregulationsfromASICandtheASXCorporateGovernanceCouncilwillhaveimplicationsforcompanies’sustainabilityreporting.
• Japan published its Corporate Governance Code requiring listedcompanies to take appropriate measures to address sustainabilityissuesincludingsocialandenvironmentalmatters.TheCodeformsanexhibitofTokyostockexchangesecuritieslistingregulationsandtheruleenteredintoforceon1June2015.
‘Fiduciary Duty in the 21st century’, UNEP FI, PRI, UNGC and UNEP Inquiry 2015
• Fiduciariesneedtobeabletoshowthattheyhaveidentifiedandassessed the risks (to companies and to their portfolios). In thecaseofclimatechange,forexample,thiswouldrequirethemto:
• Showthattheyhaverecognizedrelevantrisks.
• Analysehowclimatechangemightaffectinvestmentreturnsovertheshort,mediumandlong-term.
• Explicitly manage the risks, and not assume that the risks areautomaticallymanagedbyotherriskmanagementstrategies.
• Interrogate and challenge the individuals or organisations (e.g.investmentmanagers, companies) to ensure that these risks arebeingeffectivelymanaged.
• Establishprocessesthatenablethemtodemonstratetheactionstheyhavetaken.
The report examines the reasonswhy investors arenot systematically integrating ESG as part of theirfiduciary duty and proposes practical actions forinstitutional investors and policy-makers to addressthesebarriers.
6
7
8
6
7
8
10
Productivity and socio-economic benefits to society
Greenbuildingsprovidebenefitstotheiroccupiers:Workinginbuildingswithgoodairqualityandhigh levelsofdaylighthasbeenshowntoreduceabsenteeism,improveproductivityandconcentration,reducestress levelsandachieveanoverall increase inuserwellbeing.Suchimprovements are proven to translate into financial benefits. A EUstudyfoundthathealthbenefitsfromenergyefficiencyimprovementsinbuildingscouldbeworth€40-80bnayear.Similarly,astudyintheUS found the potential benefits of improved indoor air quality andhealthierworkplacestobeworthUS$17-30bnayear,withadditionalsavingsofUS$20-60bnfromimprovedemployeeproductivity.
Inaddition,investmentinresponsiblerealestatecandeliversignificantbenefits to support economic and social growth. European studieshaveshownthatimprovingenergyefficiencyofnewandrefurbishedbuildingsinEuropeby20%couldcreateover750,000jobsby2020foraninvestmentofaround€40billionperyear.IntheUS,ACEEEnotesthatforeveryUS$1millioninvestedintheenergyefficientrenovationofbuildings21 jobscanbesupported for20years–aconsiderablenetimprovementoverothercomparableinfrastructureinvestments.Thisisanimportantgainforsociety,notleastinlightoftheprevailinglevelsofunemployment, especially among the young. Itwouldalsohelpstimulatetheconstruction industryandsupporttherealestatemarketinthelongterm.
Near and long term physical impacts of climate change
Thereisglobalconsensus,highlightedbytheParisClimateConference,COP21, that itwillbe lessexpensive to investand regulateclimatechange today than to do nothing, recognising that the risks ofuncontrolledclimatechangearerealandcostlytosociety.
Therealestatesectorishighlyexposedtoextremeweathereventsandrisingsealevels.Estimatesshowthatby2070,150millionpeopleintheworld’slargeportcitieswillbeatriskfromcoastalflooding,alongwithUS$35trillionworthofproperty—anamountthatwillequalninepercentofglobalGDP.
Themedium to long term risks of climate obsolescence, increasinginsurancecostsandextremeweathereventsare thedrivers for theneed for an adaptation strategy to manage these uncertainties inthe real estate investment business. The “cost of doing nothing” isalreadyevidentwithresultingmonetarylossesrelatingtorealestateandinfrastructurethathavetripledoverthelastdecade:Globaldirectlossesrecordedbyre-insurancecompaniesamountedtoanaverageofaroundUS$150billionannuallybetween2002and2012.
Moreover, as global population continues to migrate toward thesevery cities, governments andall stakeholders in theglobal propertyindustrywillbeworkingtogether-notonlyreducingtheimpactthatbuildingshaveontheenvironment,butalsomitigatingtheimpactthatthechangingenvironmenthasonthesedenselypopulatedlow-lyingareasandthebuildingswithin.
Good momentum to date, significant scaling up required
Thereisgoodmomentumintherealestateindustryandsomeprogressalreadytoreport.Propertyfundmanagershavetakenstepstoorganiseand proliferate best practices. There has thus been a significantamountofactivity,initiativesandenergydedicatedtobuildingabetterunderstandingof these issuesand identifyingvariousapproachestomitigate themand takeadvantageof theopportunitiesarising fromESG and climate change. This work has led to the development ofconsiderableanddetailedknowledgeandtheproductionofguidance,frameworksandpublicationstoguideinvestorsacrosstheirinvestmentprocesses.Giventhatitcanindeedbeconfusingfornewcomersfacingthesheeramountof literatureavailabletodayandtounderstanditsrelevancetospecificinvestmentstrategiesandgeographicallocations,weareseekingtomakethispublicationserveasaplatformtomakesenseofanddisseminatethisknowledgeglobally.
Attheindividuallevel,someoftheworld’slargestinstitutionalinvestorshavealreadyissuedenergyorcarbonreductiontargetsfortheirrealestateportfolios,sendingclearsignalsthatthetimeforfurtheractionisuponus.AsCOP21’simpactmakesitswaythroughtheinvestmentuniverse,moresuchtargetswillbeissued.Arguably,thisisthemost
importantstepinvestorscantake,asitunleashesandcreatesdemandformanyofthestepslaidoutinthisguide.Investmentmanagershavealsoactualresultstoshowwithanumberofrealestateownersacrossgeographies whohave alreadydemonstrated it is possible todrivedownyear-over-yearcarbonemissionsfromenergyconsumptionattheirproperties.
At theglobal level, theG20work leading toCOP21 identifiedpolicyandmarkets-ledpathwayswhichcantogetherdeliverthisup-scalingand over 100 banks from 42 countries as well as around US$4trillion in investmentmanagers formallyendorsedtheirsupportandcommitmenttoadapttheirbusinessprocessesinrecognitionofthisopportunityasannouncedattheCOP21inDecember2015.
ThescaleoftheinvestmentopportunityinenergyefficiencybuildingretrofitsgloballyisaroundUS$300bnannuallyby2020andsupportedby a robust business case . However, while considerable evidenceshows that climate change, energy security and resource scarcitypose clear investment risks to and create significant opportunitiesforrealestateinvestments,currentinvestmentslevelsarewellbelowtheoptimumeconomicandsocietalrates.Indeed,thecurrentrateofprivatesectorinvestmentsflowingintothisopportunityisjustafifthofthatwhichisrequiredtostaywithinthebelow2°Cpathway.
RenovateEurope(2015).Multiplebenefitsof investinginenergyefficientrenovationofbuildings-AstudybyCopenhagenEconomics.Fisk, William J. (2000). Health and productivity gains from better indoor environments and theirrelationshipwithbuildingenergyefficiency.AnnualReviewofEnergyandtheEnvironment,Vol.25,pp.537–566.ACEEEfactsheet(2012).HowdoesEnergyEfficiencyCreateJobs.Nicholls, R. J. et al. (2008). Ranking Port Cities with High Exposure and Vulnerability to ClimateExtremes:ExposureEstimates.OECDEnvironmentWorkingPapers,No.1,OECDPublishingMünchenerRückversicherungsGesellschaft(2013).TopicsGeo:Naturalcatastrophes2012-Analyses,assessments,positions.München,p.52Forexample,amongthelargestpensionfunds:CalPERS(20%),APG(25%)Thesegroups includeamongmanyothers: theULIGreenprintCenter forBuildingPerformance,theToronto,LondonandSydneyBetterBuildingsPartnerships,theWhiteHouseBetterBuildingsChallenge,theSustainableBuildingAlliance.McKinsey&Company(2009).Opt.Cit.EnergyEfficiencyFinancialInstitutionsGroup(EEFIG)(2015).Op.Cit.
9
10
14
15
11
12
13
9
10
11
12
13
16
17
14
15
16
17
11
Werecognisethatforrealestateinvestorstosupporttheachievementof the meaningful targets set out in the Paris Climate Agreement,inamannerthatprotectsandenhancesvalue intheworld’s largestasset class, will require sound execution. To support this aim, wehaveproducedastep-by-stepoperationalframeworkthatRealEstateinvestorscanapplysystematically to integrateESGandclimate risksfactorsintotheirinvestmentprocesses.Forsome,theyarejustgettingstarted.Nomatteratwhatpointone is along theESG journey, thisframeworkwillbeeffective.
Audience
Themeasureswhicharelaidoutintheframeworkareintendedto“fliptheswitch”–meaningthat,basedontheevidenceprovidedintermsorrisksandopportunities,ratherthanbeingaspirational,theyshouldbecomedefault practice required from investors to ensurefinancialperformance is secured and enhanced and for investors to complywiththeirfiduciaryduties.
This investor frameworkaddresses threespecific investoraudienceswithintherealestateinvestmentspace:
AssetOwnersandTrusteesandtheirInvestmentAdvisors,
DirectRealEstateInvestmentManagersandProperty CompaniesandtheirRealEstateConsultants,
RealEstateEquityandREITS,BondandDebtInvestors andtheirFinancialAdvisors.
This guide was written to help the above identified stakeholdersmovepastthemostcommonbarriersandidentifythedriversfortheintegrationofESGandclimate risks intodecisionmakingprocesses.Themostcommonbarriers for the investoraudiencesare identifiedas:
• Too much information or don’t know where to start: Thisframeworkdistils dozensof detailedpublications andpotentialpractices to highlight the ones which should have the highestimpactandaremosteasilyimplementable.
• Uncertain on most relevant actions to take:Mostpublicationshavetodatefocusedalmostexclusivelyoninquiryratherthanonmoreconcreteactions.ThisframeworkpresentsacommonsetofthemostimpactfulrequestswhichtheinvestoraudiencesshouldmakeforthemselvesandoftheirfundmanagersandREITs.
• Incomplete feedback loops and supply chain integration: Integrating ESG into real estate investments involve manyinterconnected organizations, and can rarely be accomplishedpurelybyinternalchangewithinoneorganisation.Therefore,inaddition to a setof actions, clearexpectationsareprovided togetalignmentwithconsultants,managersandserviceproviders.
Framework and clear set of actions
Toachievethisaim,foreachofthethreeaudienceatailoredinvestorframeworkhasbeendevelopedbasedon theexperienceof leadingpractitioners in the sector. The investor framework is built on fivekey steps that cover the entire lifecycle of an investment portfolio.Eachstephasaclearsetofactionsthatshouldbeimplemented.Theintentisthatupstreamstakeholdersunderstandthespecificitemsandactionswhichtheythemselvescantake,andwhattheirdownstreampartner could reasonably be asked todo as amatterof course, i.e.wherebythedefaultpracticeistoimplementthoseactions,orjustifywhytheyarenotfeasible.
The five key elements and underlying actions, summarised in theinfographic hereafter, do not need to be taken sequentially. Thesteps are laid out logically, from one to the next, to help promoteunderstandingofhowtheyfittogetherandreinforceeachother,buttheycaneachliveontheirown.
Eachstepof this investor framework issupportedbyrecommendedactions that can be applied systematically by each specific investoraudience.Theprojectteamrecognisesthatduetoresourceconstraintsindividualstakeholdermayonlybeabletotakea limitednumberofactions. To that end, the framework identifies specific actions thatinvestorsshouldtaketostartintegratingESGandclimaterisksaswellasthosethattheycouldtakeiftheywishtodeepentheirintegrationwith investmentstrategies.Allareoneswhichthestakeholdersverywellshouldknowabout,andthosewhoareleaderswillverylikelybeactinguponmanyofthe“could”actions.
Making sense of resources: tool mapping
To tackle the over-abundance of tools, resources and informationpublishedoverthe5years,theframeworkhelpsmakesenseofthesevaluable resources and focus the attention as towhere to start. Tothateffect,theinvestorframeworkdirectsthereadertotherelevantresourcesand tools tohelp implementeachof the steps. The toolsandpublicationsaresummarisedforeachtargetaudienceandtheirspecificrelevanceineachstepoftheirrealestateinvestmentprocessisillustrated.
Themapping and synthesising of the global and regional resourcesavailable isprovidedinAnnexesandselectedresourcesbyaudiencefro each step are included throughout this framework. They areillustrated througha ‘Resourcemapping’ graph,available inannex,actingas simple andgraphic guides tomake senseof, andnavigatethrough,thepracticalknowledgeavailabletorealestatepractitioners.TheAnnextothisworkcontainsafullresourcemappingmethodologyandfurtherdetailsonthisprocess.
The integration of these steps within the existing investment andassetmanagementstrategieswill improvetransparencyandprovidearobustplatformtointegrateESGandclimateriskandsharethisdataamongthevariousorganisationallevelsoftheinvestmentcompany.
How to integrate ESG and climate risks: A framework for action
12 13
‘Investing in a time of climate change’Mercer 2015
‘Developing an asset owner climate change strategy’, PRI 2015
‘Developing an asset owner climate change strategy’, PRI 2015
‘Climate Change Investment Solutions Guide’, IIGCC 2015
‘Climate Change Investment Solutions Guide’, IIGCC 2015
‘The-21st-century-investor-ceres-blueprint-for-sustainable-investing’Ceres 2013
‘The-21st-century-investor-ceres-blueprint-for-sustainable-investing’, Ceres 2013
Green Property Bonds Standards, Climate Bonds Initiative 2015
'Green bond guidance for real estate sector'GRESB
‘The-21st-century-investor-ceres-blueprint-for-sustainable-investing’Ceres 2013
‘Advancing Responsible Business in Land, Construction and RealEstate Use and Investment’, RICS / UN Global Compact, 2015
‘Advancing Responsible Business in Land, Construction and Real Estate Use and Investment’, RICS / UN Global Compact, 2015
‘Trustee’s Guide: Protecting value in real estate throughbetter climate risk management’IIGCC 2014
‘Trustee’s Guide: Protecting value in real estate throughbetter climate risk management’IIGCC 2014
‘Assessing climate change risks and opportunities for investors - Property and Construction Sector’ IGCC 2013
‘Unlocking the energy efficiency retrofit investment opportunity’UNEP FI 2014
‘Sustainability and commercial property valuation - ProfessionalGuidance Note, Global’, RICS 2013
ICGN model mandate initiativeICGN 2012
‘G4 Sustainability Reporting Guidelines: Construction and Real Estate Sector Disclosures’GRI 2015, Global.
‘PRI reporting framework – Asset Owners, Direct, Equity and Debt investments’, PRI, Global
'Global Real EstateSustainability Benchmark'GRESB 2015 (annually)
'Sector led operational benchmark and indexes for Direct Investors, Real Estate Companies and their Advisers
‘Aligning expectations: guidance for asset owners on incorporating ESG factors into manager selection, appointment and monitoring’, PRI 201
‘Sustainability metrics: translation and impact on property investment and management’UNEP FI et al 2014
‘Greening the building supply chain’ UNEP SBCI2014, Global
'Global Real Estate Sustainability Benchmark'GRESB 2015 (annually), Global
'Investing through an adaptation lens'IGCC 2015
'Investing through an adaptation lens', IGCC 2015
‘PRI Policy Frameworks for Long-Term Responsible Investment: The Case for Investor Engagement in Public Policy’, PRI 2015, Global
Execution: Integrate ESG & climate in Investment Strategy
Strategy: Develop ESG & climate Strategy
Alignment: Advisers andconsultants selection process
Feedback loop:Monitoring & Reporting
EquityBondsDebt
Owners & Advisers
Owners &Advisers
DirectInvestor
Directinvestors
Equity, Bonds, Debt
All
Market Engagement
STEP
SM
UST
DO
AC
TIO
NS
RECO
MM
END
ED R
ESO
URC
ES
Debt: Integrate ESG in due diligence at transaction, valuation assessment and include in loan documentation.
Bonds: Require green property bonds to be certi�ed by recognised standards and information on assets' sustainabil-ity performance.
Equity/REITs: Select managers with proven active investment approaches; Be active in engagement & proxy voting.
Supply Chain: Work with occupiers to address split incentives and include ESG in sub-contractors agreements.
Active Management: Clear set of ESG, community and climate targets and minimum requirements for green developments.
Include ESG in investment calculations, due diligence with targets for green certi�cation & benchmarking.
Active engagement & proxy voting: Require equity and REIT investors to use shareholder power.
Passive mandates: Base selection on sustainability benchmarks and green property ratings.
Active ownership: Prefer investment managers with proven active management approaches.
Assess material risks and opportunities that impact value.
ESG in selection requirements: Require proven knowledge of sustainability; set clear and prescriptive ESG expectations.
Monitor delivery of ESG and climate strategies and targets, focusing on impact to value using Sustainability Management Systems.
Engage on public policy with sector organisations to ensure regulation matches with market needs.
Support research initiatives to understand risks and integrate ESG.
Report performance to clients and the public, on agreed frequency, using recognised industry standards.
Contribute to sustainability benchmarking at portfolio and operational levels and assess performance results.
Include ESG and climate expectations and targets in legal contracts for investment mandates & service agreements.
Incentivise and reward contractors based on delivering sustainability goals.
Develop ESG and climate strategy based on materiality and value assessment.
Set ESG and Climate targets at all levels of the investment process and across the supply chain.
WHY USE THIS GUIDE ?
Explains how informed and active asset management around climate
and ESG represents a clear business opportunity.
Emphasises the physical impacts of climate change and highlights
the potential socio-economic bene�ts of integrating climate and ESG.
O�ers a Framework for all enabling alignment along often complex supply
chains, as there is no size barrier for organisations addressing ESG
and climate risks.
Distils material from many sources into one guide that is easy to use and
helps every type of real estate investor make sense of available resources.
Provides investors with guidance for managers and advisors to move
from inquiry and disclosure to prescriptive requests focusing
on performance.
AudiencesReal Estate Investors
Sustainable Real Estate Investment Implementing the Paris Climate Agreement: An Action Framework
$
14 15
FRAMEWORKFOR ACTIONFOR ASSET OWNERS ANDTRUSTEESANDTHEIR INVESTMENT ADVISORS
$
16
Key elements
PreparinganddraftinganESGandclimateriskandopportunitypolicyand strategywhich focuses onmaterial risks and opportunitieswillenable asset owners to understand the evidence and decide whatisthemostappropriateapproachforthemtomanagetheserisks. Itenables asset owners, trustees and their advisers to better identifyandmanagethoserisksandopportunitiesinawaythatisconsistentwiththeirfiduciarydutytoexerciseduecare,skillanddiligenceinthepursuitofthebestinterestsoffundbeneficiaries.Stakeholdersengagedinthisprocessshouldfactorinexistingandlikelychangesintheregulatoryenvironmentovertheinvestmenthorizon,financial regulationssurroundingclimatechangeriskdisclosure,andrating methodologies by mainstream groups such as Bloomberg,Moody’s, and MSCI, as well as ESG groups such as Sustainalytics,Oekom,Trucost,andothers.
Keyelementsof thisprocess includea reviewandunderstandingofrelevant ESG and climate risks and opportunities, the developmentandselectionofdedicatedESGandclimateriskspoliciesandstrategiesand the determination of whichmeasurements are appropriate fortargetsetting.
Assess material risks and opportunities that impact value.
Develop ESG and climate strategy based on materiality and value assessment.
Set ESG and Climate targets at all levels of the investment process and across the supply chain.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
Strategy DevelopamaterialESGandclimatestrategy
Stakeholders should also decide which targets are appropriate fortheirinvestmentstrategies,andwhichwillbemadepublic,andwhichremainprivate.Itisunderstandablethatnotallmaybeappropriateforthepublicdomain.Theguidewillhelpstakeholderssetreasonableandachievablegoals,whichcanbestretchedovertime.
When a strategy is in place, such targets may be more uniquelytailoredtothestakeholder.However,theactionofsettingtargetscanstandon itsown.Most important is todefinewhat the targetsare,whoisresponsibleformeasuringthem,howtheywillbemeasured,atwhatfrequencytheywillbereportedon,andwhattheincentivesor expected consequences are if the targets aremet, exceeded, ormissed.
Asset Owners & Their Advisors
17
Recommended Actions
Thefollowingisanon-exclusivelistofactionswhichformthecorecomponentsrequiredtodevelopanESGandclimateriskpolicyandstrategywhichfocusesonmaterialrisksandopportunities:
SHOULD
SHOULD
COULD
Assess risks and
opportunities
Develop ESG and climate policy and
strategy
QuestionandassesswhetherkeyESGandclimaterisksarebeingconsideredinrealestatestrategicassetallocationandinvestmentstrategies.
Ask advisers support to identify appropriate sources of information to assess current strategic allocation andinvestmentstrategy,theirexpertviewontherelevanceoftheseriskstocurrentrealestate investmentstrategyandtheirhelpinansweringthefollowingquestionsinordertoidentifygapsinexistingprocessesandevaluationframeworktoaccountforESGandclimaterisks:
• Whataretheimpactsofchangesinsustainabilitypolicyandregulationthroughouttherealestateinvestmentcycle?• Whatareratingsagencies,regulators,legaladvisorsandotherstakeholderssayingaboutthematerialityofESGand
climaterisks?• WhatESGandclimateimpactsarealreadyincludedinassessmentofrisks,arethereriskswhichwillbematerialover
thelifeofmyassetportfoliowhicharenotyetincluded?• WhatwillbethelikelyimpactsofESGandclimaterisksonthevaluationassessmentofrealestateassetsovertheir
usefullives?• Willrealestateassetsfaceregulatoryorphysical“obsolescence”duetoESGandclimateriskfactorsovertheiruseful
lives?• WhatareandwillbetheimpactsfromthesocietalshifttoplacegreatereconomicvalueonESGandclimatefactors
onrealestateassets/strategiesoverthefundlife?
