2019 Responsible Property Investment Report · Welcome to this inaugural Responsible Property...

BMO UK Property Fund ICVC2019 Responsible Property Investment Report

BMO UK Property Fund RPI Report

3BMO UK Property Fund RPI Report

Common acronyms 4

Foreword from the Fund Managers 5

1. About the RPI report 6

2. About the company 7

• Property portfolio 7

3. RPI strategy and priorities 9

• Developing our strategy 9

• Progress against our objectives 9

• Progress against annual targets 11

4. ESG performance data for year ending 28 February 2019 13

• Scope 13

• Environmental 13

- Energy 14

- Emissions 15

- Water 16

- Waste 16

- Occupier environmental data 18

• Social 19

- Scope 19

- Health & Safety 19

- Supply chain 19

• Governance 19

5. ESG risk profile 20

• Asset classification 20

• Flood risk 21

• EPC ratings 22

• Other risk metrics 24

- Current contamination risk 24

- HCFC coolants 25

- Groundwater source protection zones 25

- Building manager ESG training 25

- Green building certifications 25

- Statutory wildlife designations 26

- Environmental management system 26

Appendix 1 27

Appendix 2 28

Appendix 3 34

Contents

BMO Real Estate Partners4

Common acronyms

BMO REP BMO Real Estate Partners

BMO UK BMO UK Property Fund ICVC

BREEAM Building Research Establishment Environmental Assessment Method

CO2e Carbon dioxide equivalent (measure of GHG emissions)

CPA Common Parts Area

CPD Continuing Professional Development

DEFRA Department for Environment, Food and Rural Affairs

EMS Environmental Management System

EPC Energy Performance Certificate

ERV Estimated Rental Value

ESG Environment, Social, Governance

FRI Full repairing and insuring (lease type)

GAV Gross Asset Value

GHG Greenhouse gas

GRESB Global Real Estate Sustainability Benchmark

GRI Global Reporting Initiative

INREV European Association for Investors in Non-Listed Real Estate Vehicles

ISO International Organisation for Standardisation

MEES Minimum Energy Efficiency Standards, as enforced by The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (Principal Regulations) as amended by The Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2016.

NLA Net Lettable Area

RPI Responsible Property Investment

TCFD Task Force on Climate-related Financial Disclosures

BMO UK Property Fund RPI Report 5

Foreword from the Fund ManagersWelcome to this inaugural Responsible Property Investment (RPI) Report for the BMO UK Property Fund. As Fund Managers, we have long been aware of the escalating challenges presented by climate change and socio-economic trends and the subsequent pressures this creates on natural resources and infrastructure resilience.

We recognise the impact this is having on policy direction, regulatory landscapes, and on market expectations. Attendance to environmental, social and governance (ESG) matters has always featured strongly in the fund’s core beliefs and this is an ethos shared with BMO Real Estate Partners (BMO REP).

Consistent with our fiduciary duty, we are determined to protect and enhance investment returns by addressing the risks and opportunities presented by ESG related matters. We continue to develop and refine our approach to ensure that material ESG factors are fully integrated into our investment decision-making processes. In line with that philosophy and building upon the statements made in the fund’s recent annual reports and interim statements, this report presents an overview of our approach, and provides a greater degree of transparency of performance and granularity of key ESG characteristics of the portfolio.

We trust you will find this report stimulating and informative. We look forward to receiving any feedback and we would be pleased to engage on any aspect of our approach and performance.

Guy Glover Fund Manager & Emma Gullifer Assistant Fund Manager

Guy Glover Fund Manager

Emma Gullifer Assistant Fund Manager


1. About the RPI report

This is BMO UK Property Fund ICVC’s (BMO UK or ‘the Company’) first annual Responsible Property Investment (RPI) Report.

This RPI Report:

• Describes the Company’s RPI strategy and related priorities;

• Presents key Environmental, Social and Governance (ESG) performance data for the reporting year, as well as our targets for future performance;

• Provides an overview of key ESG risks facing the property portfolio and outlines the approach to how they are managed; and

• Shares the Company’s approach to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

This RPI Report is being published alongside the 2019 Annual Report & Accounts of BMO UK Property Fund ICVC. The descriptions of progress against the RPI objectives of the Company identified in Section 3, together with the ESG performance data in Section 4 and the ESG risk profile in Section 5 are current to 28 February 2019.

We plan to maintain publication of an annual RPI report alongside the Annual Report & Accounts to ensure full alignment between our financial and non-financial disclosures.

This Report is written in accordance with the latest European Association for Investors in Non-Listed Real Estate Vehicles (INREV) Sustainability Reporting Guidelines.


2. About the company

BMO UK Property Fund ICVC (the ‘Company’) is an investment company with variable capital under the Open-Ended Investment Company Regulations 2001 (SI2001/1228) (the OEIC Regulations). The Company comprises a single fund, the BMO UK Property Fund, which is a non-UCITS scheme.

BMO Fund Management Limited, the Authorised Corporate Director (ACD) of the Open-Ended Investment Company (OEIC), is the sole director. The company has appointed BMO Real Estate Partners (BMO REP) as the Property Advisor and BMO Management Limited as the Investment Advisor to the Fund of the OEIC.

The Company’s objective is to maximise return, combining capital and income through investment mainly in a diversified portfolio of UK commercial property, seeking to add value through strategic asset allocation, stock selection and asset management.

Property portfolio

BMO UK Property Fund is a vehicle for investors who wish to gain exposure to the UK commercial property market. The property portfolio had a total value of £425.7m as at the financial year end date of 28 February 2019.

The portfolio comprises a number of industrial premises (both manufacturing and distribution), office and retail assets (both high street and warehouse), along with exposure to a number of leisure assets and car showrooms.

The portfolio is dominated by core assets. More than 85% of the portfolio has an anticipated hold period (the amount of time an asset is likely to be held by the Company before being sold) of five years or more, with over half expected to be held for over 10 years. This means that the integration of ESG targets into the individual asset business plans is concerned holistically with the preservation of rental income and the preservation of strong, long-term capital values.

The Company has a high exposure to single-let assets, where operational responsibilities rest with the occupier. Measured by number of assets, 16.4% of the portfolio is directly managed, and it is these properties where we have reported fully on ESG metrics in the ESG Performance Data section of this report. As a landlord, we measure by the most meaningful intensity metrics for key environmental performance measures such as energy consumption and greenhouse gas emissions.

However, we have extensive engagement with occupiers on the full property portfolio, which includes sharing environmental data, assessing flood risk and contamination risk and assessing the overall energy performance of each property. The Property Manager seeks annual engagement with all occupiers and carries out any necessary improvement works during vacancies or on acquisition of an asset.