DevelopormaintainaregularlyupdatedpolicyandstrategystatingspecificapproachestointegrateESGandclimateriskintoinvestmentframework.
Policyand strategy shoulddeterminehowESGandclimate riskassessmentprocesseswill impact strategic realestateassetallocationandinvestmentmanagementincluding:
• Identifykeyproceduresinassetacquisition,management,operation,planning,newdevelopments.• Refurbishment,upgrade,rental,andmanagerselectionwhichareimpactedbyESGandclimateriskstrategy.• SetESGandclimatechangeindicatorstoevaluatenewinvestmentopportunities.• DefineESGandClimatecriteriaforselectionofnewmandatesandmonitoringofexistingmandates.• Determinerequirementsforreportingandfeedbackfromallrelevantinvestmentmanagersandadvisers.• Determinereportingprocesstomembersandstakeholders.• EstablishperiodicityandapproachshouldbeusedtoreviewandevaluateESGandClimateriskpolicyandstrategy.
Establishregularoron-goingESGandclimateriskassessment,including:
• Identifyrelevantinformationsourcesandcollectrelevantdataonregularbasis.• Reviewrisksandopportunitiesonregularbasis.
Takealeadershiproleintermsofdisseminationandsupportingtrainingofadvisers/managerssothatthepaceofchangeisaccelerated.
Determineappropriateapproachtoembedadynamic,data-drivenassessmentofESGandclimaterisksintoinvestmentstrategies.
COULD
Sustainable Real Estate Investment - Framework for Action: Strategy
18
SHOULD
COULD
Set targetsDetermine and set appropriate, verifiable andmaterial targets, both quantitative and qualitative, tomanageenvironmental,socialandgovernanceissuesintheirportfolios. Issue clear directives to external managers or REITs managing their property assets to deliver these targets,includingrequirementfortheirexecutivestoberesponsiblefordeliveryofperformance.
Targetscaninclude:
• Quantitativeandmaterialtargetstoreduceenergy,carbonintensity,waterandwasteoftheportfoliooverspecifiedtimeframe.
• Set a goal to measure and reduce the environmental/ resource intensity of a portfolio against relevantbenchmarksoveragiventimeperiod.
• Setqualitativetargetsforachievingrelevantgreenpropertycertificationsforapercentageoftheportfoliooveraspecifiedtimeframe,targetscanaimtogrowovertime.
• Set quantitative and qualitative targets to address social impacts of the portfolio, including communityengagementandcontributiontolocalcommunities.
• Setquantitativetargetsfortheinclusionofgreenleaseclausesintheleaseagreementswithtenants.• Setquantitativetargetstomeasureandprovideminimumqualitylevelsforindoorairquality,affectinghealth
andproductivity.• Targetforaspecifiedproportionofthefund’sassetsinrealestatetobepoweredbycleanenergy,tobehighly
energyefficient,toachieveminimumrequirementsforrenovations,ortobe“bestinclass”withrespecttoresourceintensity.
• Requireperiodicreportsonprogressagainsttargets.
Engagewithpropertymanagers,operatorsandmaintenancetoensurethat“bestinclass”energy/carbonreductiontechnologiesandoperatingproceduresareinplaceacrossagrowingpercentageofthemanagedportfoliooveragiventimeframe.
RequireESGandclimaterisk“learnings”tobesocializedamonginternalstakeholders.
Asset Owners & their Advisors
19
Thesethreestudieshelpassetownersandinvestorsbetterunderstand and estimate the impacts of climate changeoninvestmentstrategiesandfinancialperformance.Theyaddress the following questions:Which financial impactcouldclimatechangehave-atwhichmagnitudeandwhen?
Whatarethekeyrisksandopportunities,howdowemanageandintegratethoseintocurrent investmentprocesses?;Whichactionscouldaninvestortaketobecomemoreresilienttoclimatechange?
Supporting resources for developing an ESG policy and strategy
Theprojectteamreviewedtheavailableliteratureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailabletoassetownersandtheiradviserstoimplementthisstep,availableintheAnnexes.Themostrelevanthavebeenselectedtoprovideadditionalsupporttoinvestorswillingtodivedeeperinunderstandingtheactionsandtheirrationale.
“Investing in a time of climate change” Mercer2015,Global “An-Investment-Framework-for-Sustainable-Growth”Mercer 2014 “Climate change scenarios: Implications for strategic asset allocation” Mercer 2011
“Climate Change Investment Solutions Guide” IIGCC 2015,Europe
‘‘Investing through an adaptation lens”, IGCC 2015 ‘Assessing climate change risks and opportunities for investors - Property and Construction Sector’ IGCC2013,Australia
“Advancing Responsible Business in Land, Construction and Real Estate Use and Investment” RICS/UNGlobalCompact,2015,Global
“Trustee’s Guide: Protecting value in real estate through better climate risk management” IIGCC 2014
“The-21st-century-investor-ceres-blueprint-for-sustainable-investing” Ceres2013,NorthAmerica
‘‘Developing an asset owner climate change strategy” PRI2015,Global
This pilot framework offers a step-by-step approach foraddressingclimatechangeacross threemainstrategies:engage, invest and avoid. Case studies outline existingexamples of asset owner action, including severalinitiativesthathavebeenstartedbyprojectparticipantsduringtheproject.
Theaimofthisguideistoprovideassetownerswitharangeofinvestmentstrategiesandsolutionstoaddressthe risks and opportunities associated with climatechange.While the guide is targeted at asset owners italso contains insights for asset managers which aredirectly relevant to equity real estate investors. The
guide proposes a four-step framework for considering climatechange investment solutions. It also affirms that corporate andpolicyengagementareimportantcomplementarystrategies,whichcan address climate change risks across portfolios and facilitatenew investment opportunities. It provides specific questions thatassetownersandinvestorscanaskthecompaniestheyinvestin,toreduceandreporttheircarbonintensity.
Thelaterguideprovidespracticalinsightsonhowinvestorscanandshouldbeinvestingthroughanadaptationlens.Theformerprovidesinformationtohelpinvestorsassessand integrate climate risk and opportunity within thepropertyandconstructionsectorintoinvestmentanalysis.
Theguidecoversthefollowingkeyareasandstepsforthisprocess:Identifycurrentrisks;Identifyriskvarianceandimpacts;Identifytheadaptationstrategiesandmitigationmeasures;Assessmateriality.The guide then proposes steps to integrate the information intoinvestmentprocesses.
Thedocumentprovidesaguidetothepracticalapplicationofthe10principlesoftheUNglobalCompacttotheland,construction and real estate sectors. It helps set thestrategic agenda for companies operating in the sector,realestateusersandinvestors,throughclearactionitemssupportedbyalistofbenefitsandreallifecasestudies.
The aim of this guide is to provide asset ownerswith arangeofinvestmentstrategiesandsolutionstoaddresstherisks and opportunities associated with climate change.Whiletheguideistargetedatassetownersitalsocontainsinsights for asset managers which are directly relevant
to equity real estate investors. The guide proposes a four-stepframework for considering climate change investment solutions.It alsoaffirms that corporateandpolicyengagement is importantcomplementarystrategies,whichcanaddressclimatechangerisksacross portfolios and facilitate new investment opportunities. Itprovidesspecificquestionsthatassetownersandinvestorscanaskthe companies they invest in, to reduce and report their carbonintensity.
Theaimofthisguideistoprovideassetownerswitharangeofinvestmentstrategiesandsolutionstoaddressthe risks and opportunities associated with climatechange. While the guide is targeted at asset ownersit also contains insights for assetmanagerswhich aredirectly relevant to equity real estate investors. The
guide proposes a four-step framework for considering climatechange investment solutions. It also affirms that corporate andpolicyengagement is important complementary strategies,whichcan address climate change risks across portfolios and facilitatenew investment opportunities. It provides specific questions thatassetownersandinvestorscanaskthecompaniestheyinvestin,toreduceandreporttheircarbonintensity.
Sustainable Real Estate Investment - Framework for Action: Strategy
M E R C E R 2 0 1 5
S U P P O R T E D B Y :
In partnership with:
H E A LT H W E A LT H C A R E E R
I N V E S T I N G I N A T I M E O F C L I M AT E C H A N G E
DEVELOPING AN ASSET OWNER CLIMATE CHANGE STRATEGYPILOT FRAMEWORK
An investor initiative in partnership with UNEP Finance Initiative and UN Global Compact
INVESTING THROUGH AN ADAPTATION LENS
A PRACTICAL GUIDE FOR INVESTORS
TRUSTEE’S GUIDEPROTECTING VALUE IN REAL ESTATE
THROUGH BETTER CLIMATE RISK MANAGEMENT
Institutional Investors Group on Climate Change
20
Key elements
InvestorsshouldaligntheirESGandclimateriskmanagementprocesseswith their ESGand climate riskpolicyand strategyby selectingandembeddingtheminthealreadyexistingriskmanagementprocesses.Therealestateinvestmentprocessnaturallyhaspointsatwhichvalueiscreatedandwhereriskslie.Stakeholdersshouldarticulatehowanyinterventionseitherincreasethelikelihoodthatvalueiscreated,and/orhighlighthowriskmanagementisimproved.Takingthisapproachwill help ground any actions in what is of material concern for aparticularcompanyorinvestmentstrategy.
Passive mandates: base selection on sustainability benchmarks and green property ratings.
Active ownership: prefer investment managers with proven active management approaches.
Active engagement & proxy voting: Require equity and REIT investors to use shareholder power.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
Keyelementsofthisprocessincludeareviewtheselectionofthetypeofinvestmentstrategywithafocusonactivemanagementfordirectreal estate investment and active engagement and proxy voting forequity,debtandbondsinvestments.
Execution IntegrateESGandclimateininvestmentstrategy
Asset Owners & their Advisors
21
SHOULD
Passive mandates and
screening
Selectpassivemandateswithscreeningbasedonsustainablerealestatebenchmarksandgreenpropertyratings:
• MeasureandreduceexposuretoESGandclimaterisks.• MeasureandincreaseexposuretoESGandclimate-relatedpropertyopportunities.• Requireperiodicreportsonprogressagainsttargets.
SHOULD
COULD
Active Ownership
Select an active ownership strategy for real estate assets that integrates ESG and climate risks in real estateinvestmentstrategy.
RequireinvestmentmanagerstohaveinplaceapolicyandstrategyonESGandclimaterisks.
RequestmanagerstohaveinplaceprocessesforintegratingESGandclimaterisksintotheirstrategic,investment,assetmanagementandoperationalprocesses.Fordetailsontherequesttobemadeseestep3Alignment:
Thiscanincludeto:
• Havededicatedproceduresinallinvestmentmanagementphases:assetacquisition,management,operation,planning,newdevelopment,refurbishmentandupgrade,rentalandmanagerselectionwhichareimpactedbyESGandclimateriskstrategy.
• Determineandsetappropriate,verifiableandmaterialtargets,bothquantitativeandqualitative,tomanageenvironmental,socialandgovernanceissuesinyourportfolio.
• Monitor portfolio and underlying real estate assets performance in carbon, energy and natural resourceintensity (e.g.: portfolio level and individual asset case studies), and social impacts such as communityengagement,contributiontolocalcommunities,jobcreation.
• Report against relevant Real Estate sustainability benchmarks to monitor and compare absolute andperformanceagainstpeers.
• PubliclyreportESGandclimateriskassessmentsandmanagementactivities.• EngagewithmanagersandrequestthemtoreportontheextenttowhichtheysupportorresistESGand
climateriskpoliciesattheregulatorylevel.
Monitormanagerperformanceatassetlevel:
• Requirereportingbasedonrelevantassetlevelbenchmark.• Require detailed monitoring and reporting through integrated and seamless data management systems
providingbuildingandassetlevelinformationtoownersinatimely,usableway.
$Recommended Actions
ThefollowingisalistofrecommendedactionswhichshouldbefollowedbyAssetOwners,TrusteesandInvestmentAdvisorstointegrateESG&climateintheirvariousrealestateinvestmentstrategies.
Sustainable Real Estate Investment - Framework for Action: Execution
22
COULD
Monitormanagerperformanceatassetlevel:
• Requirereportingbasedonrelevantassetlevelbenchmark.
• Require detailed monitoring and reporting through integrated and seamless data management systemsprovidingbuildingandassetlevelinformationtoownersinatimely,usableway.
Asset Owners & their Advisors
Active engagement & Proxy Voting
SHOULD
Requireequityinvestmentmanagerstoactivelyengagewithunderlyinglistedrealestatecompaniesorinvestmentmanagers,needtoensurethey:
• Havededicatedproceduresinallinvestmentmanagementphases:assetacquisition,management,operation,upgrade,rental,planningandmanagerselectionwhichareimpactedbyESGandclimateriskstrategy.
• Monitor portfolio and underlying real estate assets performance in carbon, energy and natural resourceintensity (e.g.: portfolio level and individual asset case studies), and social impacts such as communityengagementandcontributiontolocalcommunities.
• Use relevant Real Estate sustainability benchmarks to monitor and compare absolute and performanceagainstpeers.
• PubliclyreporttheirESGandclimateriskassessmentsandmanagementactivities.• EngagewithmanagersandrequestthemtoreportontheextenttowhichtheysupportorresistESGand
climateriskpoliciesattheregulatorylevel.
Requireequityinvestmentmanagerstousetheirshareholdersrighttocontributetoproxyvotingincluding:
• SupportingmotionsthatstrengthenESGandclimateriskmanagement.• IntroducingmotionstorequestactivemanagementofESGandclimaterisk.
23
Resources for the integration in Investment Strategy
The project team reviewed the available literature and based on best practice defined a map of the relevant tools andpracticalknowledgeavailabletoassetownersandtheiradviserstoimplementthisstep,seeAnnexes.Amongtheseresources,the followingwere identified as particularly useful for implementing the recommended actions for integrating ESG in theirinvestmentstrategies:
“Advancing Responsible Business in Land, Construction and Real Estate Use and Investment” RICS/UNGlobalCompact,2015,Global
Thedocumentprovidesaguidetothepracticalapplicationofthe10principlesoftheUNglobalCompacttotheland,construction and real estate sectors. It helps set thestrategic agenda for companies operating in the sector,realestateusersandinvestors,throughclearactionitemssupportedbyalistofbenefitsandreallifecasestudies.
“The-21st-century-investor-ceres-blueprint-for-sustainable-investing”Ceres2013,NorthAmerica
The report acts as a guide to help investors satisfythe fiduciary responsibilities. It is designed to helpconcerned trustees or board members advance aprocess for better oversight and decisionmaking thatenhances sustainable risk-adjusted returns. It outlines
the critical decisions that trustees must make regarding boardpolicies and implementation and specific steps in the investmentprocessthatwillbenefitfromtrusteeinvolvement.
“Trustee’s Guide: Protecting value in real estate through better climate risk management” IIGCC 2014
This guide covers the key questionswhich asset ownersand investment managers should be asking themselveswhendevelopingtheirESGandclimatepolicyandstrategyandtheirinvestmentstrategytointegrateESGandclimaterisksintotheirbusinesses.Itcoversfourareas:Assessing
risks and opportunities, managing regulatory risks, managerselection,incentivesandrewards.
‘‘Investing through an adaptation lens”, IGCC 2015 Assessing climate change risks and opportunities for investors - Property and Construction Sector’ IGCC2013,Australia
Thisguideprovides informationtohelp investorsassessand integrate climate risk and opportunity within thepropertyandconstructionsectorintoinvestmentanalysis.Theguidecoversthefollowingkeyareasandstepsforthisprocess: Identifycurrentrisks; Identifyriskvarianceand
impacts;Identifytheadaptationstrategiesandmitigationmeasures;Assessmateriality.Theguidethenproposesstepsto integratetheinformationintoinvestmentprocesses.
The follow up guide in 2015 provides practical insights on howinvestorscanandshouldbeinvestingthroughanadaptationlens.
$
Sustainable Real Estate Investment - Framework for Action: Execution
TRUSTEE’S GUIDEPROTECTING VALUE IN REAL ESTATE
THROUGH BETTER CLIMATE RISK MANAGEMENT
Institutional Investors Group on Climate Change
INVESTING THROUGH AN ADAPTATION LENS
A PRACTICAL GUIDE FOR INVESTORS
24
Key elements
HavingsetESGandclimate riskpoliciesand targetsanddecidedonthemostappropriateapproachtointegrateESGintotheinvestmentstrategies,itisfundamentalforassetownerstoinstructtheiradvisorsand investmentmanagers,whetherdirectmanagersorequity/REITsinvestors,accordingly.Assetownersneedtosendthissignal–strongly,clearly,andconsistently-bothtotheirinvesteecompaniesandfunds,andtotheirinvestmentconsultant/advisers,ifapplicable.
ThematerialESGandclimate riskcomponents identified in thefirsttwo steps also need to inform the selection processwith clear ESGand explicit climate portfolio expectations. Specific quantitativeandqualitative targets basedon absoluteperformance, and againstbenchmarks, should be included in themandate and connected toeconomicincentives,rewardsandpenaltieswhereappropriate.
While much progress has been done on real estate sustainabilitybenchmarks,thosewhoarecomparingREITsandinvestmentmanagersshouldbecareful tonotoversimplify thisprocessby lookingonlyatratings,certificationsandbenchmarks.Theseprovideindications,butnot answers. It is imperative for those investigating to engagewithproperty companies, tounderstandbothhowESGand climate risksareapplicabletoeachbusinessmodel,andhowwellESGisunderstoodandacteduponbythemostseniordecisionmakers.ThisisbyfarthebestwaytoassesswhichmanagesaretickingboxesorboltingonESGasanafterthought,andwhichareseriouscontenders.Thisframeworkand its actions provide a one-stop shop for how to check on andengagewithinvesteecompanies.
Finally, whether engaging with existing investees or making a newinvestment,investors/assetownersshouldbeexplicitintheirrequestsfor qualifications and requests for proposals (RFPs) to invest theirprecious capital andwhich specific actions they expectmanagersto take with respect to the integration of ESG & climate risks andopportunities. REITs and investment managers will respond morefavourably as such language becomes a series of asks and containssome prescriptive requirements. This approach would be majorimprovementoveropen-ended inquiry. Lastly,REITsand investmentmanagerswouldbenefitgreatly if theyweretoreceivefeedbackonthenatureoftheresponses,whichareprovided,bothtoday,and inthefuture.Critically,theremustbebackandforthdialogue.
Assetownersshouldsetexpectationsoftheirpropertymanagerswithrespect toESGandclimaterisks.Responsibility for theachievementofanytargetswhicharesetattheportfolioandassetlevelshouldbeclearly defined,with agreed uponmechanisms for the process andfrequencyofdatacollectionandreporting.
Whilerewardingpropertymanagersforhittingsustainabilitytargetsiscurrentlytheexceptionratherthanthenorm,itisone,whichcouldbeamongthemostimpactful.Ataminimum,assetownerscouldnotifytheir direct investmentmanagers and equity/REITs investors that aminimumlevelofexpertise,service,andsustainabilityperformanceisrequiredinordertokeeporwintheirbusiness.
ESG in selection requirements: require proven knowledge of sustainability; set clear and prescriptive ESG expectations.
Include ESG and climate expectations and targets in legal contracts for investment mandates & service agreements.
Incentivise and reward contractors based on delivering sustainability goals.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
AlignmentAdvisersandmanagersselectionprocess
Asset Owners & their Advisors
25
Recommended ActionsThefollowingisalistofrecommendedactionswhichshouldbefollowedbyAssetOwners,TrusteesandInvestmentAdvisorstointegrateESG&climateintheselectionprocessoftheiradvisorsandconsultants.
SHOULD
COULD
Selection requirements
ESG and climate risk
in Investment mandates
Favouractive investmentand investmentmanagersdemonstrating integrationofESGandclimaterisks intheirinvestmentprocesses.
IncludespecificrequirementsforESGandclimateinvestmentsandexpertiseintheselectionprocesses.
Focusselectionengagementprocessonspecificdirectrequestsandpastperformanceratherthanopen-endedquestions,thesecouldinclude:
• Askforopiniononassetlevelorportfolioout-performanceopportunitiesthroughgreaterintegrationofESGandclimatecriteria.
• RequirespecificdescriptionofmechanismsusedtoembedESGandclimaterisks inthebuy,holdandselldecisionsbeingmadeonproperties.
• Request description of how the investment manager implements ESG and climate risks in their assetmanagement approaches throughout the real estate investment cycle with requested evidence of trackrecordsandconcreteexamples.
• RequestandreviewperformanceagainstportfolioandassetlevelbenchmarkstoensurethatESGandclimateriskcriteriaareeffectivelyintegratedininvestmentprocesses.
• Requireexamplesofexperienceinexecutingportfoliostrategiestoreducetheenvironmentalfootprintofthemanagedproperties.
• Adviser/consultanttodemonstratethattheirESGandclimateresearchisunderstoodandimplementedinsomemeaningfulwaybytherealestate/propertyresearchersandthatESGandclimateisnottreatedasaspecialistsilo.
The mandate or investment management agreement should include clear and detailed expectations forincorporatingESGandclimateriskfactorsandtheprocessformonitoringESGandclimateriskimplementationandperformance.
Fordirectinvestorstherequestshouldbemadeaspartoftheinvestoractivemanagement.
Forequityinvestmentmanagerstheseshouldbepartoftherequirementstoundertakeengagementandvotingactivitieswiththeassetsinvestedin.
Inbothcases,accordingtothespecificityofthemandate,theinvestmentmanagershouldberequiredto:
• Incorporatecriteriatoassessthecapabilitiesofmanagers/advisersinmeasuringandmanagingthephysicalrisksofclimatechange.
• Havededicatedproceduresinallinvestmentmanagementphases:assetacquisition,management,operation,upgrade,rental,planningandmanagerselectionwhichareimpactedbyESGandclimateriskstrategy.
• Determineandsetappropriate,verifiableandmaterialtargets,bothquantitativeandqualitative,tomanageenvironmental,socialandgovernanceissuesinyourportfolio.
• Monitor portfolio and underlying real estate assets performance in carbon, energy and natural resourceintensity (e.g.: portfolio level and individual asset case studies), and social impacts such as communityengagementandcontributiontolocalcommunities.
• HaveanEnvironmentalManagementSystem(EMS)thatappliestotheentitylevel.• Use relevant Real Estate sustainability benchmarks to monitor and compare absolute and performance
againstmarketpeers.• Haveclearreportingrequirementsincludingnarrativeandquantitativereportingagainsttargets.• PubliclyreporttheirESGandclimateriskassessmentsandmanagementactivities.• EngagewithmanagersandrequestthemtoreportontheextenttowhichtheysupportorresistESGand
climateriskpoliciesattheregulatorylevel.
• Seek managers who link compensation to energy or carbon performance / reductions, green / energyefficiencycertification,orothertargetswhichhaveeitherbeensetvoluntarilybythemanagerorrequestedbytheassetowner.
SHOULD
Sustainable Real Estate Investment - Framework for Action: Alignment
26
COULD
Set and reward clear performance
targets
Themandateshould includeappropriate,verifiableandmaterialtargets,bothquantitativeandqualitative,tomanageenvironmental,socialandgovernanceissuesinportfolio.Targetscaninclude:
• Quantitativetargetstoundertakevotingandengagementactivitieswhereappropriate(Equity,bonds,debt).• Quantitativeandmaterialtargetstoreduceenergy,carbonintensity,waterandwasteoftheportfolioover
specifiedtimeframe.• Set a goal tomeasure and reduce the environmental/ resource intensity of a portfolio against relevant
benchmarksoveragiventimeperiod.• Quantitative and qualitative targets to address social impacts of the portfolio, including community
engagementandcontributiontolocalcommunities.• Setquantitativetargetsfortheinclusionofgreenleaseclausesintheleaseagreementswithtenants.• Targetforaspecifiedproportionofthefund’sassets inrealestatetobepoweredbycleanenergy,tobe
highly energyefficient, to achieveminimum requirements for renovations, or tobe “best in class”withrespecttoresourceintensity.
RequireperiodicreportsonprogressagainsttargetsSpecificincentivesareprovidedforESGandclimate.
ProvidespecificincentivesforperformanceagainstagreedESGandclimaterisksrequirements:
• Incentivizepro-activeseekingandreportingofESGandclimateriskmanagementimprovements.• Rewardwitheconomicincentives/penaltiesasappropriate,forperformanceagainstagreedESGandclimate
portfoliotargetsforboth,absoluteandbenchmarksperformance.
SHOULD
Asset Owners & their Advisors
27
Resource mapping and selected reference resource for advisers and manager selection
Theprojectteamreviewedtheavailableliteratureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailabletoassetownersandtheiradviserstoimplementthisstep.Moredetailsareprovidedonselectedresourcesofparticularrelevancewhenselectingadvisors,andtheirdirectinvestors,propertycompanies,andEquity/REITS,BondandDebtvehiclesandinvestors.
ICGN model mandate initiative, ICGN 2012
Global Real Estate Sustainability Benchmark – Asset Owners, Direct, Equity and Debt investments, GRESB2015,Global
“Aligning expectations: guidance for asset owners on incorporating ESG factors into manager selection, appointment and monitoring” PRI 2013
This Model Mandate provides a guideline for assetowners on how to formulate a contract to align theactivitiesof their fundmanagerswith theirown long-terminterests. This guidance helps asset owners assess whether
their managers’ investment policies and processes areconsistentwiththeirESGexpectations.ItaimstosupportthemintheirdialogueswithmanagerssothattheygainaclearunderstandingoftheESGrisksandopportunities
affecting their portfolios and how their managers are addressingthem.
This guidance is also relevant for fund-of-fund managers whooutsource investment activities andwhoneed greater confidencethatmanagersarealignedwiththeirownexpectations.
Through GRESB, direct real estate investor membersareabletomonitortheannualGRESBsurveyresultsforalltheirdirectinvestmentsand,iftheyinvestinlistedrealestatesecurities,all listedrealestatecompanies’results. By using the GRESB Portfolio Analysis tool,
investorsareabletoselectinvestmentstocompareresults,e.g.foraparticularinvestmentmanager,aregionorcountry,oraparticularpropertytype.Theyarealsoabletoundertakeportfolioanalysisforself-selectedgroupsoftheirinvestments.
TheGRESBdebtsurveyrepresentsaninitialstepinmonitoringrealestate debt and assessing how to integrate ESG and climate risksintothisgrowingfinancialinstrumentforrealestateinvestment.Thesurveyaimstoincreasetransparencyinthedebtmarketandguideinvestorsonbestpracticeimplementation.
Sustainable Real Estate Investment - Framework for Action: Alignment
ICGN Model Mandate Initiative Model contract terms between asset
owners and their fund managers
ALIGNING EXPECTATIONS
GUIDANCE FOR ASSET OWNERS ON INCORPORATING ESG FACTORS INTO MANAGER SELECTION, APPOINTMENT AND MONITORING
FEBRUARY 2013
28
Key elements
Allstakeholdersareresponsibleinmonitoringprogressagainstgoalsandtargetswhichareset–asperStep1&2-todemonstratethatESG&climatechangerisksandopportunitiesarebeingmanagedandactedupontothebestoftheabilityofallthoseinvolved.
The regular observation, evaluation, benchmarking and recordingof ESG and climate risk management activities should take placeroutinelywithinapre-agreedmonitoringandreportingschedulewiththe appointed manager and advisers. Reports should be practicaland oriented towards delivering performance on ESG and climaterisk factors and offer decision makers with relevant information.Monitoring should also involve feedback about the progress of thevariousstrandsofactivityoutlinedandagreedintheStrategyReviewforAssetOwnersandTrustees.
It is important to demonstrate how the property portfolio’ssustainability performance has changed over previous months andyears,andtobeabletopresentsuchchangesonalike-for-likebasis,normalisedforweatherandoccupancy(orinsteadofoccupancysomeothermeasureof intensity).Additionally, controlling forboundariesand being consistent inmeasuringwithin these boundaries is veryimportant.
In 2014, The UNEP FI Property Working Group published acomprehensive guide to sustainabilitymetrics and how to deploy aCommercialRealEstateSustainabilityManagement(CRESM)system.UNEPFIetal. (2014c).Sustainabilitymetrics:translationandimpactonpropertyinvestmentandmanagement.
Asset owners could request from their direct investmentmanagersand equity/REIT investors to procure such a system to facilitateaccurate, robust, efficient data collection practices which makereportingat thebuilding, portfolio and company level quite simple.Thiswouldlikelyreducequitesubstantiallythelevelofeffortcurrentlyexpended in reporting to multiple building, portfolio and companylevelsustainabilityrelatedframeworksforcommercialproperty.
An additional benefit of such an approach is that regulatory issuesrelatingtobuildingsandenergydatabenchmarkinganddisclosureareontherise;andthiswasthecasebeforeCOP21.Goingforward,accessto energy, carbon, water, and waste data will become increasinglyvaluableandrequired.
Monitor delivery of ESG and climate strategies and targets, focusing on impact to value using Sustainability Manage-ment Systems.
Report performance to clients and the public, on agreed frequency, using recognised industry standards.
Contribute to sustaina-bility benchmarking at portfolio and operation-al levels and assess performance results.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
Feedback loopMonitor,reportandbenchmark
Asset Owners & their Advisors
29
Recommended Actions
Thefollowingisanon-exclusivelistofactions,whichshouldbeconsideredtoformthecoreofsuchmonitoringandreportingprocesses:
SHOULD
SHOULD
COULD
Monitoring Process
Reporting standards and requirements
IncludeESGandclimaterisk-relatedexpectationsinmanagermonitoringrequirementsagainstinvestmentstrategiesandquantitativeESGandclimateriskperformancetargets:
(Seestep1“DefineESGandclimatepolicyandstrategy”).
• Request the investmentmanager tomonitorperformance throughanEnvironmentalManagementSystem(EMS)thatappliestotheentitylevel.
• Requestregularmonitoringagainstselectedbenchmarksand informationaroundexemplarorbest-in-classactivities.
• Monitorperformanceagainstspecificagreedtargets,bothabsoluteandrelativeperformancecomparedtoselectedportfoliolevelbenchmarks.
DefineESGandclimaterisk-relatedexpectationsinmanagerreportingrequirementsanddiscussions.(Refertostep:Selectinvestmentmanagerfordetails)
• Requiresystematicreportingbythemanagerinacosteffectiveformatordashboard,whichprovidesmaterialESGandclimateperformanceinformationinameaningfulandcoherentmanner.
• Require information should cover al material topics that reflect the organization’s significant economic,environmental,andsocial impacts,or thatwouldsubstantively influencetheassessmentsanddecisionsofstakeholders.
• Agreedeliverydate and format for a reportwith sections for “business as usual progress towards agreedtargets”aswellasan“exceptionreport”areaformanagerstoidentifyorhighlightparticularincidentsinthereportingperiod.
• Select and agree on reporting standards, and scope and depth of reporting required, with a focus onmaterialitytothebusinessandvaluedriversandaccountingforgeographicalorregionalnormsandregulatoryexpectations.
• IncludeaplaceholderforrelevantregulatoryupdateandindustryframingsectioninrecognitionofthefactthatESGandclimateframeworksarenotstaticandchangestotheregulatoryenvironmentorcompetitivelandscapeareimportanttomonitor.
• Enablemanagertoprovidefree-formcommentstothestandardanddatadrivenformat.• Agreeondatasourcesandensurethatreportsaresystematicallyfilledwiththemostrelevantandupdated
datafromthemanager.• Agreeinadvanceonperiodicityandmaterialitythresholdsforreportingactivities.
• Request for Environmental Management System (EMS) to be aligned with a standard and/or verified orcertifiedbyanindependentthirdparty.
• Include external verification or assurancewhere data or conclusions will be published or wherematerialdecisionswillbetakenbasedonthisdata.
• Requestinformationfrommanageronunderlyingrealestateassetperformanceincarbon,energyandnaturalresourceintensity(portfoliolevelandindividualcasestudies).
• Within each portfolio require the identification of “best performer” and “worst performer” (asset type,geographyorportfolio)toallowfocusoneffectiveinterventionandperformanceimprovement.
• Ensure“deepdive”ondivergentassets(withpositiveornegativeimpact)tounderstandtheoverallportfolioeffectoftheseandwhatthemanagerproposesasthe“learning’s”arisingfromthisanalysis.
• Keeptrackofnewtechnologies,whichmayallowESGandclimate,riskstobereducedonaportfoliobasis.
Sustainable Real Estate Investment - Framework for Action: Strategy
30
SHOULD
COULDReporting
standards and requirements
Benchmarking
Determinerelevantportfoliolevelandoperationallevelbenchmarksbaseduponcharacteristicsofportfolioandgeography.
• Requestsubmissiontorelevantportfoliowidesustainabilityinvestmentmanagementframework.• Request submission to relevant operational level and asset performance benchmarks, where such
benchmarksareavailable.• Requirereportingtoincludebenchmarkresultsandanalysis.• Requireaperformanceanalysisandreportingagainstthebenchmarktoidentifywhatarethemostmaterial
areasoffocusareandhowtobesttrackthem.
• Migrate towardsactionableand information-intensemeasures for reportingandaway from“check-box”approaches.
• Implementafeedbacklooptoensurethat,whereselectedreportingtoolsarenot“bestfit”thenthiscanbereportedupon.
“G4 Sustainability Reporting Guidelines: Construction and Real Estate Sector Disclosures”, GRI2015,Global
“PRI reporting framework – Asset Owners, Direct, Equity and Debt investments” PRI,Global
“Global Real Estate Sustainability Benchmark – Asset Owners, Direct, Equity and Debt investments” GRESB2015,Global
Thisresourceisthedefiniteguidanceonperformanceindicators and reporting processes for anyone whoinvestsin,develops,constructs,ormanagesbuildings.The GRI Guidelines, help reporting organizationsdisclose theirmost critical impacts–be theypositiveor negative – on the environment, society and the
economy. They can generate reliable, relevant and standardizedinformation with which to assess opportunities and risks, andenablemoreinformeddecision-making–bothwithinthebusinessandamongitsstakeholders.TheGRI’sConstructionandRealEstatesector guidance makes reporting relevant and user-friendly fororganizationsinthistargetedsector.
Selected resources for Monitoring & Reporting
Theproject teamreviewedtheavailable literatureandbasedonbestpracticedefinedamapof therelevant toolsandpracticalknowledgeavailabletoimplementthisstep,seeAnnexes.BelowareselectedresourcesofparticularrelevanceforMonitoring&Reporting.
ThroughGRESB,direct realestate investormembersareabletomonitortheannualGRESBsurveyresultsforalltheirdirectinvestmentsand,iftheyinvestinlistedrealestatesecurities,alllistedrealestatecompanies’results. By using the GRESB Portfolio Analysis tool,
investorsareabletoselectinvestmentstocompareresults,e.g.foraparticularinvestmentmanager,aregionorcountry,oraparticularpropertytype.Theyarealsoabletoundertakeportfolioanalysisforself-selectedgroupsoftheirinvestments.
TheGRESBdebtsurveyrepresentsaninitialstepinmonitoringrealestatedebtandassessinghowto integrateESGandclimaterisksinto this growingfinancial instrument for realestate investment.Thesurveyaimstoincreasetransparencyinthedebtmarketandguideinvestorsonbestpracticeimplementation.
The PRI Reporting Framework seeks to answerone question: How do you govern and implementresponsibleinvestment?Theframeworkiscomposedofmodules,withgeneralmodulestailoredformultipleasset class investors and dedicatedmodules focusedby asset class. Reporting through the Framework is
mandatoryforallPRIsignatoriesandresponsesaretranslatedintoTransparencyReportswhichareavailableonthePRIwebsiteasapublicdemonstrationofsignatories’commitmenttoimplementingthePrinciplesforResponsibleInvestment.
Asset Owners & their Advisors
SECTOR DISCLOSURES
CONSTRUCTION AND REAL ESTATE
PRI REPORTING FRAMEWORK 2014/15 Organisational Overview
September 2014
+44 (0) 20 3714 3187
31
Key elements
Over 1,400 finance sector institutionsmanaging over US$59 trillionof assets subscribe to the United Nations supported Principles forResponsible Investmentand it is likely that the levelof engagementbetweenbusinessandpublicpolicymakerswillincrease,especiallyasmoreandmore realestate investors integrateESGandclimate risksintotheirbusinesspracticesandregulationsonthesemattersbecomemoredeveloped.
RealestateinvestorsshouldconsidertakinganactiveroleinpublicpolicyandsectorengagementtopromoteacceptanceandimplementationofESG and climate risksmeasures across the real estate industry. Thisensuressector-widetoolsaredevelopedenablingindustrycomparisonandbettermonitoringofthesector’sandportfolio’sperformance.
Itisalsoimportantthattheyplayarole,directly,orindirectlythroughsector organisations, in establishing positive dialogue and engagingwith public policy to ensure that a robust regulatory frameworksupportstheeffectiveintegrationofESGandclimaterisksinrealestateinvestments.
Engage on public policy with sector organisations to ensure policy regulatory match with market needs.
Support research initiatives to understand risks and integrate ESG.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
PRI Policy Frameworks for Long-Term Responsible Investment: The Case for Investor Engagement in Public Policy, Global
This PRI policy framework shows why public policyengagementisessentialforlong-terminvestors,providesexamplesofinvestorengagementinpublicpolicy,lessons learned, and offers practical recommendationsforbetterintegrationofESGfactorsinthepublicpolicy-makingprocess.
Recommended Actions
There are three key areas in which all real estate investmentstakeholderscanoptimisetheirengagementwithpublicpolicy:
1. Engage,directlyorindirectly,onpublicpolicytomanagerisks.
2. SupportresearchonESGandclimaterisks;
3. Support sector initiatives to develop resource to understandrisksandintegrateESG.
Market engagementAsset Owners & their Advisors
POLICY FRAMEWORKS FOR LONG-TERM RESPONSIBLE INVESTMENT:
THE CASE FOR INVESTOR ENGAGEMENT IN PUBLIC POLICY
32 33
FRAMEWORK FOR ACTIONFORDIRECTREALESTATE INVESTMENT MANAGERS PROPERTYCOMPANIESANDTHEIR REAL ESTATE CONSULTANTS
$
34
Key elements
PreparinganddraftinganESGandclimateriskandopportunitypolicyenables Direct Real Estate Investors, Property Companies and theirConsultantstobetteridentifyandmanageESGandclimaterisksandopportunitiesinwaysconsistentwiththeirfiduciarydutytoexerciseduecare,skillanddiligenceinthepursuitofthebestinterestsoffundbeneficiaries,withoutbeingprescriptiveastohowthisisachieved.
Stakeholdersengagedinthisprocessshouldfactorinexistingandlikelychanges intheregulatoryenvironmentoverthe investmenthorizon,financial regulationssurroundingclimatechangeriskdisclosure,andrating methodologies by mainstream groups such as Bloomberg,Moody’s, and MSCI, as well as ESG groups such as Sustainalytics,Oekom,Trucost,andothers.
Keyelementsof thisprocess includea reviewandunderstandingofthe ESG and climate risks and opportunities, the development andselection of dedicated ESG and climate risk policies and strategiestogether with the determination and setting of targets that areactionableandtransparent.
Stakeholders should also decide which targets are appropriate fortheirinvestmentstrategies,andwhichwillbemadepublic,andwhichremainprivate.Itisunderstandablethatnotallmaybeappropriateforthepublicdomain.Thisstepwillhelpstakeholderssetreasonableandachievablegoals,whichcanbestretchedovertime.
When a strategy is in place, such targets may be more uniquelytailoredtothestakeholder.However,theactionofsettingtargetscanstandon itsown.Most important is todefinewhat the targetsare,whoisresponsibleformeasuringthem,howtheywillbemeasured,atwhatfrequencytheywillbereportedon,andwhattheincentivesor expected consequences are if the targets aremet, exceeded, ormissed.
Assess material risks and opportunities that impact value.
Develop ESG and climate strategy based on materiality and value assessment.
Set ESG and Climate targets at all levels of the investment process and across the supply chain.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
Strategy DevelopamaterialESGandclimatestrategy
Direct Investors
35
SHOULD
SHOULD
COULD
Assess risks and
opportunities
Develop ESG and climate
policy
QuestionandassesswhetherkeyESGandclimaterisksarebeingconsideredinrealestatestrategicassetallocationandinvestmentstrategies.
Askconsultantssupportonappropriatesourcesofinformationtoassesscurrentinvestmentstrategy,theirexpertviewontherelevanceoftheseriskstocurrentrealestateinvestmentstrategy,andtheirhelpinidentifyinggapsinexistingprocessesandevaluationframeworktoaccountforESGandclimaterisks:
• Whataretheimpactsofchangesinsustainabilitypolicyandregulationthroughouttherealestateinvestmentcycle?
• Whatareratingsagencies,regulators,legaladvisorsandotherstakeholderssayingaboutthematerialityofESGandclimaterisks?
• WhatESGandclimateimpactsarealreadyincludedinassessmentofrisks,arethererisksthatarematerialoverthelifeofmyassetportfoliowhicharenotyetincluded?
• WhatwillbethelikelyimpactsofESGandclimaterisksonthevaluationassessmentofrealestateassetsovertheirusefullives?
• Willrealestateassetsfaceregulatoryorphysical“obsolete”duetoESGandclimateriskfactorsovertheirusefullivesand/orbecomestrandedassets?
• WhatareandwillbetheimpactsfromthesocietalshifttoplacegreatereconomicvalueonESGandclimatefactorsonrealestateassets/strategiesoverthefundlive?
Developorupdatepolicy and strategy stating specific approaches to integrateESGand climate risk into investmentframework.PolicyandstrategyshoulddeterminehowESGandclimateriskassessmentprocesseswillimpactstrategicrealestateassetallocationandinvestmentmanagementincluding:
• Identifykeyproceduresinassetacquisition,management,operation,planning,newdevelopments,refurbishment,upgrade,rental,andmanagerselection,whichareimpactedbyESGandclimateriskstrategy.
• IntegratenewtoolsandESGandclimateriskdatasourcestomoreeffectivelymodeltheirimpactsonvalueandinvestmentdecisionsinmanagementsystems.
• IncluderelevantESGandclimateriskfactorsandassessmentsininputstomanagementsystemsatassetlevel.• Set priorities to evolve ESG and climate targets in line with ESG and climate risk strategy review results and
requirementswithinthemanagementsystem.• Determinerequirementsforreportingandfeedbacktoassetownersandstakeholders.• EstablishperiodicityandapproachtoreviewandevaluateESGandClimateriskpolicyandstrategy.
Establishregularoron-goingESGandclimateriskassessment.Thiscaninclude:
• Identifyrelevantinformationsourcesandcollectrelevantdataonregularbasis.• Reviewrisksandopportunitiesonaregularbasis.• Reviewthevalueimpactsontheportfolioonaregularbasis.