Figure 1: Portfolio composition

Percentage of portfolio capital value

Management status (absolute) 2018

Minerva House, Leeds (directly managed property) 5100 Cross Point, Coventry (indirectly managed property)

Management status (percentage) 2018

Car Showroom

Industrial

Leisure

Office

Retail High Street

Retail Warehouse

Car Showroom

Industrial

Leisure

Office

Retail High Street

Retail Warehouse

Property type (number of assets)

Capital Value (£)

Number of Assets NLA (sq ft)

Directly managed 113,975,000 9 305,903

Indirectly managed 311,735,000 46 1,709,753

Capital Value (£)

Number of Assets NLA (sq ft)

Directly managed 26.77% 16.36% 15.18%

Indirectly managed 73.23% 83.64% 84.82%

6.7 3

34.8 19

3.1 230.8

15

6.7 8

17.98


3. RPI strategy and priorities

Developing our strategy

The Company has strengthened its long-term focus on ESG matters by developing a formal Responsible Property Investment (RPI) Strategy. This builds upon the strong foundations established by the Property Manager’s approach to ESG integration and is applied throughout the property lifecycle.

The BMO REP RPI approach has been developed in recognition of the increasing level of risk presented to financial markets and real estate assets by ESG issues such as climate change, and the growing interest and attention paid to ESG issues by investors, occupiers and legislators.

BMO REP applies a consistent approach to integrating such matters into fund management, asset management, property management and refurbishment activities. The Company does not currently undertake direct development but seeks to adopt similar principles when engaged with forward funding arrangements. The principal aspects of the approach are:

• Having a clear understanding of the material issues and priorities for commercial real estate presented by a constantly evolving ESG landscape.

• Identifying and responding to investment risks and value-enhancing opportunities presented by ESG criteria, including climate resilience as highlighted in Appendix 2 in a TCFD statement.

• Establishing individual asset sustainability actions, derived from an RPI appraisal methodology, and routinely considering and integrating material ESG factors within regular asset business planning activities.

• Setting asset-specific targets within an overall context of Company policy, direction and vision.

• Applying the ESG framework across all core business functions, including by its professional staff having a clear understanding of the interactions between different business functions on relevant ESG matters.

• Developing KPIs to meet the ESG objectives set out in the asset business plans for all relevant professional staff up to fund manager level, which are a key consideration in employee remuneration.

• Implementing ESG interventions in a co-ordinated manner.

The strategy is developed and supported by the Property Manager’s ESG Committee which, through its relationship with BMO Global Asset Management’s Responsible Investment Team and reference to its independent Responsible Investment Advisory Council, together with the services of retained sustainability and training consultancy Hillbreak, maintains formal observation on emerging risks and opportunities presented by market trends and legislative movements. The Committee is responsible for cascading implications through to the fund manager, who respectively reports through to the asset and property management teams, with aid of the asset business plans.

Progress against our objectives

The Company’s overall long-term RPI strategy is concentrated into four distinct pillars and these form the fundamental aspects against which ESG-related targets are set and progress against them measured.

Effective leadership:

Measures through which BMO UK can demonstrate effective governance in relation to ESG factors

The Company is leading the commercial property industry by becoming the first real estate entity to be accredited as a Living Wage Employer by the Living Wage Foundation. The Company also continues to submit to the Global Real Estate Sustainability Benchmark (GRESB) annual survey which it has done since 2015. The industry typically views the GRESB survey as a proxy for an entity’s overall approach to ESG activity. This year, the Company achieved a score of 48 (up from 38 in 2017). Whilst the Company recognises the impact GRESB has had on advancing the RPI agenda across the real estate sector, it is also aware of the limitations of a single score metric provided against highly heterogeneous assets and individual strategies in a global context. The Company nevertheless maintains its annual target of achieving year-on-year improvement in its GRESB score.

Investment process:

Procedures that ensure ESG is integral to the investment decision-making process

In line with its objective, the Company has performed detailed RPI Appraisals for each individual property asset in relation to those factors which it considers potentially material to future


investment performance, such as EPC ratings, green building certifications, contamination and flood risk. The Company also performs similar rigorous due-diligence investigations when considering potential acquisitions. From such appraisals, the Company is able to apply an asset classification protocol to determine and prioritise attention and action, and for any identified risks, opportunities or potential interventions to be integrated into the formal asset business planning procedures. The Company targets application of such procedures in all cases of potential acquisition, and annual review of the asset classifications and the underlying RPI Appraisals, whilst also looking to generally refine and improve the quality of information supporting this activity. This has been completed throughout the reporting year.

Portfolio:

Attendance to material ESG performance and risk factors across the portfolio

The aggregated profile of the key ESG risk metrics arising from these RPI Appraisals is disclosed and discussed in Section 5 of this report. The aggregated profile of ESG performance is detailed in Section 4. The Company maintains its target to provide updated disclosures to investors in the form of a formal RPI Report distributed alongside the Annual Report & Accounts, whilst providing an interim summary of key changes within interim statements. Where the Property Manager has direct operational control, the Company has set both short and long-term targets in respect of energy consumption and carbon emissions reductions, water usage reductions, and improved waste management and diversion from landfill. Through the Property Manager, the Company has engaged a number of external specialists to develop and implement robust

environmental monitoring protocols, and to inform target-setting processes. The Company aims to have 100% of directly managed waste diverted from landfill by the end of 2020 and to reduce energy intensity on a like-for-like basis by 3% per annum (9% reduction achieved in this reporting period) whilst maintaining a long-term goal of 20% reduction by 2031 against a 2016 baseline. Over the last two contracting periods, the Company has secured both green electricity and green gas to cover landlord-supplied utilities and aims to maintain this position in future years. It is also the Property Manager’s policy to promote healthier and cleaner modes of transport, offering staff discounts on bikes. At the asset level, discussions with tenants encourage similar practices, and BMO REP’s refurbishment guide endorses the installation of bike racks and employee showers where feasible. Furthermore, BMO REP’s on-site property managers hire locally as far as practicable to reduce supply chain travel emissions.

Transparency:

Comprehensive reporting and disclosure on ESG factors

The Company has previously provided regular updates to investors on ESG performance through the distribution of an Investor Briefing. The Company now intends to provide a greater degree of transparency and granularity by publishing distinct RPI Reports inclusive of a TCFD statement (see Appendix 2) on an annual basis that are aligned to the latest European Association for Investors in Non-Listed Real Estate Vehicles (INREV) Sustainability Reporting Guidelines. Additionally, the Company aims to have the absolute energy and emissions data contained in such reports independently verified (see Appendix 3 for verification statement).


Target Reporting method Progress

Benchmarking

GRESB Participate in the GRESB benchmarking survey.

Confirmation and commentary on score trend.

26% improvement in score between reporting years 2017 and 2018.

Portfolio

Acquisitions and standing portfolio Undertake RPI Appraisals for all potential acquisitions and incorporate key findings into Investment Committee (IC) Memorandum. Review and update existing RPI Appraisals and establish ESG classification for inclusion in the asset business plans. For standing portfolio, the Company considers the merits of green building certification on a case-by-case basis.

Confirmation and changes to classifications.

100% of new and standing assets had their classifications updated, and for standing assets these were incorporated into the business plans.

Refurbishment Apply Refurbishment Sustainability Guidelines (including biodiversity and supply chain management) to all material projects and deliver at least one key intervention for each scheme.

Number of projects completed in period and interventions introduced.

One refurbishment was carried out in the reporting period with 13 interventions.

Legislative risks Ensure 100% of assets hold a valid EPC and that any assets falling below the minimum energy efficiency standards have a strategy to mitigate income and liquidity risks.