Recommended Actions
Thefollowingisanon-exclusivelistofactionswhicharerecommendedtoDirectRealEstateInvestmentManagers,PropertyCompaniesandRealEstateConsultants,todeveloptheirESGandclimateriskpolicyandstrategy:
Sustainable Real Estate Investment - Framework for Action: Strategy
36
SHOULD
COULD
COULD
Develop ESG and climate
policy
Set targets
Takealeadershiproleintermsofdisseminationandsupportingtrainingofadvisers/managerssothatthepaceofchangeisaccelerated.
Determine appropriate approach to embed a dynamic, data-driven assessment of ESG and climate risks intoinvestmentstrategies.
Exploitsynergieswhencollectingandprocessingbuilding-relatedinformation.
Engagewithpropertymanagers,operatorsandmaintenancetoensurethat“bestinclass”energy/carbonreductiontechnologiesandoperatingproceduresareinplaceacrossagrowingpercentageofthemanagedportfoliooveragiventimeframe.
SharebestpracticeandensureESGandclimaterisk“learnings”aresocializedamonginternalstakeholders.
Determine and set appropriate, verifiable andmaterial targets, both quantitative and qualitative, to manageenvironmental,socialandgovernanceissuesinyourportfolio.
Whererelevant, issuecleardirectives toexternalpropertymanagersmanagingyourpropertyassets todeliverthesetargets,includingrequirementfortheirexecutivestoberesponsiblefordeliveryofperformance.
Targetscaninclude:
• QualitativetargetstohaveinplaceinvestmentandassetmanagementproceduresandtoolstointegrateESGinclimaterisks inassetacquisition,management,operation,planning,newdevelopments,refurbishment,upgrade,rentalandoccupiermanagement.
• Quantitativeandmaterialtargetstoreduceenergy,carbonintensity,waterandwasteoftheportfoliooverspecifiedtimeframes.
• Set a goal to measure and reduce the environmental/ resource intensity of a portfolio against relevantbenchmarksoveragiventimeperiod.
• Quantitative and qualitative targets to address social impacts of the portfolio, including communityengagementandcontributiontolocalcommunities.
• Setquantitativetargetsfortheinclusionofgreenleaseclausesintheleaseagreementswithtenants.• Targetforaspecifiedproportionofthefund’sbuildingstobepoweredbycleanenergy,tobehighlyenergy
efficient,toachieveminimumrequirementsforrenovations,ortobe“bestinclass”withrespecttoresourceintensity.
• Requireperiodicreportsonprogressagainsttargets.
Direct Investors
37
Resource mapping and selected reference resources
Theresource-mappinggraphalsoshowstherangeofresourcesavailableandtheirrelevancetothisparticularaudience,seeAnnexes.BelowareselectedresourcesofparticularrelevanceforDirectRealEstateInvestmentManagers,PropertyCompaniesandRealEstateConsultantswhendevelopingtheirESGandclimateriskstrategy.
“Investing through an adaptation lens’, IGCC 2015 “Assessing climate change risks and opportunities for investors - Property and Construction Sector” IGCC 2013,Australia
‘‘Unlocking the energy efficiency retrofit investment opportunity” UNEPFI2014,Global
Theenergyefficiencyreportprovidesadetailedbriefingonthebusinesscaseandwhyinvestorsshouldinvestinenergyefficiencyretrofitopportunities.Itprovidesaclearand simple seven-step approach to effectively increasethesupplyoffinanceableenergyretrofitprojectsinrealestateportfolios.
Theaimof thisguide is toprovideassetownerswitharangeof investmentstrategiesandsolutionstoaddressthe risks and opportunities associated with climatechange. While the guide is targeted at asset ownersit also contains insights for asset managers which aredirectly relevant to equity real estate investors. The
guide proposes a four-step framework for considering climatechange investment solutions. It also affirms that corporate andpolicy engagement is important complementary strategies,whichcan address climate change risks across portfolios and facilitatenew investment opportunities. It provides specific questions thatassetownersandinvestorscanaskthecompaniestheyinvestin,toreduceandreporttheircarbonintensity.
“Climate Change Investment Solutions Guide” IIGCC2015,Europe
“Advancing Responsible Business in Land, Construction and Real Estate Use and Investment” RICS/UNGlobalCompact,2015,Global
Theaimofthisguideistoprovideassetownerswitharangeofinvestmentstrategiesandsolutionstoaddressthe risks and opportunities associated with climatechange.While theguide is targetedat assetowners italso contains insights for asset managers which aredirectly relevant to equity real estate investors. The
guide proposes a four-step framework for considering climatechange investment solutions. It also affirms that corporate andpolicyengagementareimportantcomplementarystrategies,whichcan address climate change risks across portfolios and facilitatenew investment opportunities. It provides specific questions thatassetownersandinvestorscanaskthecompaniestheyinvestin,toreduceandreporttheircarbonintensity.
Thedocumentprovidesaguidetothepracticalapplicationof the 10 principles of the UN global Compact to theland,constructionandrealestatesectors.Ithelpssetthestrategic agenda for companies operating in the sector,realestateusersandinvestors,throughclearactionitemssupportedbyalistofbenefitsandreallifecasestudies.
The aim of this guide is to provide asset ownerswith arangeofinvestmentstrategiesandsolutionstoaddresstherisks and opportunities associated with climate change.Whiletheguideistargetedatassetownersitalsocontainsinsights for asset managers which are directly relevant
to equity real estate investors. The guide proposes a four-stepframework for considering climate change investment solutions.It alsoaffirms that corporateandpolicyengagement is importantcomplementarystrategies,whichcanaddressclimatechangerisksacross portfolios and facilitate new investment opportunities. Itprovidesspecificquestionsthatassetownersandinvestorscanaskthe companies they invest in, to reduce and report their carbonintensity.
Theaimofthisguideistoprovideassetownerswitharangeofinvestmentstrategiesandsolutionstoaddressthe risks and opportunities associated with climatechange.While theguide is targetedatassetowners italso contains insights for asset managers which are
directlyrelevanttoequityrealestateinvestors.Theguideproposesa four-step framework forconsideringclimatechange investmentsolutions. Italsoaffirms that corporateandpolicyengagement isimportant complementary strategies, which can address climatechange risks across portfolios and facilitate new investmentopportunities.Itprovidesspecificquestionsthatassetownersandinvestorscanaskthecompaniestheyinvestin,toreduceandreporttheircarbonintensity.
Sustainable Real Estate Investment - Framework for Action: Strategy
“The-21st-century-investor-ceres-blueprint-for-sustainable-investing” Ceres2013,NorthAmerica
“Trustee’s Guide: Protecting value in real estate through better climate risk management” IIGCC 2014
TRUSTEE’S GUIDEPROTECTING VALUE IN REAL ESTATE
THROUGH BETTER CLIMATE RISK MANAGEMENT
Institutional Investors Group on Climate Change
February 2014
Unlocking the energy efficiencyretrofit investment opportunity
Commercial Real Estate
A publication of the UNEP FI Property Working Group UNEP FI Investor Briefing
INVEST
ME
NT
IN F O R M AT I O N IN
CEN
TIVES
7. PORTFOLIO APPROACH
6. INCLUDE IMPACT
5. ALIGN LEASE
4. ALIGN INCENTIVES
3. SET TARGETS
2. BENCHMARK
1. EXECUTIVE AWARENESS
REPORT BY DR MICHAEL H SMITH (ANU) 1
ASSESSING CLIMATE CHANGE RISKS AND OPPORTUNITIES FOR INVESTORS Property and Construction Sector
38
Key elements
ESG and climate risks should be an integral part of investmentmanagementandrelatedbusinessprocessesalongwiththetraditionaldecision-making factors and parameters, rather than being seen asanadd-onorseparatecategory.Todoso, investorsshould integrateESG and climate factors in each element of their investment, assetmanagement and operational processes. These processes covergovernance,strategyandtargets,riskassessment,activemanagementand refurbishment, monitoring, comparability and reporting acrosstheportfolio,extending throughout the industry to stakeholderandsectorengagement.
There are major benefits to integrating ESG and climate risks inthe investment strategy and through the investment and assetmanagementprocessesacrossallorganisational levels.Asdescribedin the introduction, these benefits include the ability to bettermanage risks and better capture opportunities to improved long-termperformance.Beyondtheinvestmentmanager’sownportfolio,it supports improvements in transparency and comparability acrossmarkets, enabling asset owners to better engage with investmentmanagersontheimplementationofresponsibleinvestmentsandforinvestmentmanagerstogainmarketvisibilityfortheirefforts.
Include ESG in investment calculations, due diligence with targets for green certi�cation & benchmarking.
Active Management: Clear set of ESG, community and climate targets and minimum requirements for green developments.
Supply Chain: Work with occupiers to address split incentives and include ESG in sub-contractors agreements.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
Finally, given the growing interest from asset owners to fulfil theirfiduciary duty, this will help investment managers be prepared forassessment against ESG and climate risk management frameworksearlyduringtheinvestmentmanagerselectionprocess.
Managing and monitoring of asset managers’ sustainabilityperformance has become simpler and more transparent with theemergence and uptake of a large number of global and regionalsustainabilitybenchmarksandreportingguidelines.
RealestateinvestorsshouldintegrateESGandclimateriskmanagementrequirements into their supplychains inallareaswhere investmentmanagershavecontrolandinfluence.Todothis,theyneedtoensurethattheirproperemployeeshaveresponsibilityandempowermenttodrivecompliancewiththeseprocedures.
Execution IntegrateESGandclimateininvestmentstrategy
Direct Investors
39
Recommended Actions
Thefollowingisanon-exclusivelistofactions,whicharerecommendedtoDirectRealEstateInvestmentManagers,PropertyCompanies, and Real Estate Consultants, to fully integrate ESG and climate risk in their investment strategy and assetmanagementprocesses.
SHOULD
SHOULD
COULD
COULD
Investment strategy: ESG in investment calculations
and valuations
Investment strategy:
ESG in transactions, Investment and asset selection
Bemoreexplicitabouthowsustainabilityaffectsthevalueofindividualassetsandtheriskofdepreciationofentireportfolios.
• Measurehowthesefactorsimpactonrealestateinvestmentperformanceandhowtheyinfluencerealestatemarketfundamentals.
• CapturethevalueofpropertylevelsustainabilityinvestmentatthefundorcorporatelevelLeverageworkofRICSandUSAppraisalInstitutetoworkwithvaluationprofessionalsandadoptinternalinvestmentmodelstointegrateESGandclimaterisksconsiderationsintheassessmentofvalue.
• Providevaluerswithbuildingsustainabilitycharacteristicsinformation.• Collaboratewithvaluerstoincorporatesustainabilitydataaspartofthestandardvaluationassessments.• Considerationshouldbegiventotheimpactonaproperty’slikelihoodtocommandtopmarketrents,become
vacant,remainvacant,andothermarketfundamentalsthatdrivevalue.• Request valuers’opinionon riskposedby the sustainability characteristicsofbuildings, according toRICS
rules.
Assess sustainability risks at acquisition of new assets and through assets’ lifecycles and identify mitigationstrategiestofutureproofandenhancethevalueoftheportfolio.
Carryoutasustainabilityduediligencefornewacquisitionsforprospectiveassets,including:
• Identifycosteffectiveenvironmentalimprovementstofutureproofthevalueofassets.• CommissioninvestmentgradestudytoestimatethesavingswhichwouldbedeliveredfromCapExpotential
measuresidentifiedduringduediligence.• Integratecostofmitigationimprovementsinrefurbishmentbudgets.
IntegrateESGandclimateriskinformationintothediscountedcashflowmodelsofrealestateinvestmentsandthevaluationassessmentofportfolios.
• WorkingonDiscountedCashFlowmodelstakingaccountofsustainabilitymetrics.• LinkexistingDiscountedCashFlowmodelswithMonteCarloSimulationtechniques.
• Contractuallyrequireinformationfromsellerandlettingandleasingagentsonsustainabilitycharacteristicsofnewacquisitions.
• Integraterisksidentifiedandrefurbishmentcostsintodiscountedcashflowanalysis.
$
Sustainable Real Estate Investment - Framework for Action: Execution
40
SHOULD
SHOULD
COULD
COULD
Investment strategy:
Green certification
and benchmarking
Active management:
property management
Contribute to dedicated sustainability benchmarking and reporting tools to improve management and themonitoringoffunds’sustainabilityperformance.
Contribute and use operational level benchmarks to asses and analyse performance of assets against sectorperformance.
Assesandmonitorassetlevelgreenbuildingandenergycertificates.
ReinforcethepositiveimpactsofactivepropertymanagementtodelivercontinuousESGandclimateperformance.Thisshouldinclude:
• Integrate requirements for sustainability improvements and occupier comfort and health enhancementthroughtheactivepropertymanagementandplannedandpreventivemaintenanceprogrammes.
• Setminimumoperationalenvironmental,healthandsocialperformancerequirementsandtargets.• Clearly assign responsibility for targets to appropriate asset andpropertymanagers,whether in-houseor
sub-contracted.• ImplementEnergyManagementSystemsintheproperty,havethemauditedbyathirdparty,andensurethat
datagatheringandtrackingareconsistentandtimely.• Monitorandreportonmonthlyandquarterlybasisperformanceagainsttargetswithcontinuousfeedback
betweenpropertymanagers,assetmanagersandsustainabilityexperts.
Determinemethodology tobenchmarkandmeasurerelativeperformanceofspecificESG/climate themedapproachesagainsttheremainderoftheportfolio.
• Proportionsofenergyprovidedfromrenewablesources.• Highlyenergyefficientbuildingsforclassanduse.• On-siterenewablepower.• Nearzeroenergybuildings.
Focusactivepropertymanagementonabuildingbybuildinglevel.
• Monitor and analyse building level ESG and climate risk performance data on regular basis, monthly orquarterly.
• Setindividualbuildingtargetsinlinewiththeportfoliotargetandsupportedbytheassetinvestmentstrategy.• Support a continuous and knowledge-based feedback between property managers, asset managers and
sustainabilityexperts.
Determineproportionorstrategytointegratetheaboveassetsintotheoverallinvestmentapproach.
• Proportionsofenergyprovidedfromrenewablesources.• Highlyenergyefficientbuildingsforclassanduse.• On-siterenewablepower.• Nearzeroenergybuildings.
Direct Investors
41
SHOULD
SHOULD
COULD
Active management:
property management
Active Management:
Sustainable development
and refurbishment
ReinforcethepositiveimpactsofactivepropertymanagementtodelivercontinuousESGandclimateperformance.Thisshouldinclude.
• Integrate requirements for sustainability improvements and occupier comfort and health enhancementthroughtheactivepropertymanagementandplannedandpreventivemaintenanceprogrammes.
• Setminimumoperationalenvironmental,healthandsocialperformancerequirementsandtargets.• Clearly assign responsibility for targets to appropriate asset andpropertymanagers,whether in-houseor
sub-contracted.• ImplementEnergyManagementSystemsintheproperty,havethemauditedbyathirdparty,andensurethat
datagatheringandtrackingareconsistentandtimely.• Monitorandreportonmonthlyandquarterlybasisperformanceagainsttargetswithcontinuousfeedback
betweenpropertymanagers,assetmanagersandsustainabilityexperts.
Consider ESG and climate risk improvements in all development and refurbishment activities and look foropportunitiesforthesefactorstodrivearenovation.
• MaintainandusedevelopmentandrefurbishmentguideswithminimumESGandclimateriskrequirements.Minimum requirements should capture all aspects of ESG, environmental footprints, resource efficiency,constructionandoccupationalhealthimpactsandlabourrights.
• Ensure that building documentation (building files / passports) is issuedwithin project development andrefurbishmentprojectsandthatthesearecontinuouslyupdatedduringthemanagementphase.
• Use contractors and refurbishment teams who have experience in and track records in successfully andeconomicallyreducingESGandclimatebuildingfootprints.
• Produceandusesustainablefit-outguidesfortenants.
Showcaseassetsfornewlowcarbonorsustainabletechnologiesorpractices.
Focusactivepropertymanagementonabuildingbybuildinglevel.
• Monitor and analyse building level ESG and climate risk performance data on regular basis, monthly orquarterly.
• Set individual building targets in line with the portfolio target and supported by the asset investmentstrategy.Supportacontinuousandknowledge-basedfeedbackbetweenpropertymanagers,assetmanagersandsustainabilityexperts.Determineproportionorstrategyto integrate theaboveassets into theoverallinvestmentapproach.
• Proportionsofenergyprovidedfromrenewablesources.• Highlyenergyefficientbuildingsforclassanduse.• On-siterenewablepower.• Nearzeroenergybuildings.
COULD
$
Sustainable Real Estate Investment - Framework for Action: Execution
42
SHOULD
SHOULD
SHOULD
COULD
COULD
COULD
Supply Chain integration: Work with occupants
Supply Chain integration: Community engagement
and social impacts
Supply Chain integration: Integrate in
employees and contractors
requirements
Work with tenants to find ways to agree joint ESG and climate risk management programmes to achieveenvironmentalobjectivesthroughprogrammes.
• Engagewithtenantstosharedataandalignleaseclausestoincentivizelandlordstoreducebuildingoperatingexpensesandcorecontractualcomponentsof“greenleases”.
• Consider establishing a “GreenBuildingManagementGroup” (GBMG) tomanageengagement. Targetsorobjectiveswhichmaycomefortheownersorfromanyoftheoccupantscanbediscussedandplanscanbemadeaccordinglytoimplementandmonitorprogress.GBMGsarehelpfulindrivinggreenleasingstrategies,especiallythosewheretenantbuyinisneededordesiredforcapitalprojectswhichdeliveroperationalsavingstothetenantandmayberecoveredfromtenantsviatheservicecharge.
• Alignincentivesanddefinecontractualresponsibilityforoperationalpracticesthatminimizeenergyusewithclearshareofbenefitsbetweenoccupantsandowners.
• IdentifyengagementactivitiesrespondingtotheneedsofoccupantsthatalsostrengthentheESGandclimateperformanceofthebuildings.
• Work tomaintain strong levels of occupant comfort, productivity, and satisfaction, owners and propertymanagersshouldbothimplementandeducatebuildingoccupantsonbuildingmaterials,chemicalcompositionsof carpeting&paint, airquality, and related strategies todriveemployeeandoccupantperformanceandhealth.
IntegratedESGandclimateriskmanagementrequirementsthroughoutthesupplychainandinallareaswhereinvestmentmanagershavecontrolandinfluence.
Ensurethatallemployeeshaveresponsibilityforensuringcomplianceandimplementationlabourbestpractice,includingdecentlabourpractices,workconditions,andhumanrightsprinciples.
Develop a supply chain policy stating requirements for the whole value chain ensures that ESG and climateprinciplesareincludedinexternalcontracts,suchaswithpropertymanagers,refurbishmentteamsandsurveyors,leasingandlettingagents,andthatinturntheyrequiresimilartermsfromtheirsuppliers.
Havespecificrequirementsincludedincontractwithexternalcontractors,requirementsshouldinclude:
• Createaframeworkofrequirements(thathavetobeappliedatallcorporatelevels)fortype,extent,formatandfrequencyofdata/informationexchangewiththird-partyserviceproviders.
• Amendthecontractualarrangementswiththesecounterpartsaccordingly.
• Provideincentiveswhereappropriatewithengagementtoolstostrengthenoccupantsdialogue.• FacilitatecollectionofrelevantdataandachievementofESGandclimatetargetsfromoccupant.
Engagewithbuilding’scommunityandlocalstakeholders.
IdentifyESGimpactsofbuildingstolocalcommunitiesandimplementcommunityprogrammestomitigatetheseimpacts.
IncludesupplychainandcontractorsintheESGandclimateriskdialoguetoensurethattheyarebotheducatedandthattheirideascanbeconsideredinthebuilding’smanagement,developmentandrenovationprogramme.Participate and join forces with others to encourage higher standards of ESG and climate risk visibility andengagement.
Our realestate supply chainpolicyensures thatourprinciplesare included inour contractswithourpropertymanagers,refurbishmentteamsandsurveyorsandthatinturntheyrequiresimilartermsfromtheirsuppliers.
Engagewith community stakeholdersandprogrammes to involve themwithmonitoringof impacts and in theformulationofESGmitigationapproaches.
Direct Investors
43
Resource mapping and selected reference resources
BelowareselectedresourcesofparticularrelevanceforDirectRealEstateInvestmentManagers,PropertyCompaniesandRealEstateConsultantswhen integratingESG intheir investmentstrategy.Theresource-mappinggraphalsoshowstherangeofresourcesavailableandtheirrelevancetothisparticularaudience.Itisbasedontheresultofthesurveyofglobalpractitionerstoaskthemhelppositionandcalibratethepublicationsidentifiedintheliteraturereview.
This guidance note encompasses the wide range ofESG economic factors relating to sustainability thatcan impact on value and of which valuers should beaware.Topicscovered include:Theroleofthevaluer;Assessing a building’s sustainability characteristics;Reflectingsustainabilitycharacteristicsinmarketvalue,fairvalue,marketrentandinvestmentvalue.
“Assessing climate change risks and opportunities for investors - Property and Construction Sector” IGCC2013,Australia “Sustainability metrics: translation and impact on property
investment and management” UNEPFIetal2014,Global
“Unlocking the energy efficiency retrofit investment opportunity’” UNEPFI2014,Global
“Whose Carbon is it? GHG Emissions and Commercial Real Estate” REALpacandICF2011,NorthAmerica
“Sustainability and commercial property valuation - Professional Guidance Note, Global” RICS2013,Global
Thisguideprovides information tohelp investorsassessand integrate climate risk and opportunity within thepropertyandconstructionsectorintoinvestmentanalysis.Theguidecoversthefollowingkeyareasandstepsforthisprocess: Identifycurrentrisks; Identifyriskvarianceandimpacts;Identifytheadaptationstrategiesandmitigation
measures; Assess materiality. The guide then proposes steps tointegratetheinformationintoinvestmentprocesses.Thefollowupguidein2015providespracticalinsightsonhowinvestorscanandshouldbeinvestingthroughanadaptationlens.