Percentage of assets falling below standard by ERV and NLA.

See EPC Ratings on page 22.

Environmental target Reduce energy intensity and water consumption on a like-for-like basis by 3% and 1% respectively, and increase proportion of waste diverted from landfill.

Percentages achieved. Energy intensity reduction in reporting year 2018-19 was 9%, and see commentary on water usage and waste in Section 4 of this report.

Energy procurement All landlord procured electricity and gas to be obtained from renewable sources and appropriately certified.

Percentage of asset covered. Maintained 100% coverage of assets where energy procurement is in the landlord’s control.

Environmental risk All directly managed assets beyond de minimis sites hold ISO 14001 accreditation (an internationally recognised and standardised environmental management system).

Percentage of assets covered by certification.

13% of assets by total number in the portfolio are ISO 14001 accredited.

Safety and security Ensure all directly managed sites beyond de minimis sites benefit from appropriate risk assessments at a frequency in line with legislation and policy and that controls are at levels considered to be at best practice.

Percentage of asset covered by assessments and metrics on management controls.

Maintained 100% coverage of directly managed assets above de minimis management control.

Progress against annual targets

The Company’s annual objectives are derived from its overriding approach to ESG and are set out below. It seeks to meet these goals within the next reporting year and report on progress through its annual RPI Report, with material references included within interim statements.


Target Reporting method Progress

Engagement

Occupier engagement Carry out property management meetings at least bi-annually at directly managed assets and deliver occupier satisfaction surveys to all occupiers, covering building management and sustainability issues, at least once every three years.

Number of occupier meetings in the year and response rate to the survey.

Face-to-face meetings with occupiers occur at least monthly. Survey response rate in 2018 was 2%.

Occupier lease engagement Ensure all lawyers engaged in lease transactions include green lease clauses initially and look to maintain their inclusion subject to negotiation and commerciality.

Number of applicable lease events and percentage with green clauses included.

Of 11 lease events in the 2018-19 period, 91% contained green lease clauses.

Training and performance All professional staff and directly employed site managers benefit from ESG instruction and training on either a new or refresher basis. Annual performance reviews include ESG objectives for all professional staff.

Percentage of personnel covered. 100% of professional staff received ESG training in the 2018-19 period.

Community engagement When opportunities present themselves, such as when a forward funding project arises where the fund can influence the opportunities such a project can create for the community, the fund manager and colleagues will liaise with local stakeholders.

Number of opportunities for community engagement and mode of engagement.

Community engagement at Minerva House in Leeds.

Investor engagement The fund manager plans annually to meet with every investor who invests more than £1 million into the Company and invite them, when appropriate, to continuing professional development (CPD) events.

Number and spread of meetings and CPD sessions offered.

In the reporting period there were 4 CPD sessions given and 90 meetings with material investors.


4. ESG performance data for year ending 28 February 2019

The Environmental data section of this RPI Report has been written in accordance with The European Association for Investors in Non-Listed Real Estate Vehicles (INREV) Sustainability Reporting Guidelines ESG-ENV 1.1, which are principally aligned with the Global Reporting Initiative (GRI) standards. BMO REP has taken responsibility for providing the data held within this report.

Scope

BMO UK has an overall investment in real estate of £425.7 million as at 28 February 2019.

Where the landlord is responsible for the procurement of water, electricity and/or natural gas supplies to individual property assets, the respective data has been analysed for the purpose of this report. The utilities may be consumed in the whole building, in shared spaces only, or by occupiers in their leased demises. Properties where a full repairing and insuring (FRI) lease is in place are outside the scope of this section of the RPI Report, as the occupiers in these premises are responsible for property management, including the

procurement of utility supplies. However, in these circumstances where an occupier has chosen to share their consumption data, it has been included under separate data tables.

Thus, the organisational boundary (the scope) used for the environmental data in this report is based upon operational control. This is explained in more detail in the notes on environmental data contained in Appendix 1.

Environmental

Environmental summary

Table 1 and Figure 1 show key data for properties within the Company that were directly managed. The increased trend in absolute terms is due to the recent acquisitions of multi-let assets where the Company as landlord is responsible for procurement and management of energy, water and waste. However, some positive trends can be identified when considering these environmental impacts on a like-for-like basis over the reporting period. Further detail on this can be found in the relevant sections below.

2018 2019 % Change

Like-for-like electricity usage (kWh) 722,712 684,546 -14%

Like-for-like fuel usage (kWh) 100,412 103,129 29%

Like-for-like carbon emissions (kg CO²e) 268,425 211,304 -26%

Like-for-like water usage (m3) 2,224 650 -71%

Table 1: Like-for-like summary of energy, emissions and water performance data


Energy

Since 2016 the landlord has purchased renewable electricity and gas for all its properties for which the landlord is responsible for energy procurement. This year, these figures have been verified by a third party, as seen in Appendix 3.

The Property Manager continues to engage the services of Carbon Credentials, a third-party environmental data services provider, to collect energy data on those assets in the fund where there is a permanent landlord-controlled energy supply. The following tables show the results of the in-house analysis of this data, as well as that of properties for which there has been some landlord responsibility in the period from transient

supplies, typically those associated with vacant demised spaces, covering the energy consumption and intensities (energy use by respective floor area). These intensities compare well against industry benchmarks. For example, the energy intensity for managed offices (108 kWhe/m²) shows this property group to be performing at a “best practice” level against the Better Buildings Partnership’s 2017 Real Estate Environmental Benchmark (REEB). Other property types have not been compared to this benchmark due to the intensities being in relation to outdoor spaces and vacant demises, for which no benchmark is available.

Absolute electricity consumption (independently verified)

With proportion of landlord procured electricity from renewable sources

2019 1,716,908 kWh

2018 980,824 kWh

2019 100%

2018 100%

Change in like-for-like electricity consumption

2019 619,869 kWh

2018 722,712 kWh

% -14.23%

Absolute natural gas usage (independently verified)

With proportion of landlord procured fuel from renewable sources

2019 255,269 kWh

2018 110,768 kWh

2019 100%

2018 100%

Change in like-for-like natural gas consumption

2019 129,070 kWh

2018 100,412 kWh

% 28.54%

Energy intensity2019 67.1 kWhe/m2

2018 37.1 kWhe/m2

Change in energy intensity (%)80.67%

Table 2: Absolute and like-for-like energy consumption


A positive reduction in electricity consumption was observed in the year, which can be attributed to a number of improvements across the portfolio, such as replacement of bulbs with LEDs at three properties and daylight enhancement and lighting controls implemented as part of refurbishment works at Guildford Gateway. Unfortunately, there was an apparent increase in like-for-like gas consumption due to the replacement of a faulty meter in Birmingham in 2018.

Emissions

Whilst the Company has committed to procuring 100% of landlord energy supplies from renewable sources (that is, not derived from greenhouse-gas-emitting fossil fuels), it was considered prudent, for better comparison purposes, to adopt location-based conversion factors provided by the UK Government to calculate emissions as opposed to market-based, which would take into account this purchase of renewable energy.

The greenhouse gas (GHG) emissions are reported here as kilograms of carbon dioxide equivalent (kg CO2e). The following tables report on:

• Scope 1 emissions – resulting from the burning of natural gas in a boiler on-site

• Scope 2 emissions – resulting from the acquisition and use of electricity from the National Grid

• Scope 3 emissions (emissions from occupier-acquired and consumed energy) are reported in table 6.

Emissions from Scope 1 usage (independently verified)2019 46,959 kg CO2e

2018 20,399 kg CO2e

Change in emissions from Scope 1 usage130%

Emissions from Scope 2 usage (independently verified)2019 484,380 kg CO2e

2018 340,675 kg CO2e

Change in emissions from Scope 2 usage42%

Change in like-for-like Scope 1 & 2 emissions

2019 197,585 kg CO2e

2018 268,425 kg CO2e

% -26%

Emissions intensity for Scope 1 & 22019 18.1 kg CO2e/m2

2018 12.3 kg CO2e/m2

Change in emissions intensity from Scope 1 & 2 usage47%

Table 3: Emissions

The result of the acquisition of six managed properties in the reporting period (a 300% increase in managed properties held by the Company) is a material increase in overall emissions. The more applicable measure of like-for-like emissions reveals a positive reduction in GHG emissions in line with expectations, given the reduction in electricity usage and further decarbonisation of the UK grid.

Renewable Energy Generation

In August 2018 the Company acquired a new asset in Bath: Cambridge House, a multi-let office building with ground floor retail and leisure use. An opportunity arose to fund the installation of photovoltaic cells. This project is now providing an occupier with up to a third off their total grid electricity requirement, facilitating savings of an anticipated 9 tonnes of CO2e a year.


Water

The following table reports on the water consumption and intensities, which are the result of in-house analysis of data from invoices for properties for which there is landlord-obtained supply. A significant reduction in like-for-like water usage can be observed, which was the result of the replacement of a faulty meter in Birmingham in 2017.

Waste

In 2018 BMO REP began collecting site waste data. It is for this reason that the Company cannot report on like-for-like waste produced between the prior and current reporting years for this report. Absolute waste is reported in the table below. BMO REP arranges for waste collection and disposal at five properties (under 8% of the whole portfolio by floor area). Data gathering for these sites continues, with 54% coverage for the reporting year at time of writing, equating to 5% waste to landfill. Measures are being taken to ensure that data for all waste for which the landlord is responsible will be collected for future reporting years.

BMO REP targets zero waste to landfill by the end of 2020 and to achieve this will be ensuring use of waste carriers across the portfolio who can account for the total waste removed from site and its waste streams. At present, all properties in the portfolio having waste streams under landlord control are managed through site management procedures which are aligned to ISO14001 standards. This accreditation ensures proper management and removal of waste (both hazardous and non-hazardous) from site.

Absolute water consumption2019 7,216 m3

2018 2,973 m3

Change in like-for-like water consumption

2019 650 m3

2018 2,224 m3

% -71%

Water intensity2019 0.43 m3/m2

2018 0.18 m3/m2

Change in water intensity143%

Total weight of waste by disposal route (tonnes)

Recycling 2

Incineration with energy recovery 9

Landfill 1

Table 4: Water consumption

Table 5: Waste stream data


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Occupier environmental data

All occupiers were given the opportunity to share their environmental data with the Company for the purpose of transparent reporting of Scope 3 emissions, energy usage, water consumption and waste streams. Where the Company received this data, it has been reported in the table below. In absolute terms, the data coverage is 26% of the total portfolio by floor area.

Electricity consumption2019 7,255,223 kWh

2018 2,312,944 kWh

Natural gas consumption2019 1,209,917 kWh

2018 1,103,399 kWh

Scope 3 emissions2019 2,276,312 kg CO2e

2018 1,016,345 kg CO2e

Water consumption2019 33,298 m3

2018 4,600 m3

Change in like-for-like electricity consumption

2019 1,232,220 kWh

2018 1,350,051 kWh

% -8.73%

Change in like-for-like natural gas consumption

2019 1,151,086 kWh

2018 1,016,775 kWh

% 13.21%

Change in like-for-like Scope 3 emissions

2019 560,558 kg CO2e

2018 661,877 kg CO2e

% -15%

Change in like-for-like water consumption

2019 3,795 m3

2018 4,503 m3

% -16%

Like-for-like energy intensity2019 160.1 kWhe/m2

2018 166.2 kWhe/m2

Change in energy intensity (%) -3.65%

Like-for-like Scope 3 emissions intensity2019 53.0 kg CO2e/m2

2018 62.6 kg CO2e/m2

Change in emissions intensity (%)-15%

Like-for-like water intensity2019 1.07 m3/m2

2018 1.27 m3/m2

Change in water intensity (%)-16%

Table 6: Summary of occupier environmental data


Social

Scope

The Company does not have any direct employees and cannot therefore report any people-related metrics typically associated with employment criteria. However, as Property Manager for the fund, BMO REP takes a responsible approach to corporate citizenship, both through engagement with industry and corporate stakeholders and through the positive impact it seeks to generate in the communities associated with its managed assets. As long-standing and founding members of the Property Working Group of the United Nations Environment Programme Finance Initiative, two-way dialogue in learning and sharing experience can be traded for wider industry benefit.

Health & safety

As Property Manager for the fund, BMO REP ensures that all legislative requirements connected with maintaining safety and security at premises are met where it has operational control. This includes, but is not necessarily restricted to, undertaking regular reviews of health and safety status and performance, undertaking fire risk assessments, including special investigations as presented by the Grenfell disaster for example, and maintaining robust procedures for the control of water hygiene.

Supply chain

Much of BMO REP’s supply chain management is upheld through the properties’ ISO 14001 accreditation (see page 26). This is applicable to all managed properties. Property managers at these sites are also given the responsibility to select and manage contractors visiting the sites. They follow the BMO REP supply chain strategy to hire locally, ensure all health and safety and ISO 14001 requirements are adhered to and contract to the real living wage where applicable.

Governance

BMO REP has a strong governance structure that enables its operations to focus on the best interests of the funds it manages. Its robust operating procedures and policies ensure the risks associated with illegal practices such as bribery and corruption are in line with local legislation and expectation. The Property Manager’s parent organisations, BMO Global Asset Management and the Bank of Montreal, provide detailed oversight of the arrangements, which includes the requirement for mandatory annual training and declaration for all employees. More detailed explanations of governance structures can be found in the Annual Report and Accounts.

Living wage

The Company obtained Living Wage Accreditation from the Living Wage Foundation in 2018, being the first UK real estate fund to do so. This involved a review of all direct third-party supply contracts whereby the fund ensured that all employees in scope operating under such supply contracts received rates of pay in line with the real living wage threshold. The Company is prepared to take measures to ensure accreditation status is maintained as it acquires new assets and takes on new service contracts. The fund manager is further looking to push industry boundaries by publishing a piece on the journey to accreditation and encouraging occupiers to adopt similar principles by agreement to specific lease clauses wherever opportunities for doing so arise. See the full article at www.bmogam.com/gb-en/institutional/news-and-insights/living-wage-accreditation.