The report provides a framework for a corporate realestate sustainability management (CRESM) system forproperty investment and management organisations,and offers a pragmatic three level approach (corporate,portfolio and singlebuilding level) that aims tohelp the
industry manage the complexity of sustainability metrics and toorganizeinformationflowsmoreefficiently.
Theenergyefficiency reportprovidesadetailedbriefingon thebusiness caseandwhy investors should invest inenergyefficiencyretrofitopportunities.Itprovidesaclearandsimpleseven-stepapproachtoeffectivelyincreasethesupplyoffinanceableenergyretrofitprojectsinrealestateportfolios.
At thecompletionof thisdocument, the readershouldhaveanappreciationforthecomplexitiesofgreenhousegasaccounting,knowledgeofthecriticalfactorsinvolvedinaccountingforgreenhousegasesinthecommercialbuildingsector,andtheabilitytoapplysuggestedguidancetotheirportfolio.
$
“Advancing Responsible Business in Land, Construction and Real Estate Use and Investment” RICS/UNGlobalCompact,2015,Global
Thereporthelpsset thestrategicagendaforcompaniesoperating in the sector, real estate users and investors,throughclearactionitemssupportedbyalistofbenefits
andreallifecasestudies.
“Trustee’s Guide: Protecting value in real estate through better climate risk management” IIGCC 2014
ThisguidecoversthekeyquestionswhichassetownersandinvestmentmanagersshouldbeaskingthemselveswhendevelopingtheirESGandclimatepolicyandstrategyandtheirinvestmentstrategytointegrateESGandclimaterisksintotheirbusinesses. Itcoversfourareas:Assessingrisks
and opportunities, managing regulatory risks, manager selection,incentivesandrewards.
Sustainable Real Estate Investment - Framework for Action: Execution
TRUSTEE’S GUIDEPROTECTING VALUE IN REAL ESTATE
THROUGH BETTER CLIMATE RISK MANAGEMENT
Institutional Investors Group on Climate Change
February 2014
Unlocking the energy efficiencyretrofit investment opportunity
Commercial Real Estate
A publication of the UNEP FI Property Working Group UNEP FI Investor Briefing
INVEST
ME
NT
IN F O R M AT I O N IN
CEN
TIVES
7. PORTFOLIO APPROACH
6. INCLUDE IMPACT
5. ALIGN LEASE
4. ALIGN INCENTIVES
3. SET TARGETS
2. BENCHMARK
1. EXECUTIVE AWARENESS
REPORT BY DR MICHAEL H SMITH (ANU) 1
ASSESSING CLIMATE CHANGE RISKS AND OPPORTUNITIES FOR INVESTORS Property and Construction Sector
UNEP FI Property Working Group report · SUSTAINABILITY METRICS · TRANSLATION AND IMPACT ON PROPERTY INVESTMENT AND MANAGEMENT
Sustainability MetricsTRANSLATION AND IMPACT ON PROPERTYINVESTMENT AND MANAGEMENT
A report by the Property Working Group of the United Nations Environment Programme Finance InitiativeMay 2014
UN
IT
ED
N
AT
IO
NS
E
NV
IR
ON
ME
NT
P
RO
GR
AM
ME
Main Report
Recommended Best Practices in Accounting for GHG Emissions in the Commercial Real Estate Sector
Whose Carbon is it?GHG Emissions and Commercial Real Estate
44
Key elements
Having defined the most appropriate approach to integrate ESGintotheinvestmentstrategy,itisfundamentalforDirectRealestateInvestors and Property Companies to instruct their sub-contractedasset, property or facilitymanagers, where relevant. ThematerialESG and climate risk components identified in the first two stepsneedtobeintegratedintheselectionofthesecontractedparties.Keyelementsofthisprocesscomprisetheselectionprocess,havingclearESG and climate portfolio expectations, setting clear targets basedon absolute performance and performance against benchmarks tobe included in the service agreement with reference to economicincentives,rewardsandpenaltiesasappropriate.
Investment managers should set expectations of their propertymanagerswith respect to their ESG and climate strategies and settargetswithclear responsibility for theachievementofany targets,which are set at the property level. Property managers should berequested to implement sustainability standards for operations,basedonrelevantregionalandlocalguides.
Whilerewardingpropertymanagersforhittingsustainabilitytargetsiscurrentlytheexceptionratherthanthenorm,itisone,whichcouldbeamongthemostimpactful.Ataminimum,investmentmanagerscouldnotify their propertymanagers that aminimum level of expertise,service,andsustainabilityperformance is required inorder tokeeporwintheirbusiness.
ESG in selection requirements: require proven knowledge of sustainability; set clear and prescriptive ESG expectations.
Include ESG and climate expectations and targets in legal contracts for investment mandates & service agreements.
Incentivise and reward contractors based on delivering sustainability goals.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
AlignmentAdvisersandmanagersselectionprocess
Direct Investors
45
Recommended Actions
Thefollowingisanon-exclusivelistofactionsaddressingESGandclimaterisks,whichshouldbeconsideredforinclusionduringthecontractorsandmanagerselectionprocess:
SHOULD
IncludespecificrequirementsforESGandclimateinvestmentsandexpertiseintheselectionprocesses.
Focusselectionengagementprocessonspecificdirectrequestsandpastperformanceratherthanopen-endedquestions,thesecouldinclude:
• Askforopiniononassetlevelorportfolioout-performanceopportunitiesthroughgreaterintegrationofESGandclimatecriteria.
• Requestdescriptionofhowthe investmentmanager implementsESGandclimate risks in theirassetandpropertymanagementapproachesthroughouttherealestateinvestmentcyclewithrequestedevidenceoftrackrecordsandconcreteexamples.
• Request and review performance against benchmarks to ensure that ESG and climate risk criteria areeffectivelyintegratedinassetmanagementprocesses.
• Requireexamplesofexperienceinexecutingportfoliostrategiestoreducetheenvironmentalfootprintofthemanagedproperties.
COULD
Selection requirements
ESG and climate risk in service
agreement
Set and reward clear performance
targets
The service agreement should include clear and detailed expectations for incorporating ESG and climate riskfactorsandtheprocessformonitoringESGandclimateriskimplementationandperformance.Theasset,propertyorfacilitymanagershouldberequiredto:
• Have dedicated procedures in all relevant asset and property management phases: asset acquisition,management,operation,upgrade,rental,planningandmanagerselection,whichareimpactedbyESGandclimateriskstrategy.
• Monitor portfolio and underlying real estate assets performance in carbon, energy and natural resourceintensity (e.g.: portfolio level and individual asset case studies), and social impacts such as communityengagementandcontributiontolocalcommunities.
• HaveanEnvironmentalManagementSystem(EMS)thatappliestotheentitylevel.• Use relevant Real Estate sustainability benchmarks to monitor and compare absolute and performance
againstmarketpeers.• Haveclearreportingrequirementsincludingnarrativeandquantitativereportingagainsttargets.
• Seekmanagerswhoprovidecontractualassuranceforenergyorcarbonperformance/reductions,green/energyefficiencycertification,orothertargetssetsjointlywiththemanager.
SHOULD
SHOULD
The service agreement should include appropriate, verifiable and material targets, both quantitative andqualitative,tomanageenvironmental,socialandgovernanceissuesinportfolio.Targetscaninclude:
• Quantitativeandmaterialtargetstoreduceenergy,carbonintensity,waterandwasteoftheportfoliooverspecifiedtimeframe.
• Set a goal to measure and reduce the environmental/ resource intensity of a portfolio against relevantbenchmarksoveragiventimeperiod.
• Quantitative and qualitative targets to address social impacts of the portfolio, including communityengagementandcontributiontolocalcommunities.
• Setquantitativetargetsfortheinclusionofgreenleaseclausesintheleaseagreementswithtenants.Requireperiodicreportsonprogressagainsttargets;SpecificincentivesareprovidedforESGandclimate.
Sustainable Real Estate Investment - Framework for Action: Alignment
46
Direct Investors
COULD
Settargetsforaspecifiedproportionofthefund’sassetsinrealestatetobepoweredbycleanenergy,tobehighlyenergyefficient,toachieveminimumrequirementsforrenovations,ortobe“bestinclass”withrespecttoresourceintensity.
ProvidespecificincentivesforperformanceagainstagreedESGandclimaterisksrequirements.
• Incentivizepro-activeseekingandreportingofESGandclimateriskmanagementimprovements.• Rewardwith economic incentives/ penalties as appropriate, for performance against agreed ESG and
climateportfoliotargetsforboth,absoluteandbenchmarksperformance.
Set and reward clear performance
targets
47
Resource mapping and selected reference resources for contractors and manager selection
Theprojectteamreviewedtheavailableliteratureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailable to implement this step.Moredetailsareprovidedonselected resourcesofparticular relevancewhenselecting advisors, and their contractors and property managers. Among the most impactful. At a minimum, investmentmanagerscouldnotifytheirpropertymanagersthataminimumlevelofexpertise,service,andsustainabilityperformanceisrequiredinordertokeeporwintheirbusiness.
“Greening the building supply chain”UNEPSBCI2014,Global
The reportaims to identifyopportunities forachievinggreaterresourceefficiencyinthebuildingsectorsupplychain and contribute towards wider socio-economicgoals. It defines prioritisation of green interventionsto support thedevelopmentofaSustainableBuildingsandConstructionprogramme.TheReportalsomapsthe
interdependencies upstreamand downstreamof the constructionsite,allowingthevariousstakeholderstogaininsightintotheirroleandonhowtheyimpactontheoverallsystem.
The Report also introduces an “Intensity Analysis Methodology”basedonan LCAapproachaimedat improving theunderstandingof environmental impacts of selected materials and providingindications about potential entry points for green interventionswithinthebuildingmaterialssupplychains.
“Advancing Responsible Business in Land, Construction and Real Estate Use and Investment” RICS/UNGlobalCompact,2015,Global
Thedocumentprovidesaguidetothepracticalapplicationofthe10principlesoftheUNglobalCompacttotheland,construction and real estate sectors. It helps set thestrategic agenda for companies operating in the sector,realestateusersandinvestors,throughclearactionitemssupportedbyalistofbenefitsandreallifecasestudies.
“Sustainability metrics: translation and impact on property investment and management” UNEPFIetal2014,Global
The report provides a framework for a corporate realestate sustainability management (CRESM) system forproperty investment and management organisations,andoffers apragmatic three level approach (corporate,portfolioandsinglebuilding level)thataimstohelptheindustrymanagethecomplexityofsustainabilitymetricsandtoorganizeinformationflowsmoreefficiently.
Sustainable Real Estate Investment - Framework for Action: Alignment
UNEP FI Property Working Group report · SUSTAINABILITY METRICS · TRANSLATION AND IMPACT ON PROPERTY INVESTMENT AND MANAGEMENT
Sustainability MetricsTRANSLATION AND IMPACT ON PROPERTYINVESTMENT AND MANAGEMENT
A report by the Property Working Group of the United Nations Environment Programme Finance InitiativeMay 2014
UN
IT
ED
N
AT
IO
NS
E
NV
IR
ON
ME
NT
P
RO
GR
AM
ME
Main Report
GreeninGThe BUiLDinGSUPPLY ChAin
Promoting Policies and Practices for Sustainability
Sustainable Buildings and Climate Initiative
Un
ited
nat
ion
s en
vir
on
men
t Pr
og
ram
me
48
Key elements
All stakeholders have responsibility in monitoring progress againstgoalsandtargetswhichareset–asperStep1&2-todemonstratethatESG&climatechangerisksandopportunitiesarebeingmanagedandactedupontothebestoftheabilityofallthoseinvolved.
The regular observation, evaluation, benchmarking and recordingof ESG and climate risk management activities should take placeroutinelywithinapre-agreedmonitoringandreportingschedulewiththe appointed manager and advisers. Reports should be practicaland oriented towards delivering performance on ESG and climaterisk factors and offer decision makers with relevant information.Monitoring should also involve feedback about the progress of thevariousstrandsofactivityoutlinedandagreedintheStrategyReviewfordirectinvestors,propertycompaniesandtheirconsultants.
It is important to demonstrate how the property portfolio’ssustainability performance has changed over previous months andyears,andtobeabletopresentsuchchangesonalike-for-likebasis,normalizedforweatherandoccupancy(orinsteadofoccupancysomeothermeasureof intensity).Additionally, controlling forboundariesand being consistent inmeasuringwithin these boundaries is veryimportant.
In 2014, The UNEP FI Property Working Group published acomprehensiveguide tosustainabilitymetricsandhowtodeployaCommercialRealEstateSustainabilityManagement(CRESM)system.Direct investors, property companies should consider to procuresuchasystemto facilitateaccurate, robust,efficientdatacollectionpracticeswhichmakereportingatthebuilding,portfolioandcompanylevel quite simple. This would likely reduce quite substantially thelevelofeffort currentlyexpended in reporting tomultiplebuilding,portfolio and company level sustainability related frameworks forcommercialproperty.
An additional benefit of such an approach is that regulatory issuesrelatingtobuildingsandenergydatabenchmarkinganddisclosureareontherise;andthiswasthecasebeforeCOP21.Goingforward,accessto energy, carbon, water, and waste data will become increasinglyvaluableandrequired.
Monitor delivery of ESG and climate strategies and targets, focusing on impact to value using Sustainability Manage-ment Systems.
Report performance to clients and the public, on agreed frequency, using recognised industry standards.
Contribute to sustaina-bility benchmarking at portfolio and operation-al levels and assess performance results.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
Feedback loopMonitor,reportandbenchmark
Direct Investors
49
SHOULD
SHOULD
COULD
Monitoring process
Reporting standards and requirements
DefineESGand climate risk-relatedexpectations inmonitoring requirements against investment strategies andquantitativeESGandclimateriskperformancetargets(seestepDefineESGandclimatepolicyandstrategy).
• MonitorperformancethroughanEnvironmentalManagementSystem(EMS)thatappliestotheentitylevel.• Monitorperformanceagainstspecificagreedtargets,bothabsoluteandrelativeperformancecomparedto
selectedportfoliolevelbenchmarks.• Monitorunderlyingassetperformanceincarbon,energyandnaturalresourceintensity(portfolio leveland
individualcasestudies).• Withineachportfolioidentify“bestperformer”and“worstperformer”(assettype,geographyorportfolio)to
allowfocusoneffectiveinterventionandperformanceimprovement.• KeeptrackofnewtechnologieswhichmayreduceESGandclimaterisksonaportfoliobasisselectedportfolio
levelbenchmarks.
DefineESGandclimaterisk-relatedexpectationsinreportingrequirementstoassetownersandtostakeholders.
• Definedeliverydateandformatforreportingtoassetownerswithsectionsfor“businessasusualprogresstowardsagreedtargets”aswellasan“exceptionreport”areatoidentifyorhighlightparticularincidentsinthereportingperiod.
• Provide systematic updated in a cost effective format or dashboard, which provides ESG and climateperformanceinformationinameaningfulandcoherentmanner.
• IncludeaplaceholderforrelevantregulatoryupdateandindustryframingsectioninrecognitionofthefactthatESGandclimateframeworksarenotstaticandchangestotheregulatoryenvironmentorcompetitivelandscapeareimportanttomonitor.
• Includefree-formcommentstothestandardanddatadrivenformattoenablereportingonpolicyandprocessimplementationprogresses.
• Identifyandintegratedatasourcesfromacrosstheinvestmentprocessandensurethatreportsarefurnishedsystematicallywiththemostrelevantandupdateddatarelevanttotheassetowner.
• Requestregularperformanceupdatesagainstselectedbenchmarksandinformationaroundexemplarorbest-in-classactivities.
• Defineperiodicityandmaterialitythresholdsforreportingactivities.
Publicly report ESG and climate risk assessments and management activities.Define ESG and climate risk-related expectations in reporting requirements to external stakeholders
• Selectreportingstandards,anddefinescopeanddepthofreporting,withafocusonmaterialitytothebusinessandvaluedriversandaccountingforgeographicalorregionalnormsandregulatoryexpectations.
• Defineperiodicityandmaterialitythresholdsforreportingactivities.Selectedportfoliolevelbenchmarks.
• Request for Environmental Management System (EMS) to be aligned with a standard and/or verified orcertifiedbyanindependentthirdparty.
• Include external verification or assurancewhere data or conclusions will be published or wherematerialdecisionswillbetakenbasedonthisdata.
• Ensure“deepdive”ondivergentassets(withpositiveornegativeimpact)tounderstandtheoverallportfolioeffectofthese.
Selected resources for Monitoring & Reporting
Theprojectteamreviewedtheavailable literatureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailabletoimplementthisstep,seeAnnexes.BelowareselectedresourcesofparticularrelevanceforMonitoring&Reporting.
Sustainable Real Estate Investment - Framework for Action: Feedback loop
COULD
Includeexternalverificationorassurancewheredataorconclusionswillbepublishedorwherematerialdecisionswillbetakenbasedonthisdata.
Migratetowardsactionableandinformation-intensemeasuresforreportingandawayfrom“check-box”approaches.Implement a feedback loop to ensure that,where selected reporting tools are not “best fit” then this can bereportedupon.
50
SHOULD
COULD
Reporting standards and requirements
Determinerelevantportfolio levelandoperational levelbenchmarksbaseduponcharacteristicsofportfolioandgeography.
• Contributetorelevantportfoliowidesustainabilityinvestmentmanagementframework.• Contribute to relevant operational level and asset performance benchmarks,where such benchmarks are
available.• Integratebenchmarkrelevantresultsandanalysisinreportingrequirements.
• Doaperformanceanalysisagainstthebenchmarktoidentifywhatarethemostmaterialareasoffocusandhowtobestaddressthem.
Selected reference tools for Monitoring & Reporting
Managingandmonitoringofassetmanagers’sustainabilityperformancehasbecomesimplerandmoretransparentwiththeemergenceanduptakeofalargenumberofglobalandregionalsustainabilitybenchmarksandreportingguidelines.Theprojectteamreviewedtheavailableliteratureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailabletoimplementthisstep,seeAnnexes.
BelowareselectedresourcesofparticularrelevanceforMonitoring&Reportingbasedontheresultofthesurveyofglobalpractitioners.
“PRI reporting framework – Asset Owners, Direct, Equity and Debt investments” PRI,Global
“Global Real Estate Sustainability Benchmark – Asset Owners, Direct, Equity and Debt investments” GRESB2015,Global
ThroughGRESB,direct realestate investormembersareabletomonitortheannualGRESBsurveyresultsforalltheirdirectinvestmentsand,iftheyinvestinlistedrealestatesecurities,alllistedrealestatecompanies’results. By using the GRESB Portfolio Analysis tool,
investorsareabletoselectinvestmentstocompareresults,e.g.foraparticularinvestmentmanager,aregionorcountry,oraparticularpropertytype.Theyarealsoabletoundertakeportfolioanalysisforself-selectedgroupsoftheirinvestments.
TheGRESBdebtsurveyrepresentsaninitialstepinmonitoringrealestatedebtandassessinghowto integrateESGandclimaterisksinto this growingfinancial instrument for realestate investment.Thesurveyaimstoincreasetransparencyinthedebtmarketandguideinvestorsonbestpracticeimplementation.
The PRI Reporting Framework seeks to answerone question: How do you govern and implementresponsibleinvestment?Theframeworkiscomposedofmodules,withgeneralmodulestailoredformultipleasset class investors and dedicatedmodules focusedby asset class. Reporting through the Framework is
mandatoryforallPRIsignatoriesandresponsesaretranslatedintoTransparencyReportswhichareavailableonthePRIwebsiteasapublicdemonstrationofsignatories’commitmenttoimplementingthePrinciplesforResponsibleInvestment.
Direct Investors
“G4 Sustainability Reporting Guidelines: Construction and Real Estate Sector Disclosures”, GRI2015,Global
Thisresourceisthedefiniteguidanceonperformanceindicators and reporting processes for anyone whoinvestsin,develops,constructs,ormanagesbuildings.The GRI Guidelines, help reporting organizationsdisclose theirmost critical impacts –be theypositiveor negative – on the environment, society and the
economy. They can generate reliable, relevant and standardizedinformation with which to assess opportunities and risks, andenablemoreinformeddecision-making–bothwithinthebusinessandamongitsstakeholders.TheGRI’sConstructionandRealEstatesector guidance makes reporting relevant and user-friendly fororganizationsinthistargetedsector.
SECTOR DISCLOSURES
CONSTRUCTION AND REAL ESTATE
PRI REPORTING FRAMEWORK 2014/15 Organisational Overview
September 2014
+44 (0) 20 3714 3187
51
Market engagementDirect Investors
Key elements
Over 1,400 finance sector institutionsmanaging over US$59 trillionof assets subscribe to the United Nations supported Principles forResponsible Investmentand it is likely that the levelof engagementbetweenbusinessandpublicpolicymakerswillincrease,especiallyasmoreandmore realestate investors integrateESGandclimate risksintotheirbusinesspracticesandregulationsonthesemattersbecomemoredeveloped.
RealestateinvestorsshouldconsidertakinganactiveroleinpublicpolicyandsectorengagementtopromoteacceptanceandimplementationofESG and climate risksmeasures across the real estate industry. Thisensuressector-widetoolsaredevelopedenablingindustrycomparisonandbettermonitoringofthesector’sandportfolio’sperformance.