0

£50

£100

£150

£200

£250

£300

£350

5. ESG risk profile

The ESG risk profile described in this section presents key data collated by BMO REP as part of its ongoing process of appraising all held assets using its RPI Appraisal system. It provides a picture of the key ESG characteristics of the BMO UK Property Fund portfolio as at 28 February 2019 with respect to issues such as environmental management, flood risk and energy performance.

Asset classification

It is important that the Company’s approach to ESG is proportionate in the context of each asset’s impact and the degree to which management control is exercised. This is particularly the case for energy, where both regulatory and performance-related risks can be material to value. A classification system has been devised to enable resources to be directed at those assets for which the risks and potential enhancement opportunities are likely to be the greatest.

The classification of an asset determines the frequency and extent to which its ESG characteristics and performance are monitored within the asset and property management process. Typically, progress on Tier 1 assets will be reviewed on a quarterly basis, whilst for Tier 2 this will be extended to six-monthly. For Tier 3 assets, where there is no landlord energy spend, there is no requirement to review consumption on a regular basis. BMO REP has clear procedural guidelines in place to assist asset and property managers in this regard. The classification of an individual asset will quite likely change over time, as its energy rating(s) or performance attributes evolve. For example, since the 2017-18 reporting year, two Tier 3 assets were sold and three were acquired, one Tier 1 asset was updated to Tier 2 after reductions in landlord energy spend and two acquisitions were classed as Tier 2, again due to landlord energy spend as directly managed assets.

The charts below show the distribution of asset classifications across the portfolio by reference to the capital value and by the number of assets.

Figure 3: Asset classification

Capital value (£) Number of assets

Tier 1 - where EPC rating is F or G and/or annual landlord energy spend is >£50,000 per annum

Tier 2 - where EPC rating is E and/or annual landlord energy spend is >£0 and <£50,000 per annum

Tier 3 - where EPC rating is A+ to D and there is no landlord energy spend

Asset classifications

Level 1 Level 1

£19

Level 2 Level 2Level 3 Level 3

£104

£303

0

10

20

30

40

50

3

9

43

mill

ions


Figure 3 (continued): Asset classification by property type

Industrial Office

Flood risk

The exposure of the portfolio to the principal sources of flood risk is shown in Figure 4. This shows that, taking account of flood defences, the majority of the portfolio is at negligible or low risk of flooding from rivers or seas, with 13% of capital value at high risk of flooding from this source. These higher levels of risk are confined mainly to industrial sites with some exposure in retail assets, including car showrooms. Groundwater flood risk is limited, with some 3% of capital value deemed to be at high risk. Surface water flood risk is similarly limited, with some 5% of capital value deemed to be at high risk from this source.

The principal elements of our approach to managing flood risk include:

• Undertaking annual flood risk assessments of all held assets to keep our overview of portfolio risk exposure under regular review;

• Undertaking flood risk assessments, including an assessment of repairing obligations within lease terms, at the pre-acquisition stage for all assets in which we consider investing and taking account of any material issues in investment decisions and subsequent asset business planning;

• Ensuring that we have adequate insurance cover in place;

• In areas of higher risk, maintain a watching brief on insurance premiums and planning decisions for development work, including in relation to change of use decisions which may be pertinent to future asset strategy;

• For assets subject to higher levels of direct risk, review asset files, including purchase reports, to ensure that detailed flood risk information is held by the fund;

• For directly managed assets in areas of high and moderate indirect risk, prepare operational contingency plans so that anticipatory and responsive measures can be put in place to effectively deal with local disruption, and ensure that occupiers are engaged in this process;

• Engage with our occupiers in those assets that are not directly managed but to which higher levels of risk apply, to ensure that they can be prepared for a possible future flood event; and

• Ensuring that flood resilience is a feature of our approach to sustainable development and refurbishment.

Tier 1 - where EPC rating is F or G and/or annual landlord energy spend is >£50,000 per annum

Tier 2 - where EPC rating is E and/or annual landlord energy spend is >£0 and <£50,000 per annum

Tier 3 - where EPC rating is A+ to D and there is no landlord energy spend

Asset classifications

Car showroom Leisure

Retail warehouse

Retail - high street

1

18

1

95

2

6

3 1 1

1

6

1


Figure 4: Flood risk

Fluvial flood risk Distribution of risk ratings as a proportion of capital value

Surface water flood risk Distribution of risk ratings as a proportion of capital value

Groundwater flood risk Distribution of risk ratings as a proportion of capital value

Distribution of historic flood incidents In relation to capital value

High

Moderate

Low

Negligible

No record

Yes (Main River)

Yes (Main River & Drainage)

Yes (Main River & Sewer)

Yes (Sea & Main River)

Yes (Unknown, Sea & Main River)

Unknown

No

EPC ratings

The dashboards at Figure 5 provides a summary of the profile of Energy Performance Certificate (EPC) ratings for the portfolio. Across all UK assets, the majority, from both a rental value and floor area perspective, relate to the higher EPC ratings, indicating a good level of modelled energy performance for the portfolio.

In England & Wales, where the minimum energy efficiency standards (MEES) apply, the portfolio has a significantly better

distribution compared against the regional data. The Company has no current exposure to any MEES risk in England & Wales.

In Scotland, where MEES does not apply, the two lowest ratings applied in combination account for less than 2% of rental value and less than 1% of the total lettable floor area respectively.


Figure 5: Profile of EPC ratings

Distribution of portfolio EPC ratings Assets in England & Wales only

A (0-25)

B (26-50)

C (51-75)

D (76-100)

E (101-125)

F (126-150)

G (over 150)

EPC rating: CO2 emissions

% o

f pro

pert

ies

EPC ratings by rental valueWhole portfolio - including assets in Scotland

% o

f Tot

al C

RVEPC ratings by net lettable areaWhole portfolio - including assets in Scotland

A B C D E F G

% o

f Tot

al C

RV

Sector distribution of EPC ratings by NLAWhole portfolio - including assets in Scotland

Industrial34.8% of portfolio

Retail - high street6.7% of portfolio

Car showroom6.7% of portfolio

Leisure3.1% of portfolio

Office30.8% of portfolio

Retail warehouse17.9% of portfolio

A (0-25)

B (26-50)

C (51-75)

D (76-100)

E (101-125)

F (126-150)

G (over 150)


0%

10%

20%

30%

40%

50%

England & Wales EPC Register Data

0%

5%

10%

15%

20%

25%

30%

35%

0%

5%

10%

15%

20%

25%

30%

35%

40%


We have in place a comprehensive policy and strategy for managing the risks associated with MEES, with particular emphasis on ensuring that:

• We maintain comprehensive records that are kept up to date to ensure clear visibility on related risks;

• We procure high-quality EPC assessments from best-in-class providers so that the ratings we hold are accurate and the information supporting them useful for managing performance;

• We are well-sighted on energy performance risk when acquiring assets and when preparing for and executing lease transactions;

• We have robust processes in place to ensure that EPC ratings are optimised through development, refurbishment and routine property management activities; and

• We have in place comprehensive information to support sales when we choose to bring property assets to the market.

With these measures in place, we ensure not only that we take timely and cost-effective action to address energy ratings ahead of a legislative restriction on transactions, but also that we future-proof our assets to future regulatory change and

standards, in the interests of delivering occupational benefits for our customers and sustainable returns for our investors in the long term.