Itisalsoimportantthattheyplayarole,directly,orindirectlythroughsector organisations, in establishing positive dialogue and engagingwith public policy to ensure that a robust regulatory frameworksupportstheeffectiveintegrationofESGandclimaterisksinrealestateinvestments.
Engage on public policy with sector organisations to ensure policy regulatory match with market needs.
Support research initiatives to understand risks and integrate ESG.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
PRI Policy Frameworks for Long-Term Responsible Investment: The Case for Investor Engagement in Public Policy, Global
This PRI policy framework shows why public policyengagementisessentialforlong-terminvestors,providesexamplesofinvestorengagementinpublicpolicy,lessons learned, and offers practical recommendationsforbetterintegrationofESGfactorsinthepublicpolicy-makingprocess.
Recommended Actions
There are three key areas in which all real estate investmentstakeholderscanoptimisetheirengagementwithpublicpolicy:
1. Engage,directlyorindirectly,onpublicpolicytomanagerisks.
2. SupportresearchonESGandclimaterisks;
3. Support sector initiatives to develop resource to understandrisksandintegrateESG.
POLICY FRAMEWORKS FOR LONG-TERM RESPONSIBLE INVESTMENT:
THE CASE FOR INVESTOR ENGAGEMENT IN PUBLIC POLICY
52 53
FRAMEWORK FOR ACTIONFOREQUITIES,BONDSANDDEBTINVESTORSANDTHEIRFINANCIALADVISORS
$
54
Key elements
ESGandclimaterisksshouldbemanagedby investors inalignmentwith theirESGandclimateriskpolicyandstrategybyselectingandembeddingitinthemostappropriateinvestmentstrategy. PreparinganddraftingaESGandclimaterisksandopportunitiespolicywillenableinvestorstounderstandtheevidenceanddecidewhatisthemostappropriateapproachforthemtomanagetheserisksandintegratetherequiredmanagementapproachesintheirdeterminedinvestmentstrategies.ItenablesEquities,BondsandDebtinvestorsand theirFinancialAdvisors tobetter identifyandmanageESGandclimaterisksandopportunitiesinwaysconsistentwiththeirfiduciarydutytoexerciseduecare,skillanddiligenceinthepursuitofthebestinterestsoffundbeneficiaries.
Keyelementsofthisprocess includeareviewandunderstandingofthe ESG and climate risks and opportunities, the development andselectionof dedicated ESG and climate risks policies and strategiesand the determination and setting of actionable and transparenttargets.
Assess material risks and opportunities that impact value.
Develop ESG and climate strategy based on materiality and value assessment.
Set ESG and Climate targets at all levels of the investment process and across the supply chain.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
Stakeholdersengagedinthisprocessshouldfactorinexistingandlikelychangesintheregulatoryenvironmentovertheinvestmenthorizon,financial regulationssurroundingclimatechangeriskdisclosure,andrating methodologies by mainstream groups such as Bloomberg,Moody’s, and MSCI, as well as ESG groups such as Sustainalytics,Oekom,Trucost,andothers.
Stakeholders should also decide which targets are appropriate fortheirinvestmentstrategies,andwhichwillbemadepublic,andwhichremainprivate. It isunderstandablethatnotallmaybeappropriateforthepublicdomain.Thiswillhelpstakeholderssetreasonableandachievablegoals,whichcanbestretchedovertime.
When a strategy is in place, such targets may be more uniquelytailoredtothestakeholder.However,theactionofsettingtargetscanstandon itsown.Most important is todefinewhat the targetsare,whoisresponsibleformeasuringthem,howtheywillbemeasured,atwhatfrequencytheywillbereportedon,andwhattheincentivesor expected consequences are if the targets aremet, exceeded, ormissed.
Strategy DevelopamaterialESGandclimatestrategy
Equities, Bonds, Debt
55
Recommended Actions
Thefollowingisanon-exclusivelistofactionswhichformthecorecomponentsrequiredtodevelopanESGandclimateriskpolicyandstrategywhichfocusesonmaterialrisksandopportunities:
SHOULD
SHOULD
COULD
Assess risks and
opportunities
Develop ESG and climate policy and
strategy
QuestionandassesswhetherkeyESGandclimaterisksarebeingconsideredinrealestatestrategicassetallocationandinvestmentstrategies.
Ask advisers support to identify appropriate sources of information to assess current strategic allocation andinvestmentstrategy,theirexpertviewontherelevanceoftheseriskstocurrentrealestateinvestmentstrategyandtheirhelpinansweringthefollowingquestionsinordertoidentifygapsinexistingprocessesandevaluationframeworktoaccountforESGandclimaterisks:
• Whatarethe impactsofchanges insustainabilitypolicyandregulationthroughouttherealestate investmentcycle?
• Whatareratingsagencies,regulators,legaladvisorsandotherstakeholderssayingaboutthematerialityofESGandclimaterisks?
• WhatESGandclimateimpactsarealreadyincludedinassessmentofrisks,arethereriskswhichwillbematerialoverthelifeofmyassetportfoliowhicharenotyetincluded?
• WhatwillbethelikelyimpactsofESGandclimaterisksonthevaluationassessmentofrealestateassetsovertheirusefullives?
• Willrealestateassetsfaceregulatoryorphysical“obsolescence”duetoESGandclimateriskfactorsovertheirusefullives?
• WhatareandwillbetheimpactsfromthesocietalshifttoplacegreatereconomicvalueonESGandclimatefactorsonrealestateassets/strategiesoverthefundlife?
Develop ormaintain a regularly updated policy and strategy stating specific approaches to integrate ESG andclimateriskintoinvestmentframework.
PolicyandstrategyshoulddeterminehowESGandclimateriskassessmentprocesseswill impactstrategicrealestateassetallocationandinvestmentmanagementincluding:
• Identifykeyproceduresinassetacquisition,management,operation,planning,newdevelopments.• Refurbishment,upgrade,rental,andmanagerselectionwhichareimpactedbyESGandclimateriskstrategy.• SetESGandclimatechangeindicatorstoevaluatenewinvestmentopportunities.• DefineESGandClimatecriteriaforselectionofnewmandatesandmonitoringofexistingmandates.• Determinerequirementsforreportingandfeedbackfromallrelevantinvestmentmanagersandadvisers.• Determinereportingprocesstomembersandstakeholders.• EstablishperiodicityandapproachshouldbeusedtoreviewandevaluateESGandClimateriskpolicyand
strategy.
Establishregularoron-goingESGandclimateriskassessment,including:
• Identifyrelevantinformationsourcesandcollectrelevantdataonregularbasis.• Reviewrisksandopportunitiesonregularbasis.
Sustainable Real Estate Investment - Framework for Action: Strategy
56
SHOULD
COULD
COULD
Develop ESG and climate
policy
Set targets
Takealeadershiproleintermsofdisseminationandsupportingtrainingofadvisers/managerssothatthepaceofchangeisaccelerated.
Determine appropriate approach to embed a dynamic, data-driven assessment of ESG and climate risks intoinvestmentstrategies.
Exploitsynergieswhencollectingandprocessingbuilding-relatedinformation.
Engage with property managers, operators and maintenance to ensure that “best in class” energy/ carbonreduction technologies and operating procedures are in place across a growing percentage of themanagedportfoliooveragiventimeframe.
SharebestpracticeandensureESGandclimaterisk“learnings”aresocializedamonginternalstakeholders.
Determine and set appropriate, verifiable andmaterial targets, both quantitative and qualitative, tomanageenvironmental,socialandgovernanceissuesinyourportfolio.
Whererelevant,issuecleardirectivestoexternalpropertymanagersmanagingyourpropertyassetstodeliverthesetargets,includingrequirementfortheirexecutivestoberesponsiblefordeliveryofperformance.Targetscaninclude:
• QualitativetargetstohaveinplaceinvestmentandassetmanagementproceduresandtoolstointegrateESGinclimaterisksinassetacquisition,management,operation,planning,newdevelopments,refurbishment,upgrade,rentalandoccupiermanagement.
• Quantitativeandmaterialtargetstoreduceenergy,carbonintensity,waterandwasteoftheportfoliooverspecifiedtimeframes.
• Set a goal tomeasure and reduce the environmental/ resource intensity of a portfolio against relevantbenchmarksoveragiventimeperiod.
• Quantitative and qualitative targets to address social impacts of the portfolio, including communityengagementandcontributiontolocalcommunities.
• Setquantitativetargetsfortheinclusionofgreenleaseclausesintheleaseagreementswithtenants.• Targetforaspecifiedproportionofthefund’sbuildingstobepoweredbycleanenergy,tobehighlyenergy
efficient,toachieveminimumrequirementsforrenovations,ortobe“bestinclass”withrespecttoresourceintensity.
• Requireperiodicreportsonprogressagainsttargets.
Equities, Bonds, Debt
57
Resource mapping and selected resources to integrate in strategy
Theprojectteamreviewedtheavailableliteratureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailabletoimplementthisstep,seeAnnexes.BelowareselectedresourcesofparticularrelevanceforEquity,BondandDebtinvestorswhendevelopingtheirinvestmentstrategy.
Thesethreestudieshelpassetownersandinvestorsbetterunderstand andestimate the impacts of climate changeoninvestmentstrategiesandfinancialperformance.Theyaddress the following questions:Which financial impactcould climate change have- at which magnitude andwhen?Whatarethekeyrisksandopportunities,howdo
wemanageandintegratethoseintocurrentinvestmentprocesses?;Whichactionscouldan investor take tobecomemore resilient toclimatechange?
“Investing in a time of climate change” Mercer2015,Global “An-Investment-Framework-for-Sustainable-Growth”Mercer 2014 “Climate change scenarios: Implications for strategic asset allocation” Mercer 2011
“Climate Change Investment Solutions Guide” IIGCC 2015,Europe
‘‘Investing through an adaptation lens”, IGCC 2015“Assessing climate change risks and opportunities for investors- Property and Construction Sector’ IGCC2013,Australia
“Advancing Responsible Business in Land, Construction and Real Estate Use and Investment” RICS/UNGlobalCompact2015,Global
“The-21st-century-investor-ceres-blueprint-for-sustainable-investing” Ceres2013,NorthAmerica
‘‘ Developing an asset owner climate change strategy” PRI2015,Global
This pilot frameworkoffers a step-by-step approach foraddressingclimatechangeacross threemainstrategies:engage, invest and avoid. Case studies outline existingexamples of asset owner action, including severalinitiativesthathavebeenstartedbyprojectparticipantsduringtheproject.
Theaimofthisguideistoprovideassetownerswitharangeofinvestmentstrategiesandsolutionstoaddressthe risks and opportunities associated with climatechange.While theguide is targetedat assetowners italso contains insights for asset managers which aredirectly relevant to equity real estate investors. The
guide proposes a four-step framework for considering climatechange investment solutions. It also affirms that corporate andpolicyengagementareimportantcomplementarystrategies,whichcan address climate change risks across portfolios and facilitatenew investment opportunities. It provides specific questions thatassetownersandinvestorscanaskthecompaniestheyinvestin,toreduceandreporttheircarbonintensity.
Thelaterguideprovidespracticalinsightsonhowinvestorscanandshouldbeinvestingthroughanadaptationlens.The former provides information to help investorsassessandintegrateclimateriskandopportunitywithinthe property and construction sector into investment
analysis.Theguidecoversthefollowingkeyareasandstepsforthisprocess:Identifycurrentrisks;Identifyriskvarianceandimpacts;Identifytheadaptationstrategiesandmitigationmeasures;Assessmateriality.The guide then proposes steps to integrate the information intoinvestmentprocesses.
Thedocumentprovidesaguidetothepracticalapplicationofthe10principlesoftheUNglobalCompacttotheland,construction and real estate sectors. It helps set thestrategic agenda for companiesoperating in the sector,realestateusersandinvestors,throughclearactionitemssupportedbyalistofbenefitsandreallifecasestudies.
The aim of this guide is to provide asset ownerswith arangeofinvestmentstrategiesandsolutionstoaddresstherisks and opportunities associated with climate change.Whiletheguideistargetedatassetownersitalsocontainsinsightsforassetmanagerswhicharedirectlyrelevanttoequityrealestateinvestors.Theguideproposesafour-step
framework for considering climate change investment solutions.It alsoaffirms that corporateandpolicyengagement is importantcomplementarystrategies,whichcanaddressclimatechangerisksacross portfolios and facilitate new investment opportunities. Itprovidesspecificquestionsthatassetownersandinvestorscanaskthe companies they invest in, to reduce and report their carbonintensity.
Theaimofthisguideistoprovideassetownerswitharangeofinvestmentstrategiesandsolutionstoaddressthe risks and opportunities associated with climatechange. While the guide is targeted at asset ownersit also contains insights for assetmanagerswhich are
directlyrelevanttoequityrealestateinvestors.Theguideproposesa four-step framework forconsideringclimatechange investmentsolutions. Italsoaffirms that corporateandpolicyengagement isimportant complementary strategies, which can address climatechange risks across portfolios and facilitate new investmentopportunities.Itprovidesspecificquestionsthatassetownersandinvestorscanaskthecompaniestheyinvestin,toreduceandreporttheircarbonintensity.
Sustainable Real Estate Investment - Framework for Action: Strategy
“Trustee’s Guide: Protecting value in real estate through better climate risk management” IIGCC 2014
M E R C E R 2 0 1 5
S U P P O R T E D B Y :
In partnership with:
H E A LT H W E A LT H C A R E E R
I N V E S T I N G I N A T I M E O F C L I M AT E C H A N G E
DEVELOPING AN ASSET OWNER CLIMATE CHANGE STRATEGYPILOT FRAMEWORK
An investor initiative in partnership with UNEP Finance Initiative and UN Global Compact
INVESTING THROUGH AN ADAPTATION LENS
A PRACTICAL GUIDE FOR INVESTORS
TRUSTEE’S GUIDEPROTECTING VALUE IN REAL ESTATE
THROUGH BETTER CLIMATE RISK MANAGEMENT
Institutional Investors Group on Climate Change
58
Key elements
ESGandclimaterisksshouldbemanagedbyinvestorsinlinewiththeirESGandclimateriskpolicyandstrategybyselectingandembeddingitinthemostappropriatemannerwithinkeyproceduresintheexistinginvestment processes and strategies. The real estate investmentprocess naturally has points at which value is created and whererisks lie.Stakeholdersshouldarticulatehowanyinterventionseitherincreasethelikelihoodthatvaluecreationwithintheexistingbusinessmodelisrealized,and/orhighlighthowriskmanagementisimproved.Takingthisapproachwillhelpgroundanyactionsinwhatisofmaterialconcernforaparticularcompanyorinvestmentstrategy.
Equity/REITs: select managers with proven active investment approaches; Be active in engagement & proxy voting.
Bonds: require green property bonds certi�ed with recognised standards and information on assets' sustainability performance.
Debt: Integrate ESG in due diligence at transaction, valuation assessment and include in loan documentation.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
Keyelementsofthisprocessincludeareviewtheselectionofthetypeof investmentstrategywitha focusonrelevantassetclasses,activeengagement and proxy voting for equity/REITS, integration of ESGinvestmentproceduresfordebtandcertificationofbondsinvestmentstogreenpropertybondsstandards.
Execution IntegrateESGandclimateininvestmentstrategy
Equities, Bonds, Debt
59
Recommended Actions
Thefollowingisanon-exclusivelistofactions,whichshouldbeconsideredforinclusionintheinvestmentstrategywithspecificrecommendationsforeachtypeoffinancialinstruments:
SHOULD
COULD
GivepreferenceandawardactivepropertyESGandclimaterisksinvestmentmandates.Reviewpassivemandatestoincludeascreeningbasedonbenchmarksandgreenpropertyratingsinunderlyingentities.
RequireintegrationofnewtoolsandESGandclimateriskdatasourcestomoreeffectivelymodeltheirimpactsonequityvalueandinvestmentdecisions.
RequireinvestorstomeasureandincreaseexposuretoESGandclimaterelatedequityopportunities.Ensurethatallopportunitiestousevotingpowerthroughengagement&ProxyvotingtargetingtheinclusionandwiderconsiderationofESGandclimaterisks.
MeasureandreduceportfolioexposuretoESGandclimaterisksandconsiderdivestmentstrategiesfor“worstinclass”.
SetportfoliodecarbonisationorESG footprint targetsandmeasureandmanageovertimeagainstdeterminedbenchmarks.
SHOULD
SHOULD
COULD
COULD
Measures by asset class
Equity Portfolios
Green Property
Bonds
Debt Portfolios
EnsurethatGreenPropertyBondcomplieswithGreenBondIssuanceStandards.
Request information from issuer on underlying real estate asset performance in carbon, energy and naturalresourceintensity(portfoliolevelandindividualcasestudies)forexistingbonds.
IntegrateESGandclimatecriteriaintovaluationanddebtinvestmentassessments.DuediligenceissuerforESGandclimaterisksattransactionpointswithafocuson:EnergyPerformanceCertificates,FloodRisks,GreenBuildingCertifications,On-SiterenewableEnergyGeneration,EcoPASQuestionnaire,BorrowerSustainabilityCredentials.
IncludeESGandclimateriskfactorsinloandocumentation(ifinvolvedintheprimaryissuanceorprivateplacement).EvaluatemanagersontheiruseofESGandclimatecriteriaindailyfundmanagementactivities.
Require“Green”criteriabyissuertobeexternallyverified.Considerdivestmentfromissuerswith“worstinclassESGandclimateperformance”.
• ReviewexistingloanportfoliosforESGandclimaterisk.• RequireESGandclimateriskdatafromissuesofallexistingloanportfolios.• Considerdivestmentfromissuerswith“worstinclassESGandclimateperformance”.
$
Sustainable Real Estate Investment - Framework for Action: Execution
60
Resource mapping and selected resources to integrate in investment process
Theprojectteamreviewedtheavailableliteratureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailabletoimplementthisstep,seeAnnexes.BelowareselectedresourcesofparticularrelevanceforEquity,BondandDebtinvestorswhendevelopingtheirinvestmentstrategy.
“Climate Change Investment Solutions Guide” IIGCC 2015,Europe
Theaimofthisguideistoprovideassetownerswitharangeofinvestmentstrategiesandsolutionstoaddressthe risks and opportunities associated with climatechange.While the guide is targeted at asset ownersitalsocontainsinsightsforassetmanagerswhicharedirectly relevant to equity real estate investors. The
guide proposes a four-step framework for considering climatechange investment solutions. It also affirms that corporate andpolicy engagement are important complementary strategies,which can address climate change risks across portfolios andfacilitate new investment opportunities. It provides specificquestionsthatassetownersandinvestorscanaskthecompaniestheyinvestin,toreduceandreporttheircarbonintensity.
“Advancing Responsible Business in Land, Construction and Real Estate Use and Investment”RICS/UNGlobalCompact,2015,Global
The document provides a guide to the practicalapplication of the 10 principles of the UN globalCompact to the land, construction and real estatesectors.Ithelpssetthestrategicagendaforcompaniesoperatinginthesector,realestateusersandinvestors,
throughclearactionitemssupportedbyalistofbenefitsandreallifecasestudies.
“Trustee’s Guide: Protecting value in real estate through better climate risk management” IIGCC 2014 Global
“Protecting value in real estate: Managing investment risks from climate change” IIGCC2013,Europe
Thisguidecoversthekeyquestionswhichassetownersandinvestmentmanagersshouldbeaskingthemselveswhen developing their ESG and climate policy andstrategyandtheir investmentstrategyto integrateESGand climate risks into their businesses. It covers four
areas: Assessing risks and opportunities, managing regulatoryrisks,managerselection,incentivesandrewards.
“The-21st-century-investor-ceres-blueprint-for-sustainable-investing” Ceres2013,NorthAmerica
The report acts as a guide to help investors satisfythe fiduciary responsibilities. It is designed to helpconcerned trustees or board members advance aprocessforbetteroversightanddecisionmakingthatenhancessustainablerisk-adjustedreturns.Itoutlines
the critical decisions that trusteesmustmake regarding boardpoliciesandimplementationandspecificstepsintheinvestmentprocessthatwillbenefitfromtrusteeinvolvement.
“Investing through an adaptation lens”, IGCC2015Australia&‘‘Assessing climate change risks and opportunities for investors - Property and Construction Sector” IGCC2013,Australia
The laterguideprovides informationtohelp investorsassessandintegrateclimateriskandopportunitywithinthe property and construction sector into investmentanalysis.
“Green Property Bonds Standards” ClimateBondsInitiative2015, “Green Bond Guidelines” GRESB2015,Regional
“‘Debt tools - New lending decisions framework & Loan documentation” BBP2015,Regional
The document provides a guide to the practicalapplication of the 10 principles of the UN globalCompact to the land, construction and real estatesectors.Ithelpssetthestrategicagendaforcompaniesoperatinginthesector,realestateusersandinvestors,through clear action items supported by a list ofbenefitsandreallifecasestudies.
These two reports provide a list of potentialsustainabilityduediligenceitemslendersmightwantto undertake in relation to a new lending decisionsecuredagainstcommercialrealestateandillustratepotential ways to adapt existing processes formonitoring existing loans/borrower to incorporaterelevantsustainabilityissues.
Equities, Bonds, Debt
INVESTING THROUGH AN ADAPTATION LENS
A PRACTICAL GUIDE FOR INVESTORS
TRUSTEE’S GUIDEPROTECTING VALUE IN REAL ESTATE
THROUGH BETTER CLIMATE RISK MANAGEMENT
Institutional Investors Group on Climate Change
© 2015 GRESB BV
Green Bond Guidelines for the Real Estate Sector
GRESB Green Bond Guidelines
Prepared by GRESB
61
62
Key elements
HavingsettheESGandclimateriskspoliciesandtargetsanddecidedonthemostappropriateapproachtointegrateESGintotheinvestmentstrategy,itisfundamentalforrealestateinvestorsusingequities,debtandbondstoincludeESGandclimateriskstrategyandtargetsintheirselectionprocessesandmandatestotheirdirectrealestateinvestors,realestateportfoliosorpropertycompanies. EstablishingclearESGandclimateportfolioexpectations,includingspecifictargetsbasedonabsoluteperformanceandagainstbenchmarks,arekeytothisprocessand these expectationsmust be explicitly included in anymandatetermsandconnectedtoeconomicincentives,rewardsandpenaltiesasappropriate.