Other risk metrics

The profile of the portfolio with reference to a range of additional ESG attributes is shown in Figure 6. This indicates that the exposure of the Company’s assets to various environmental risk criteria is limited, whilst other metrics convey the extent to which certain management actions have been fulfilled.

Current contamination risk

Taking account of the underlying regulatory regime and frameworks, land contamination risk is qualitatively categorised as being either low, low-moderate, moderate or high. The majority (98%) of the portfolio is either at low or low-moderate risk of contamination in terms of capital value. Contamination is an ‘investment critical’ criteria within our RPI Appraisal process when considering potential acquisitions. FRI assets over which we have no direct management control benefit from an annual inspection by an asset manager, whilst directly managed assets have the benefit of our Environmental Management System, certified to the ISO 14001 standard, of which the prevention and management of contamination is part.

Figure 5 (continued): Profile of EPC ratings

Sector distribution of EPC ratings by rental valueWhole portfolio - including assets in Scotland

Industrial34.8% of portfolio

Retail - high street6.7% of portfolio

Car showroom6.7% of portfolio

Leisure3.1% of portfolio

Office30.8% of portfolio

Retail warehouse17.9% of portfolio

A (0-25)

B (26-50)

C (51-75)

D (76-100)

E (101-125)

F (126-150)

G (over 150)



Porportion of portfolio outside of statutory wildlife designations

Porportion of portfolio within aquifer protection zones

Low

NoOut with

AdvancedLow-Moderate

No recordModerate No Yes (R410A) Foundation

Building certifications by proportion of asset value

BREEAM Excellent2008

BREEAM V. Good2014

None

HCFC coolants present in directly managed assets

Status of building managers with ESG training

Figure 6: Other RPI risk metrics

Contamination risk by proportion of asset value

YesWithin

HCFC coolants

For the nine directly managed assets, two have known air-conditioning equipment that utilises a hydrochlorofluorocarbon coolant which is subject to the European F-Gas Regulations for the phasing out of ozone depleting substances. These are both under the control and responsibility of individual occupiers within

Groundwater source protection zones

Eight properties, including two directly managed assets at Edmund Street in Birmingham and Guildford Gateway, fall within Groundwater Source Protection Zones. These are designated zones around public water supply abstractions and other sensitive receptors that signal there are particular risks to the groundwater source they protect. It is important that our pollution prevention measures are particularly effective in these areas of elevated risk.

Building manager ESG training

All building managers employed directly by BMO REP have received a foundation level of training on relevant ESG matters, commensurate with the enhanced RPI Protocols for Asset &

these assets. Three further properties are known not to utilise such coolants in their air-conditioning systems. There are two other assets that utilise such coolants and the Company takes positive action to replace these when the opportunity arises.

Property Management that have been put in place. This training has been delivered by the Property Manager’s dedicated sustainability professionals.

One of the nine directly managed assets has a building manager that has not received such bespoke training and instruction. This relates to the most recently acquired asset, currently managed by an external managing agent, and is expected to be be incorporated into the internally managed stock in due course.

Green building certifications

Two properties have attained a formal BREEAM rating. Collectively, these account for 8% of the total capital value of the portfolio.

Under tenant responsibility


Case Study

Our biodiversity strategy at work at Gateway GuildfordIncorporating environmental improvements to external landscaping as a fundamental aspect of office refurbishment projects.

Despite opportunities being limited due to the size of the land available, the refurbishment team embraced the opportunity to consider BMO REP’s strategy on biodiversity; to enhance outdoor areas for local wildlife where there is potential to do so. The unkept area was transformed, with new trees planted to encourage biodiversity and expand the provision of green space for wildlife to roam throughout the local area.

Other benefits to the upgrade of the external area include improving workplace wellness with addition of recreation and lunch space for staff to enjoy and consideration of the Company’s long-term waste strategy through installation of furnishings such as benches, made from recycled materials that are in turn recyclable at end of life.

Statutory wildlife designations

None of the Company’s properties are affected by statutory wildlife designations.

Environmental management system

An Environmental Management System (EMS) accredited to the ISO 14001 standard and covering energy, water, waste and the control of hazardous substances has been established by BMO REP and applies to all directly managed assets with some limited exceptions.

These exceptions are Minerva House in Leeds and Cambridge House in Bath, both of which are recent acquisitions and the former currently managed by an external agent. Representations have been made to the local managers and accreditation is to be pursued. The properties are to be included within the next audit cycle for the ongoing accreditation to the EMS.


2017 2018

Electricity 0.35156 0.28307

Gas* 0.18416 0.18396

Appendix 1: Notes on environmental data

Estimates

The proportions of estimates for the portfolio energy and water are shown in the table below. Estimates were calculated through pro-rating the data available for the missing period. The proportions of estimates were based on both the floor area and the time interval for which data was estimated.

Conversion factors

Emissions were calculated in kg CO2 equivalent using the DEFRA GHG Conversion Factor Guidelines for 2017 and 2018 as the years in which the greatest proportion of data falls. Also in line with DEFRA recommendations, the 2017 figures have not been restated using the 2018 conversion factors. The conversion factors from DEFRA are presented in the following table.

A further conversion factor used was for reporting of energy intensities. Following the Better Buildings Partnership’s (BBP) Real Estate Environmental Benchmark (REEB) methodology, intensities are reported using numerators in units of kWh electricity equivalent (kWhe). 1 kWh of electricity is 1kWhe, whereas gas has been converted using a factor of 0.4kWhe/1kWh. This is recommended due to a thermodynamic difference between electricity and gas.

Normalisation

Intensities (for energy, emissions and water) have been calculated per square meter of space for each individual property, normalising the data for comparability to other properties. As a general rule, all properties have been normalised using a denominator based on net lettable area (NLA).

The exceptions to the rule are as follows:

• Assets for which the landlord does not procure energy for the whole building; and

• Assets for which there is no indoor energy procured by the landlord.

In the first scenario, the common parts area (CPA) was used as the denominator; CPA is considered to be a more appropriate basis for relating landlord consumption to the areas served, and, as a result, a more meaningful measure of efficiency. These were estimated using an estimate of 5% of building NLA. Where the energy supply is to car park lighting, the number of car parking spaces multiplied by 25m2 (per BBP REEB recommendation) was used.

It should be noted that while the intensities were normalised for floor area, there was no normalisation carried out for degree days. This is when heating data is corrected according to weather patterns. The fund intends to correct for degree days in future reports of this kind.

Flood risk assessment methodology

The methodology required to satisfy the project scope included the use of ArcGIS software packages and complex scripting models to prepare each set of asset data and analysis.

Further review and checking of each report was undertaken by an experienced GeoSmart Consultant.

The datasets used to inform each of the key questions for each asset were GeoSmart’s Groundwater Flood Risk Data, Environment Agency datasets and Ambiental’s UKFloodMap4™ Flood data. The industry-focused and accepted datasets have been produced using the most up-to-date methodology to ensure suitable risk screening for key assets.

Table 7: Estimation of data

2018 2019

Electricity 0% 1%

Gas 0% 4%

Renewables 1% 0%

Water 0% 28%

Table 8: DEFRA Conversion Factors (kg CO2e per kWh)

* Where the conversion factor used is for gross calorific value as opposed to net.