While much progress has been done on real estate sustainabilitybenchmarks,REITSwhoare comparingdirect investmentmanagersand property companies should be careful not to oversimplify thisprocessbylookingonlyatratings,certificationsandbenchmarks.
Theseprovideindications,butnotanswers.Itisimperativeforthoseinvestigatingtoengagewithpropertycompanies,tounderstandbothhow ESG and climate risks are applicable to each business model,andhowwellESGisunderstoodandacteduponbythemostseniordecisionmakers.ThisisbyfarthebestwaytoassesswhichmanagesaretickingboxesorboltingonESGasanafterthought,andwhichareseriouscontenders.Thisframeworkanditsactionsprovideaone-stopshopforhowtocheckonandengagewithinvesteecompanies.
Finally, whether engaging with existing investees or making anew investment, investors should be explicit in their requests forqualifications and RFPs to invest their precious capital and specifywhich actions they expect managers to take with respect to theintegration of ESG & climate risks and opportunities. Investmentmanagersandpropertycompanieswill respondmore favourablyassuchlanguagebecomesaseriesofasksandcontainssomeprescriptiverequirements. This approach would be major improvement overopen-endedinquiry.
AssetownersshouldsetexpectationsoftheirpropertymanagerswithrespecttoESGandclimaterisks.Responsibilityfortheachievementofanytargetswhicharesetattheportfolioandassetlevelshouldbeclearly defined,with agreeduponmechanisms for theprocess andfrequencyofdatacollectionandreporting.
While rewarding investmentmanagers andproperty companies forhitting sustainability targets is currently the exception rather thanthenorm, it isonewhichcouldbeamongthemost impactful.Ataminimum, asset owners could put their investment managers andproperty companies on notice that a minimum level of expertise,service,andsustainabilityperformance is required inorder tokeeporwintheirbusiness.
ESG in selection requirements: require proven knowledge of sustainability; set clear and prescriptive ESG expectations.
Include ESG and climate expectations and targets in legal contracts for investment mandates & service agreements.
Incentivise and reward contractors based on delivering sustainability goals.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
AlignmentAdvisersandmanagersselectionprocess
Equities, Bonds, Debt
63
Recommended Actions
Thefollowingisanon-exclusivelistofactionsaddressingESGandclimateriskswhichshouldbeconsideredforinclusionduringthedirectrealestateinvestmentmanagerand/orpropertycompanyselection:
COULD
ESG and climate risk in service
agreement
ESG and climate risk
in Investment Mandates agreement
Favouractive investmentand investmentmanagersdemonstrating integrationofESGandclimaterisks in theirinvestmentprocesses.
IncludespecificrequirementsforESGandclimateinvestmentsandexpertiseintheselectionprocesses.
Focusselectionengagementprocessonspecificdirect requestsandpastperformancerather thanopen-endedquestions,thesecouldinclude:
• Askforopiniononassetlevelorportfolioout-performanceopportunitiesthroughgreaterintegrationofESGandclimatecriteria.
• RequirespecificdescriptionofmechanismsusedtoembedESGandclimaterisks in thebuy,holdandselldecisionsbeingmadeonproperties.
• Request description of how the investment manager implements ESG and climate risks in their assetmanagement approaches throughout the real estate investment cycle with requested evidence of trackrecordsandconcreteexamples.
• RequestandreviewperformanceagainstbenchmarkstoensurethatESGandclimateriskcriteriaareeffectivelyintegratedininvestmentprocesses.
• Requireexamplesofexperienceinexecutingportfoliostrategiestoreducetheenvironmentalfootprintofthemanagedproperties.
• Adviser/consultanttodemonstratethattheirESGandclimateresearchisunderstoodandimplementedinsomemeaningfulwaybytherealestate/propertyresearchersandthatESGandclimateisnottreatedasaspecialistsilo.
The mandate or investment management agreement should include clear and detailed expectations forincorporatingESGandclimateriskfactorsandtheprocessformonitoringESGandclimateriskimplementationandperformance.Forequityinvestmentmanagertheseshouldbepartoftherequirementstoundertakeengagementandvotingactivitieswiththeassetsinvestedin.Theinvestmentmanagershouldberequiredto:
• Incorporatecriteriatoassessthecapabilitiesofmanagers/advisersinmeasuringandmanagingthephysicalrisksofclimatechange.
• Havededicatedproceduresinallinvestmentmanagementphases:assetacquisition,management,operation,upgrade,rental,planningandmanagerselectionwhichareimpactedbyESGandclimateriskstrategy.
• Monitorportfolioandunderlying realestateassetsperformance in carbon,energyandnatural resourceintensity (e.g. portfolio level and individual asset case studies), and social impacts such as communityengagementandcontributiontolocalcommunities.
• HaveanEnvironmentalManagementSystem(EMS)thatappliestotheentitylevel.• Use relevant Real Estate sustainability benchmarks tomonitor and compare absolute and performance
againstmarketpeers.
Seekmanagerswholinkcompensationtoenergyorcarbonperformance/reductions,green/energyefficiencycertification,orothertargetswhichhaveeitherbeensetvoluntarilybythemanagerorrequestedbytheassetowner.
SHOULDSHOULD
SHOULD
Sustainable Real Estate Investment - Framework for Action: Alignment
64
SHOULD
COULD
ESG and climate risk
in investment mandates
Set and reward clear performance
targets
• Haveclearreportingrequirementsincludingnarrativeandquantitativereportingagainsttargets.• PubliclyreporttheirESGandclimateriskassessmentsandmanagementactivities.• EngagewithmanagersandrequestthemtoreportontheextenttowhichtheysupportorresistESGand
climateriskpoliciesattheregulatorylevel.
Themandate should include appropriate, verifiable andmaterial targets, both quantitative and qualitative, tomanageenvironmental,socialandgovernanceissuesinportfolio.Targetscaninclude:
• Quantitativetargetstoundertakevotingandengagementactivitieswhereappropriate(Equity,bonds,debt).• Quantitativeandmaterialtargetstoreduceenergy,carbonintensity,waterandwasteoftheportfolioover
specifiedtimeframe.• Set a goal to measure and reduce the environmental/ resource intensity of a portfolio against relevant
benchmarksoveragiventimeperiod.• Quantitative and qualitative targets to address social impacts of the portfolio, including community
engagementandcontributiontolocalcommunities.• Setquantitativetargetsfortheinclusionofgreenleaseclausesintheleaseagreementswithtenants.• Targetforaspecifiedproportionofthefund’sassetsinrealestatetobepoweredbycleanenergy,tobehighly
energyefficient,toachieveminimumrequirementsforrenovations,ortobe“bestinclass”withrespecttoresourceintensity.
RequireperiodicreportsonprogressagainsttargetsSpecificincentivesareprovidedforESGandclimate.
ProvidespecificincentivesforperformanceagainstagreedESGandclimaterisksrequirements.
• Incentivizepro-activeseekingandreportingofESGandclimateriskmanagementimprovements.• Rewardwitheconomicincentives/penaltiesasappropriate,forperformanceagainstagreedESGandclimate
portfoliotargetsforboth,absoluteandbenchmarksperformance.
SHOULD
Equity, Bonds, Debt
65
Resource mapping and selected reference resource for advisers and manager selection
Theprojectteamreviewedtheavailableliteratureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailabletoassetownersandtheiradviserstoimplementthisstep.Moredetailsareprovidedonselectedresourcesofparticularrelevancewhenselectingadvisors,andtheirdirectinvestors,propertycompanies,andEquity/REITS,BondandDebtvehiclesandinvestors.
“Aligning expectations: guidance for asset owners on incorporating ESG factors into manager selection, appointment and monitoring” PRI2013,Global
This guidance helps asset owners assess whethertheir managers’ investment policies and processesare consistentwith their ESG expectations. It aims tosupportthemintheirdialogueswithmanagerssothatthey gain a clear understanding of the ESG risks andopportunities affecting their portfolios and how their
managersareaddressingthem.This guidance is also relevant for fund-of-fund managers whooutsourceinvestmentactivitiesandwhoneedgreaterconfidencethatmanagersarealignedwiththeirownexpectations.
“Climate Change Investment Solutions Guide” IIGCC 2015,Europe
Theaimofthisguideistoprovideassetownerswitharangeofinvestmentstrategiesandsolutionstoaddressthe risks and opportunities associated with climatechange.While the guide is targeted at asset ownersit also contains insights for asset managers which
are directly relevant to equity real estate investors. The guideproposes a four-step framework for considering climate changeinvestment solutions. It also affirms that corporate and policyengagementareimportantcomplementarystrategies,whichcanaddressclimatechangerisksacrossportfoliosandfacilitatenewinvestmentopportunities.Itprovidesspecificquestionsthatassetowners and investors can ask the companies they invest in, toreduceandreporttheircarbonintensity.
‘Advancing Responsible Business in Land, Construction and Real Estate Use and Investment’ RICS/UNGlobalCompact,2015,Global
The document provides a guide to the practicalapplicationofthe10principlesoftheUNglobalCompacttotheland,constructionandrealestatesectors.Ithelpssetthestrategicagendaforcompaniesoperatinginthesector, real estate users and investors, through clearactionitemssupportedbyalistofbenefitsandreallife
casestudies.
“Trustee’s Guide: Protecting value in real estate through better climate risk management” IIGCC 2014 Global
“Protecting value in real estate: Managing investment risks from climate change” IIGCC2013,Europe
Thisguidecoversthekeyquestionswhichassetownersandinvestmentmanagersshouldbeaskingthemselveswhen developing their ESG and climate policy andstrategyandtheir investmentstrategytointegrateESGand climate risks into their businesses. It covers four
areas: Assessing risks and opportunities, managing regulatoryrisks,managerselection,incentivesandrewards.
“ The-21st-century-investor-ceres-blueprint-for-sustainable-investing” Ceres2013,NorthAmerica
The report acts as a guide tohelp investors satisfythe fiduciary responsibilities. It is designed to helpconcerned trustees or board members advance aprocess for better oversight and decision makingthat enhances sustainable risk-adjusted returns. It
outlinesthecriticaldecisionsthattrusteesmustmakeregardingboard policies and implementation and specific steps in theinvestmentprocessthatwillbenefitfromtrusteeinvolvement.
“Investing through an adaptation lens”, IGCC2015Australia&
‘‘Assessing climate change risks and opportunities for investors - Property and Construction Sector” IGCC2013,Australia
Thisguideprovidesinformationtohelpinvestorsassessand integrate climate risk andopportunitywithin theproperty and construction sector into investmentanalysis.The guide covers the following key areas and steps
for this process: Identify current risks; Identify risk varianceand impacts; Identify the adaptation strategies and mitigationmeasures;Assessmateriality. Theguide thenproposes steps tointegratetheinformationintoinvestmentprocesses.
The followup guide in 2015 provides practical insights on howinvestorscanandshouldbeinvestingthroughanadaptationlens.
Sustainable Real Estate Investment - Framework for Action: Alignment
INVESTING THROUGH AN ADAPTATION LENS
A PRACTICAL GUIDE FOR INVESTORS
TRUSTEE’S GUIDEPROTECTING VALUE IN REAL ESTATE
THROUGH BETTER CLIMATE RISK MANAGEMENT
Institutional Investors Group on Climate Change
ALIGNING EXPECTATIONS
GUIDANCE FOR ASSET OWNERS ON INCORPORATING ESG FACTORS INTO MANAGER SELECTION, APPOINTMENT AND MONITORING
FEBRUARY 2013
66
Key elements
All stakeholders have responsibility in monitoring progress againstgoalsandtargetswhichareset–asperStep1&2-todemonstratethatESG&climatechangerisksandopportunitiesarebeingmanagedandactedupontothebestoftheabilityofallthoseinvolved.
The regular observation, evaluation, benchmarking and recordingof ESG and climate risk management activities should take placeroutinelywithinapre-agreedmonitoringandreportingschedulewiththeappointedmanagerandadvisers.MonitoringshouldalsoinvolvegivingfeedbackabouttheprogressofthevariousstrandsofactivityoutlinedandagreedintheInvestmentStrategyandthemandateofthedirectrealestateinvestororrealestatecompany.
Reports should be practical and oriented towards deliveringperformanceonESGandclimateriskfactorsandofferdecisionmakersrelevantinformation.Monitoringshouldalsoinvolvefeedbackaboutprogress.
It is important to demonstrate how the property portfolio’ssustainability performance has changed over previous months andyears,andtobeabletopresentsuchchangesonalike-for-likebasis,
normalisedforweatherandoccupancy(orinsteadofoccupancysomeothermeasureof intensity).Additionally, controlling forboundariesand being consistent inmeasuringwithin these boundaries is veryimportant.In 2014, The UNEP FI Property Working Group published acomprehensiveguideonsustainabilitymetricsandhowtodeployaCommercialRealEstateSustainabilityManagement(CRESM)system.Equity/REIT investors could request from their direct investmentmanagersandpropertycompaniesanddebtandbondsinvestmentstheprocurementofsuchasystemtofacilitateaccurate,robustandefficientdatacollectionpracticeswhichmakereportingatthebuilding,portfolio and company level quite simple. This would likely reducequitesubstantiallythelevelofeffortcurrentlyexpendedinreportingtomultiplebuilding,portfolioandcompanylevelsustainabilityrelatedframeworksforcommercialproperty.
An additional benefit of such an approach is that regulatory issuesrelatingtobuildingsandenergydatabenchmarkinganddisclosureisontherise;andthiswasthecasebeforeCOP21.Goingforward,accessto energy, carbon, water, and waste data will become increasinglyvaluableandrequired.
Monitor delivery of ESG and climate strategies and targets, focusing on impact to value using Sustainability Manage-ment Systems.
Report performance to clients and the public, on agreed frequency, using recognised industry standards.
Contribute to sustaina-bility benchmarking at portfolio and operation-al levels and assess performance results.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
Feedback loopMonitor,reportandbenchmark
Equities, Bonds, Debt
67
SHOULD
SHOULD
COULD
Monitoring Process
Reporting standards and requirements
DefineESGand climate risk-relatedexpectations inmonitoring requirements against investment strategies andquantitativeESGandclimateriskperformancetargets(seestepDefineESGandclimatepolicyandstrategy).
• MonitorperformancethroughanEnvironmentalManagementSystem(EMS)thatappliestotheentitylevel.• Monitorperformanceagainstspecificagreedtargets,bothabsoluteandrelativeperformancecomparedto
selectedportfoliolevelbenchmarks.• Monitorunderlyingassetperformanceincarbon,energyandnaturalresourceintensity(portfolio leveland
individualcasestudies).• Withineachportfolioidentify“bestperformer”and“worstperformer”(assettype,geographyorportfolio)to
allowfocusoneffectiveinterventionandperformanceimprovement.• KeeptrackofnewtechnologieswhichmayreduceESGandclimaterisksonaportfoliobasis.
DefineESGandclimaterisk-relatedexpectationsinreportingrequirementstoassetownersandtostakeholders.
• Definedeliverydateandformatforreportingtoassetownerswithsectionsfor“businessasusualprogresstowardsagreedtargets”aswellasan“exceptionreport”areatoidentifyorhighlightparticularincidentsinthereportingperiod.
• Provide systematic updated in a cost effective format or dashboard, which provides ESG and climateperformanceinformationinameaningfulandcoherentmanner.
• IncludeaplaceholderforrelevantregulatoryupdateandindustryframingsectioninrecognitionofthefactthatESGandclimateframeworksarenotstaticandchangestotheregulatoryenvironmentorcompetitivelandscapeareimportanttomonitor.
• Includefree-formcommentstothestandardanddatadrivenformattoenablereportingonpolicyandprocessimplementationprogresses.
• Identifyandintegratedatasourcesfromacrosstheinvestmentprocessandensurethatreportsarefurnishedsystematicallywiththemostrelevantandupdateddatarelevanttotheassetowner.
• Requestregularperformanceupdatesagainstselectedbenchmarksandinformationaroundexemplarorbest-in-classactivities.
• Defineperiodicityandmaterialitythresholdsforreportingactivities.
PubliclyreportESGandclimateriskassessmentsandmanagementactivities.
DefineESGandclimaterisk-relatedexpectationsinreportingrequirementstoexternalstakeholders.
• Selectreportingstandards,anddefinescopeanddepthofreporting,withafocusonmaterialitytothebusinessandvaluedriversandaccountingforgeographicalorregionalnormsandregulatoryexpectations.
• Defineperiodicityandmaterialitythresholdsforreportingactivities.
• Request for Environmental Management System (EMS) to be aligned with a standard and/or verified orcertifiedbyanindependentthirdparty.
• Include external verification or assurancewhere data or conclusions will be published or wherematerialdecisionswillbetakenbasedonthisdata.
• Ensure“deepdive”ondivergentassets(withpositiveornegativeimpact)tounderstandtheoverallportfolioeffectofthese.
Recommended Actions
Thefollowingisanon-exclusivelistofactions,whichshouldbeconsideredforinclusionintheinvestmentstrategywithspecificrecommendationsforeachtypeoffinancialinstruments:
Sustainable Real Estate Investment - Framework for Action: Feedback loop
68
SHOULD
COULD
COULD
Reporting standards and requirements
Benchmarking Determinerelevantportfolio levelandoperational levelbenchmarksbaseduponcharacteristicsofportfolioandgeography.
• Contributetorelevantportfoliowidesustainabilityinvestmentmanagementframework.• Contribute to relevant operational level and asset performance benchmarks,where such benchmarks are
available.• Integratebenchmarkrelevantresultsandanalysisinreportingrequirements.
•Doaperformanceanalysisagainstthebenchmarktoidentifywhatarethemostmaterialareasoffocusandhowtobestaddressthem.
Includeexternalverificationorassurancewheredataorconclusionswillbepublishedorwherematerialdecisionswillbetakenbasedonthisdata.
Migratetowardsactionableandinformation-intensemeasuresforreportingandawayfrom“check-box”approaches.Implement a feedback loop to ensure that,where selected reporting tools are not “best fit” then this can bereportedupon.
Equities, Bonds, Debt
Selected reference tools for Monitoring & Reporting
Managingandmonitoringofassetmanagers’sustainabilityperformancehasbecomesimplerandmoretransparentwiththeemergenceanduptakeofalargenumberofglobalandregionalsustainabilitybenchmarksandreportingguidelines.Theprojectteamreviewedtheavailableliteratureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailabletoimplementthisstep,seeAnnexes.BelowareselectedresourcesofparticularrelevanceforMonitoring&Reportingbasedontheresultofthesurveyofglobalpractitioners.
“PRI reporting framework – Asset Owners, Direct, Equity and Debt investments” PRI,Global
“Global Real Estate Sustainability Benchmark – Asset Owners, Direct, Equity and Debt investments” GRESB2015,Global
ThroughGRESB,directrealestateinvestormembersareabletomonitortheannualGRESBsurveyresultsfor all their direct investments and, if they investin listed real estate securities, all listed real estatecompanies’ results. By using the GRESB Portfolio
Analysistool,investorsareabletoselectinvestmentstocompareresults,e.g.foraparticularinvestmentmanager,aregionorcountry,or a particular property type. They are also able to undertakeportfolioanalysisforself-selectedgroupsoftheirinvestments.
TheGRESBdebtsurveyrepresentsaninitialstepinmonitoringrealestatedebtandassessinghowto integrateESGandclimaterisksinto this growingfinancial instrument for realestate investment.Thesurveyaimstoincreasetransparencyinthedebtmarketandguideinvestorsonbestpracticeimplementation.
The PRI Reporting Framework seeks to answerone question: How do you govern and implementresponsibleinvestment?Theframeworkiscomposedofmodules,withgeneralmodulestailoredformultipleasset class investors and dedicatedmodules focused
byassetclass.ReportingthroughtheFrameworkismandatoryforallPRIsignatoriesandresponsesaretranslatedintoTransparencyReports which are available on the PRI website as a publicdemonstration of signatories’ commitment to implementing thePrinciplesforResponsibleInvestment.
“G4 Sustainability Reporting Guidelines: Construction and Real Estate Sector Disclosures”, GRI2015,Global
Thisresourceisthedefiniteguidanceonperformanceindicators and reporting processes for anyone whoinvestsin,develops,constructs,ormanagesbuildings.The GRI Guidelines, help reporting organizationsdisclose theirmost critical impacts–be theypositiveor negative – on the environment, society and the
economy. They can generate reliable, relevant and standardizedinformation with which to assess opportunities and risks, andenablemoreinformeddecision-making–bothwithinthebusinessandamongitsstakeholders.TheGRI’sConstructionandRealEstatesector guidance makes reporting relevant and user-friendly fororganizationsinthistargetedsector.
SECTOR DISCLOSURES
CONSTRUCTION AND REAL ESTATE
PRI REPORTING FRAMEWORK 2014/15 Organisational Overview
September 2014
+44 (0) 20 3714 3187
69
Market engagementEquities, Bonds, Debt
Key elements
Over 1,400 finance sector institutionsmanaging over US$59 trillionof assets subscribe to the United Nations supported Principles forResponsible Investmentand it is likely that the levelof engagementbetweenbusinessandpublicpolicymakerswillincrease,especiallyasmoreandmore realestate investors integrateESGandclimate risksintotheirbusinesspracticesandregulationsonthesemattersbecomemoredeveloped.
RealestateinvestorsshouldconsidertakinganactiveroleinpublicpolicyandsectorengagementtopromoteacceptanceandimplementationofESG and climate risksmeasures across the real estate industry. Thisensuressector-widetoolsaredevelopedenablingindustrycomparisonandbettermonitoringofthesector’sandportfolio’sperformance.
Itisalsoimportantthattheyplayarole,directly,orindirectlythroughsector organisations, in establishing positive dialogue and engagingwith public policy to ensure that a robust regulatory frameworksupportstheeffectiveintegrationofESGandclimaterisksinrealestateinvestments.
Engage on public policy with sector organisations to ensure policy regulatory match with market needs.
Support research initiatives to understand risks and integrate ESG.
Strategy: Develop ESG
& climate strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
reporting Market
engagement
$
Execution: Integrate ESG &
climate in investment
strategy
PRI Policy Frameworks for Long-Term Responsible Investment: The Case for Investor Engagement in Public Policy, Global
This PRI policy framework shows why public policyengagementisessentialforlong-terminvestors,providesexamplesofinvestorengagementinpublicpolicy,lessons learned, and offers practical recommendationsforbetterintegrationofESGfactorsinthepublicpolicy-makingprocess.
Recommended Actions
There are three key areas in which all real estate investmentstakeholderscanoptimisetheirengagementwithpublicpolicy:
1. Engage,directlyorindirectly,onpublicpolicytomanagerisks.
2. SupportresearchonESGandclimaterisks;
3. Support sector initiatives to develop resource to understandrisksandintegrateESG.
POLICY FRAMEWORKS FOR LONG-TERM RESPONSIBLE INVESTMENT:
THE CASE FOR INVESTOR ENGAGEMENT IN PUBLIC POLICY
70
Appendices
71
Framework for action: Methodology
Thisreporthasbeencompiledusinga3-stepmethodwhichallowedthe authors to cast the net wide and review over 40 relevantpublications in the space and then engage repeatedly, includingthroughastructuredsurvey,withexpertreviewerstoensurethattheresultsarefitforpurpose.Thefollowingsectiondescribesthethreekeystepsofthismethodology:
Approach and audience
This report is designed to address the practicalities of “how tointegrateESGandclimaterisksinrealestate”bymeansofaninvestorframeworkwhichistailoredforthreespecifictargetaudiences:
1. AssetOwners,TrusteesandInvestmentAdvisors;
2. Direct Real Estate Investment Managers, Property CompaniesandtheirConsultants
3. RealEstateEquity,BondsandDebtInvestorsandtheirFinancialAdvisors.
The framework is compiled and written by sector practitioners toprovide clear guidance in a straight-forward manner with practicalstepsandactionsthatrealestateinvestorsandtheiradvisors,managersandotherstakeholderscaneasilyputintoplaceandintegrateESGandclimaterisksintotheirbusinesspracticesandprocesses.Furthermore,authorshavedesignedthestepstobeaccessibleforinvestorsatthestartoftheirESGandclimateintegrationproceduresaswellasthosemoreadvanced.
Step by step guide with clear set of actions
Thisframeworkisdesignedtobeaccessibleforinvestorsatthestartof their ESG and climate integration procedures as well as thosemore advanced. In the key segments of the text designed to giverecommendedsteps foreachaudiencesegmentthereaderwillfindtableswhichhaveactions labelled “Should” and “Could”. Thesekeywordsaredesignedtodifferentiateactionsforaudiencesofdifferentlevelsofsophistication:
InitiateandintermediateLevel(“Should”):A beginner to intermediate user, with limited ESG and climate riskexperience,wouldfirstidentifytheiraudience(eg.trustee)andthenproceedtotherelevantstepsindicatedforthataudienceandcomparethe detail of each of the steps recommended here in the relevantsections with their internal processes. This user “should” simplyensure that the steps indicated are executed diligently within thebusinessprocesseswhichtheymanage.
AdvancedLevel(“Could”):Anadvanceduser,whohasalreadystartedintegratingESGandclimaterisksintotheirbusinesspracticesandprocedures,canusethereporttocomparethebestpracticemethodologywiththeirowntoidentifynew ideas and potential improvements. The more advanced usershould consider the additional activities marked “could” as well asverifythattheyarealreadyimplementingthosemarkedas“should”.Theseuserswillalsogainvaluefromthetoolmappingofthesectorpublicationsusefulasawaytodirecttheirfurtherinvestigationortojustifygreaterresourceallocationintomonitoringandreportingandpublicpolicyengagementandmarkettransformation.
Making sense of resources : tool mapping To ensure a fresh and well-informed approach, the consortiumfocused on reviewing, building upon and synthesising the robustliterature, guidelines and tools and all resources that have alreadybeenpublishedover the lastfive years. Toachieve this, theprojectteamtookthefollowingapproach:
• Compilealistofrelevantliteraturetoreviewinconsultationwithexperts and relevant investor networks,who provided over 40publications,allofwhicharelistedintheBibliographysectioninthisappendix;
• Useexpertinterviewstoidentifyasetofcriteriabywhichthesepublicationscouldbesortedandassessed;
• Survey global practitioners to allow them to sort, position andcalibratetheexistingpublicationsaccordingtotheirrelevancetothisframeworkandtheselectedtargetaudiences;
• Identify ‘selected’ resources,most relevant and useful for eachaudienceineachstepoftheinvestorframework;
• Use infographics to communicate this work in a consolidatedandeasy-to-readmannerprovidinga“map”tohelprealestateinvesting stakeholders easily navigate the extensive literaturereviewed.
72 73
Tool mapping of selected resources
Strategy: Develop ESG & climate
Strategy
$
Strategy: Develop ESG & climate
Strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
Reporting Owners & Advisers
DirectInvestor
Equity, Bonds, Debt
All
‘Investing in a time of climate change’, Mercer 2015, Global; ‘An-Investment-Framework-for-Sustainable-Growth’, Mercer 2014; ‘Climate change scenarios: Implications for strategicasset allocation’, Mercer 2011, Global
‘ Developing an asset owner climate change strategy’, PRI 2015, Global
‘Financial institutions taking action on climate change’ ‘UNEP et al 2014, Global
‘The-21st-century-investor-ceres-blueprint-for-sustainable-investing’, Ceres 2013, North America
Advancing Responsible Business in Land, Construc-tion and Real Estate Use and Investment’, RICS / UN Global Compact, 2015, Global
‘Sustainability metrics: translation and impact on property investment and management’, UNEP FI et al 2014, Global
‘Unlocking the energy e�ciency retro�t investment opportunity’, UNEP FI 2014, Global
‘Sustainability and commercial property valuation - Professional Guidance Note, Global’, RICS 2013, Global
'Green Bonds Principles', ICMA 2015, Global
‘What the leaders are doing’, UNEP FI 2012, Global
ICGN model mandate initiative, ICGN 2012
‘Aligning expectations: guidance for asset owners on incorporating ESG factors into manager selection, appointment and monitoring’, PRI 2013
‘Greening the building supply chain’ UNEP SBCI, 2014, Global
'Global Real Estate Sustainability Benchmark', GRESB 2015 (annually), Global
‘Global Reporting Initiative - Construction and Real Estate Sector Supplement’, GRI 2011, Global
‘PRI reporting framework – Asset Owners, Direct, Equity and Debt investments’, PRI, Global
'Sector led operational benchmark and indexes for Direct Investors, Real Estate Companies and their Advisers', Various, Regional
'Corporate Register', Corporate Register 2015 ( and annually), Global
‘Global Reporting Initiative - Construction and Real Estate Sector Supplement’, GRI 2011, Global
Audiences Real Estate Investors
Global Resources
Market Engagement
Inorder to visualise thewealthof evidenceandpublications covering these issues, the ‘Toolmapping” graphbelowhelps categorise eachpublicationbyrelevancetoeachaudienceandeachstepoftheinvestorframework.
‘Climate Change Investment Solutions Guide’IIGCC 2015, Europe
‘The-21st-century-investor-ceres-blueprint-for-sustainable-investing’, Ceres 2013, North America
Trustee’s Guide: Protecting value in real estate through better climate risk management’, IIGCC 2014; ‘Protecting value in real estate: Managing investment risks from climate change’, IIGCC 2013, Europe
'Investing through an adaptation lens', IGCC 2015 & ‘Assessing climate change risks and opportunities for investors - Property and Construction Sector’, IGCC 2013, Australia
'Whose Carbon is it? GHG Emissions and Commercial Real Estate', 2010, RealPAC and ICF, North America
Green Property Bonds Standards, Climate Bonds Initiative 2015, Regional
'A statement of investors expectations for the Green Bonds Market', 2015, CERES,
'Green bond guidance for real estate sector', GRESB, regional
'Debt tools - New lending decisions framework & Loan documentation', BBP 2015, Regional
Strategy: Develop ESG & climate
Strategy
$
Strategy: Develop ESG & climate
Strategy
Alignment: Advisers andconsultants
selection process
Feedback loop:Monitoring &
Reporting Owners & Advisers
DirectInvestor
Equity, Bonds, Debt
All
Audiences Real Estate Investors
Market Engagement
RegionalResources
$
74
Bibliography
ACEEEfactsheet(2012).HowdoesEnergyEfficiencyCreateJobs.
BetterBuildingsPartnership(2013).GreenLeaseToolkit.
BetterBuildingsPartnership(2014).CommercialRealEstateLendingWorkingGroup.NewLendingDecisionsDueDiligence–FrameworkQuestions.
Cambridge et al. (2014). Climate change: Implications for investors and financialinstitutions.
Ceres(2013).The21stcenturyinvestorCeresBlueprintforSustainableInvesting.
Ceres(2015).Astatementofinvestors’expectationsfortheGreenBondsMarket.
ClimateBondsInitiative(2015).ClimateBondsInitiative,GreenPropertyBondsStandards.Overviewofgreenpropertystandards.
Eichholtz,Kok,Quigley(2011&2).US:RentalandsalespremiumforgreencertifiedLEEDs,EnergyStartBuildings.
EnergyEfficiencyFinancialInstitutionsGroup(EEFIG)(2015).EnergyEfficiency–thefirstFuelfortheEUEconomy:Howtodrivenewfinanceforenergyefficiencyinvestment.
EuropeanCommission(2014).Directive2014/95/EUasregardsdisclosureofnon-financial&diversityinformationbycertainlargeundertakingsandgroups.
Fisk,William J. (2000). Health and productivity gains from better indoor environmentsandtheirrelationshipwithbuildingenergyefficiency.AnnualReviewofEnergyandtheEnvironment,Vol.25,pp.537–566.
Frankel,Ari(2015).Greenmeansgo–Butwhatcolouristhelight?RIInsight,ResponsiblePropertyInvestment,Oct15.
GreenRatingAlliance–TheGreenRatingtool:Asustainabilityassessmentofapropertytoassess,improve,communicateandbenchmarksustainabilityperformance.
GRESB(2015).Greenbondguidanceforrealestatesector.
GRESB.GlobalRealEstateSustainabilityBenchmark(annually)
GRI (2011).GlobalReporting Initiative-ConstructionandRealEstateSectorDisclosuresSupplement.
ICGN(2012).ICGNmodelmandateinitiative:Modelcontracttermsbetweenassetownersandtheirfundmanagers.
IGCC(2013).Assessingclimatechangerisksandopportunitiesforinvestors–PropertyandConstructionSector.
IGCC(2015).Investingthroughanadaptationlens:Apracticalguideforinvestors.
IIGCC (2010). Climate impact reporting for property investment portfolios: A guide forpensionfundsandtheirtrusteesandmanagers.
IIGCC (2013). Protecting value in real estate: Managing investment risks from climatechange.
IIGCC(2014).Trustee’sGuide:Protectingvalue inrealestatethroughbetterclimateriskmanagement.
IIGCC (2015a). Driving New Finance for Energy Efficiency Investments: Summary forInstitutional Investors of thework of the Energy Efficiency Financial Institutions Group(EEFIG).
IIGCC(2015b).ClimateChangeInvestmentSolutionsGuide.
InternationalEnergyAgency(2015).SpecialReportonEnergyandClimateChange.
LaSalleInvestmentManagement(2015).Research&Strategy.
McAllisterandFuerst (2011a).Eco-labeling inCommercialOfficeMarkets:DoLEEDandEnergyStarOfficeObtainMultiplePremiums?,1999-2009.
McAllister and Fuerst (2011b). Green Noise or Green Value?Measuring the Effects ofEnvironmentalCertificationonOfficeValues.1999-2008.
McKinsey&Company(2009).Pathwaystoalow-carboneconomy.
Mercer(2011).Climatechangescenarios:Theimplicationsforstrategicassetallocation.
Mercer(2014).AnInvestmentFrameworkforSustainableGrowth.
Mercer(2015).Investinginatimeofclimatechange.
MünchenerRückversicherungsGesellschaft(2013).TopicsGeo:Naturalcatastrophes2012-Analyses,assessments,positions.München.
MünchenerRückversicherungsGesellschaft(2015).NatCatService.
Nicholls, R. J. et al. (2008).RankingPortCitieswithHighExposureandVulnerability toClimateExtremes:ExposureEstimates.OECDEnvironmentWorkingPapers,No.1,OECDPublishing.
PotsdamInstituteforclimateimpactresearch(2014).Globalwarmingcanbelimitedto2degreeswithmajortechnologicalandinstitutionalchangeIPCCreport.
PRI(2012).Theenvironmentalandfinancialperformanceofbuildings.
PRI(2013).Aligningexpectations:GuidanceforassetownersonincorporatingESGfactorsintomanagerselection,appointmentandmonitoring.
PRI (2014). Policy Frameworks for Long-Term Responsible Investment: The Case forInvestorEngagementinPublicPolicy.
PRI(2015).Developinganassetownerclimatechangestrategy–pilotframework.
PRI(2015).PRIreportingframework.
REALpacandICFInternational(2011).WhoseCarbonisit?GHGEmissionsandCommercialRealEstate.
RenovateEurope(2015).Multiplebenefitsof investing inenergyefficientrenovationofbuildings-AstudybyCopenhagenEconomics.
RICS (2013). Sustainability and commercial property valuation – Guidance Note, 2ndedition.
RICSandUNGlobalCompact(2015).AdvancingResponsibleBusinessinLand,ConstructionandRealEstateUseandInvestment.
SASB(2015).
UNEPFI(2012).Whattheleadersaredoing.
UNEPFIetal.(2014a).Financialinstitutionstakingactiononclimatechange.
UNEPFIetal.(2014b).Unlockingtheenergyefficiencyretrofitinvestmentopportunity.
UNEP FI et al. (2014c). Sustainability metrics: translation and impact on propertyinvestmentandmanagement.
UNEPFIetal.(2015).FiduciaryDutyinthe21stCentury.
UNEPSBCI(2014).Greeningthebuildingsupplychain.
75
About $
About CERES – Investor Network on Climate Risks
The Investor Network on Climate Risk (INCR) is a North America-focused network of institutional investors dedicated to addressingthe financial risks and investment opportunities posed by climatechangeandothersustainabilitychallenges. INCRcurrentlyhasmorethan110membersrepresentingover$13trillioninassets. INCRisaproject of Ceres, a non-profit advocate for sustainability leadershipthat mobilizes investors, companies and public interest groups toaccelerateandexpandtheadoptionofsustainablebusinesspracticesandsolutionstobuildahealthyglobaleconomy.
Formoreinformation,seewww.ceres.org
About the Investor Group on Climate Change
IGCC is a collaboration of 60 institutional investors and advisors,managing over $1 trillion and focusing on the impact that climatechangehasonthefinancialvalueof investments inAustralasia.TheIGCCaimstoencouragegovernmentpoliciesandinvestmentpracticesthat address the risks and opportunities of climate change, for theultimate benefit of superannuate and unit holders. One of IGCC’sstreamsofworkisfocussedonclimatechangeriskandopportunitiesin the built environment, as well as considerations around climatechangeadaptationandresilience.
Formoreinformation,seewww.igcc.org.au
About the Institutional Investors Group on Climate Change
The Institutional InvestorsGroup on Climate Change is the investorvoiceonclimatesolutionsinEurope.Itisacollaborativeforumwhere120members–mainlymainstream investors including someof thelargest pension funds and asset managers in the EU – with over€13 trillionassetsundermanagement. IIGCC’smission is toprovideinvestorswithacommonvoicetoencouragepublicpolicies,investmentpracticesandcorporatebehaviour,whichaddresslong-termrisksandopportunitiesassociatedwithclimatechange.Oneofitsmajorworkprogrammesfocusesonbestpracticeforintegratingclimateriskinrealestateinvestmentpracticeandclimatepolicyaffectingthecommercialpropertysector.
Formoreinformation,seewww.iigcc.org
About the Principles for Responsible Investment Initiative
ThePRIworkswithitsinternationalnetworkofsignatoriestoputthesix Principles forResponsible Investment intopractice. Its goal is tounderstandtheinvestmentimplicationsofenvironmental,socialandgovernance issues and to support signatories in integrating theseissuesintoinvestmentandownershipdecisions.The six Principles were developed by investors and are supportedby the UN. They have more than 1,400 signatories from over 50countries representing US$59 trillion of assets. They are voluntaryandaspirational,offeringamenuofpossibleactionsforincorporatingESGissuesintoinvestmentpractices.InimplementingthePrinciples,signatories contribute to developing a more sustainable globalfinancialsystem.
Formoreinformation,seewww.unpri.org
About UNEP Finance Initiative
The United Nations Environment Programme Finance Initiative(UNEPFI)isauniqueglobalpartnershipbetweentheUnitedNationsEnvironment Programme (UNEP) and the global financial sectorfounded in 1992. UNEP FI works closely with over 200 financialinstitutions who have signed the UNEP FI Statements as well as arange of partner organisations to develop and promoted linkagesbetween sustainability and financial performance. Through peer-to-peernetworks,researchandtraining,UNEPFIcarriesoutitsmissionto identify,promoteandrealize theadoptionofbestenvironmentalandsustainabilitypracticeatalllevelsoffinancialinstitutions’businessactivities. The propertywork stream at UNEP FI aims to encouragesustainability inpropertyfinanceandscaleupResponsiblePropertyInvestment (RPI) as well as increase market spread of ESG in RealEstateinvestments.
Formoreinformation,seewww.unepfi.org
About the Royal Institution of Chartered Surveyors
RICSpromotesandenforcesthehighestprofessionalqualificationsandstandardsinthedevelopmentandmanagementof land,realestate,construction and infrastructure. Our name promises the consistentdeliveryofstandards–bringingconfidencetothemarketsweserve.Weaccredit118,000professionalsandanyindividualorfirmregisteredwithRICS is subject toourqualityassurance.Theirexpertisecoversproperty,assetvaluationandrealestatemanagement;thecostingandleadershipofconstructionprojects;thedevelopmentofinfrastructure;andthemanagementofnaturalresources,suchasmining,farmsandwoodland.Fromenvironmentalassessmentsandbuildingcontrolstonegotiatinglandrightsinanemergingeconomy;ifourmembersareinvolvedthesameprofessionalstandardsandethicsapply.
Formoreinformation,seewww.rics.org/uk/
76
Lead authors
Tatiana BosteelsProjectLeadandCo-author,PWGCo-ChairHeadofResponsiblePropertyInvestmentHermesInvestmentManagement
Project Team
Natasha Buckley Manager,Privateequity&PropertyPrinciplesforResponsibleInvestment
James Gray-DonaldVicePresident,SustainabilityBentallKennedy
Frank HovorkaResponsiblePropertyDirector,PWGCo-ChairCaissedesDépôtsetConsignations
David LorenzProfessorforPropertyValuationandSustainability,PWGadvisorKarlsruheInstituteofTechnology
Andrew SzymanHeadofPropertyManagement&SustainabilityBMORealEstatePartners
Our project partners
InvestorNetworkonClimateRisk(CERES–INCR)InstitutionalInvestorsGrouponClimateChange(IIGCC)InvestorGrouponClimateChange(IGCC)PrinciplesforResponsibleInvestment(PRI)RoyalInstitutionofCharteredSurveyors(RICS)UnitedNationsEnvironmentProgrammeFinanceInitiative(UNEPFI)
UNEP FI Secretariat
ElodieFeller,InvestmentCommissionCoordinatorKatharinaLütkehermöller,InvestmentCommissionConsultant
Acknowledgements to contributors
Wealsowishtoacknowledgeandthankthefollowingindividualsforthetimewhich theydedicated to reviewing,editorial anddesignofthis framework: The UNEP FI PWG Advisory Group includingMariaAtkinson, XO, Michael Brooks, REALpac, Paul McNamara, LindenParksideLimited,RyuichiHorie,CSRDesignGreenInvestmentAdvisoryandSarahSayce,RoyalAgriculturalUniversity,Ourprojectspartners.StephaniePfeifer,MorganLaManna,HannahPearce,KirstenSpalding,Crystal Fleming,UrsulaHartenberger,NatashaBuckley, theUNEP FISecretariat,AnnieDegen,RobertWilson.
The drafting, editorial and review of this report was supported byClimate Strategy and Partners and its team (www.climatestrategy.com) under contract to the collaborating partners (UNEP FI, IGCC,IIGCC,INCR,PRIandRICS).
Peter SweatmanCo-authorChiefExecutiveandFounderClimateStrategy&Partners
Ari Frankel DirectorofESGStrategy,RealEstateDeutscheAssetManagement
Rowan GriffinHeadofSustainability,PropertyLendLease
Yona KamelgarnResearchEngineerCervitea
Nina ReidDirector,ResponsiblePropertyInvestmentM&GRealEstate
Designby:www.carboncredentials.com