Appendix 2: TCFD (Task Force on Climate-related Financial Disclosures) Statement

Recommended disclosure Current arrangements Planned activity and timeframe

Governance – The Company’s governance around climate-related risks and opportunities

Describe the hierarchy and extent of high-level oversight of climate-related risks and opportunities.

Given the nature of the Company as an OEIC, there is no independent Board of Directors and the Fund Manager takes on the key responsibilities that a Board would usually serve in respect of climate-related risk and opportunities. BMO Real Estate Partners’ Sustainability Team provides regular progress reports to the Fund Manager and Assistant Fund Manager. The Fund Manager sits on BMO REP’s ESG Committee, which convenes annually to discuss ESG-related risks and opportunities, which include, in large part, those that are climate-related. Also sitting on this Committee is the Company’s sustainability consultants Hillbreak, who provide a presentation on topical matters and their potential impact on the Company’s activities. During the last year, this has included particular emphasis on climate-related transition risks and opportunities, linked to our work on setting long-term targets for the portfolio aligned to the goals of the Paris Agreement on Climate Change as we believe it pertinent to report in this way despite the directly manged properties in the fund running on 100% renewably procured energy.

Progress on ESG matters, including on climate change, are highlighted in the Company’s Responsible Property Investment Report, which is reviewed and signed-off by the Fund Manager.

The Fund Manager will continue to receive a minimum of monthly updates across the full range of material ESG factors to which the Company is attending, including climate change. This will include receiving reports from the Head of Sustainability on progress against the annual and long-term energy reduction targets, as well as updates on external factors which may prompt the need to review those targets.

Furthermore, during 2019, BMO REP as Property Manager intends to increase CPD of the Sustainability Team with regards to determining exposure of the portfolio to, and the potential financial implications of, physical climate risk factors, such as future changes in the frequency and severity of extreme weather events. Through this learning the Head of Sustainability and Fund Manager can determine appropriate action for the Company in the short and long term.

Describe management’s role in assessing and managing climate-related risks and opportunities.

As part of its Responsible Property Investment programme, the Property Manager is responsible for ensuring that climate-related risks and opportunities are integrated into investment decisions then operational processes and asset management decisions, including by monitoring relevant performance and risk metrics, making recommendations to the Fund Manager on appropriate objectives and targets, and arranging for the implementation of measures necessary to fulfil these.

These responsibilities include making sure that the Company has adequate technical and strategic expertise on climate-related risks and opportunities at its disposal. In addition to the retained role of the strategic ESG advisor, this has included procuring analysis and advice from energy management specialist, Verco Advisory, to set a pathway for energy reduction in line with the Paris Agreement on Climate Change.

During 2019, the Property Manager will be responsible for arranging appropriate training to the Sustainability Team on analysis of the exposure of a portfolio to physical climate risks such that recommendations can be taken to Fund Manager on any strategic decisions that may need to be taken to understand and manage such risks effectively.



Governance – The Company’s governance around climate-related risks and opportunities (continued)

The Property Manager also has an established ESG Committee which convenes on a quarterly basis to oversee its work in this area, including keeping the relevant regulatory, climate science and market changes under review, as well as monitoring the progress of environmental training delivered to asset and building managers. This has included specific refresher sessions, delivered by lawyers, on the implications of Minimum Energy Efficiency Standards for leased properties – a key transition risk factor that requires diligent management.

Strategy – Company risks and opportunities associated with Climate Change

Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term.

The two principal forms of climate-related risk pertinent to the Company are from the potential exposure of its portfolio to the physical effects of climate change and from the growing regulatory and market demands associated with the transition to a low-carbon economy. The relevance of these factors is heightened by the relatively long-term nature of our typical holding periods.

In the short-term, the key risks arise from changes to levels of flood risk (for which we update asset-level flood risk screening analysis annually) and from the restrictions on property transactions associated with building energy performance regulations in England and Wales and, separately, in Scotland. Changes in the risk profile of the portfolio for these factors are confirmed at least annually and are documented in the Responsible Property Investment Report.

In respect of medium-term risks and opportunities, work has been completed to understand the extent of the measures that would need to be implemented by 2031 across the portfolio to ensure that energy and associated carbon reduction levels were reduced in line with the goal of keeping global warming to less than 2oC above pre-industrial levels, in line with the Paris Agreement on climate change. This work was completed on the basis that the Company viewed it pertinent to assume emissions exist in relation to the renewable purchase of energy as the fund produces little renewable energy on-site and contracts for the majority of its supply from off-site generation that is fed into the UK energy grids. Taking account of reasonable assumptions for grid decarbonisation and future churn in the portfolio, we have ascertained that energy reduction is targeted to be 3% per annum.

A priority action under our Responsible Property Investment Strategy is to analyse the exposure of the portfolio to physical risks in the medium and longer term. Investigations on the most appropriate way to apply this for the Company are underway. Analysis of the short-term risks is presently ongoing.



Strategy – Company risks and opportunities associated with Climate Change (continued)

Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.

A core principle of our approach to Responsible Property Investment is to ensure portfolio resilience. In that regard, we seek to:

• Identify and address environmental and social risks through effective asset planning and property management.

• Deliver operational efficiencies and strengthen the appeal of assets under management through smart and efficient use of resources.

• Understand and respond to the changing (and in most respects, strengthening) expectations of occupiers, regulators and investors.

To date, the level of short-term risk facing the portfolio from physical climate risks has not been deemed to have a substantive financial or strategic impact; most assets face low or negligible flood risk, whilst insurance cover, contingency planning and property management arrangements are considered adequate in this current context.

We continue to monitor changes in the extent of asset and portfolio-level flood risk on an annual basis. This year, the level of risk has changed in some cases, with 17 total changes to fluvial flood risk across the portfolio for example. Our judgement continues to be that the overall level of risk is comfortable, albeit that more detailed analysis will be undertaken for those limited number of assets at which the level of risk has risen.

Our strategy and asset business planning has evolved to take account of transition risks associated with energy performance ratings and consumption. In summary, this involves classifying assets based on the materiality of their energy performance characteristics, putting in place energy reduction plans (as part of our ISO-14001-accredited Environmental Management System) for those assets at which landlord energy consumption is significant, with these plans forming part of the operational business planning and budgets for each asset.

Over the course of the next year the Company will further analyse the potential impacts of climate-related risks and opportunities, particularly with respect to physical risk factors in the medium and long term.

Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.

At present the Company has not carried out a scenario-based analysis on climate risk but the Fund Manager are comfortable that this is not withholding positive action to embrace climate-related opportunities and mitigate likely climate-related risks.



Risk Management – How the organisation identifies, assesses, and manages climate-related risks

Describe the organisation’s processes for identifying and assessing climate-related risks.

At BMO REP, climate risks are integrated into multi-disciplinary company-wide risk identification, assessment, and management processes and are considered at each key stage of the property investment process, including:

• Enhanced due diligence assessments when looking at potential real estate acquisitions, including consideration of multiple flood risk factors, energy efficiency, metering and ratings.

• Regular (annual) reappraisal of the ESG (including climate-related) characteristics of assets held by the Company, including reclassifying assets according to changes in their energy risk profile in order to determine the frequency and extent of asset management routines and interventions.

In 2019, we intend to enhance our acquisition due diligence approach to take fuller account of longer-term climate risk factors, including:

• Sensitivity to potential changes in the cost and availability of insurance cover.

• Potential effects of physical climate risks including in relation to overheating and cooling demand, storm damage, soil shrinkage and heightened flood risk.

Describe the organisation’s processes for managing climate-related risks.

Ultimate responsibility for managing climate-related risks across the portfolio rests with the Fund Manager, using the intelligence gained from enhanced due diligence and annual reappraisal of climate characteristics at the individual asset level.

Of particular note in this regard, are the following core risk management features of our asset and property management procedures:

For all assets:

• Making sure that information and recommendations compiled by the RPI Appraisal process, either during acquisition or as a routine of the asset and property management process, are utilised when preparing and signing-off on Asset Business Plans.

• Incorporating appropriate actions to mitigate climate-related risks and capture related opportunities into Asset Business Plans.

• Safeguarding the transition and physical risk resilience credentials of a property when negotiating leases and considering applications for alterations, especially in relation to energy performance ratings.

• Targeting optimal performance and resilience outcomes when undertaking development or refurbishment work.

These Core Requirements are applied across all of our assets, although the frequency and depth of certain actions is proportionate to the circumstances of each asset, as defined by the Property Manager’s Asset Classification System.

We expect to incorporate specific climate-related considerations into our investment criteria for acquisitions, hold/sell and CapEx decisions, recognising that:

• Options for improving the resilience of assets for which a long-term hold is envisaged could be highly cost-effective, give rise to ancillary benefits (such as improved occupier comfort) and should therefore be prioritised.

• In some situations, it may be advantageous to the Company to exit its position on an individual asset that is exposed to a material climate-related risk that cannot be cost-effectively mitigated within the context of our investment strategy.

• Recycling of capital can be a useful way of reducing risk exposure of the portfolio over time.



Risk Management – How the organisation identifies, assesses, and manages climate-related risks (continued)

Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management.

Ownership and management of all risks, including climate-related risks, is the responsibility of the Fund Manager. The Fund Manager is responsible for ensuring the operating effectiveness of the internal control systems, whilst Asset Managers, supported by the Property Manager’s sustainability team, are responsible for implementing key risk mitigation plans. Climate-related risks which are included in this process.

We expect to deliver briefing and training sessions to asset and property managers, specifically on monitoring and managing climate-related risk as well as highlighting these more prevalently in asset business plans.

Metrics and Targets – Those metrics and targets that materially help assess and manage climate-related risks and opportunities

Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process.

Financial category: Expenditures (Energy/Fuel)

• Total electricity consumption (kWh)• Like-for-like total electricity consumption (kWh/%)• Total fuel consumption (kWh)• Like-for-like total fuel consumption (kWh/%)• Building energy intensity (kWh/m2 NLA)

Financial category: Expenditures (GHG emissions)

• Emissions from Scope 1 consumption (kg CO²e) • Change in emissions from Scope 1 consumption (%) • Emissions from Scope 2 consumption (kg CO²e) • Change in emissions from Scope 2 consumption (%) • Emissions intensity for Scope 1 & 2 (kg CO²e/m² NLA) • Change in emissions intensity from Scope 1 & 2

consumption (%)

Financial category: Expenditures (Water)

• Water consumption (m3) • Change in water consumption (m3/%) • Water intensity (m³/m² NLA) • Change in water intensity (%)

Financial category: Assets (Location)

• Flood risk distribution of portfolio for fluvial flooding, pluvial flooding, groundwater flood risk (% capital value, # assets)

• Historic flooding (% capital value, # assets)

Financial category: Assets (Risk Adaptation & Mitigation)

• Proportion of assets that are BREEAM rated (% NLA)• Distribution of EPC ratings (% rental value, % NLA)• Number of assets in which HVAC systems use HCFC

coolants (# assets)

Data associated with these metrics is disclosed in our 2018 Responsible Property Investment Report.



Metrics and Targets – Those metrics and targets that materially help assess and manage climate-related risks and opportunities (continued)

Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.

With regards to where directly managed properties use natural gas (creating Scope 1 emissions), the key risk would be a future transition to an all-electric infrastructure to meet the UK’s net-zero ambitions. Whilst the Company contracts for gas from renewable sources these are not used on-site in the majority of buildings so this is something the Company needs to consider at intervention points. With regards to directly managed properties’ use of electricity (creating Scope 2 emissions), the Company is comfortable that the main risk of procurement of fossil fuel-derived electricity is already removed. The Company strives to install low carbon on-site energy generation where it is feasible to do so. This is also a strategy that aligns with a risk of scope 3 emissions, being those that are created from sites where the landlord has no control over the procurement of energy. Occupier discussions are ongoing to progress renewable energy projects on sites in the portfolio. The other key risk for Scope 3 is the Company’s restrictions on control over these emissions. Occupier engagement is also ongoing in this area to obtain better oversite of the extent of these emissions and therefore where the landlord can assist to reduce these.

Occupier engagement continues to progress renewable energy on-site generation projects and gauge the extent of Scope 3 emissions to develop a strategy on how to reduce these in partnership with occupiers. Future refurbishments will consider how a building can be adapted to make it more resilient by reducing its potential for emitting greenhouse gases.

Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets.

Short term:

• We have established annual targets to reduce landlord energy consumption on a like-for-like basis during 2018 by 3%.

• In parallel, we established 100% coverage of assets for which the landlord procures energy to obtain this through renewable energy supply contracts

Medium term:

• We worked with Verco Advisory to set a target for reducing the energy intensity of the portfolio by 15% per square meter by 2031, against a 2016 baseline, for landlord-procured energy. These targets go beyond what might have been determined by the market, as the Fund would have achieved with no intervention because of forecasted decarbonisation of the grid. Using the location-based method the Fund’s targets will therefore be based on energy-consumption rather than emissions-production.

Long term:

• To be determined for limiting physical risk exposure.


Appendix 3: Verification in accordance with ISO 14064-3

Lucideon CICS Limited Queens Road, Penkhull

Stoke-on-Trent Staffordshire ST4 7LQ, UK

T +44 (0)1782 411008 [email protected]

www.lucideon.com Reg. England 1871628

16th May 2019 BMO Real Estate Partners 7 Seymour Street London W1H 7JW Verification of BMO UK Property Fund ICVC 2018 Greenhouse Gas Emissions Lucideon CICS Limited was contracted to undertake the actions necessary to provide limited assurance in verification of GHG emissions reported in the “2018 Responsible Property Investment Report” for the period 1 March 2018 to 28 February 2019. The verification was carried out against the requirements of the CDP based on ISO14064-3. Organisational Boundary The boundaries for the corporate wide emission inventory were developed on the basis of operational control. As a real estate business, the scenarios for operational control may vary from building to building therefore further explanation on how this has been handled can be found in the Inventory Management procedure. In summary, only energy that is directly the responsibility of the fund is included, anything that is a tenant responsibility is outside of the boundary for the purposes of the report. Conclusion Lucideon CICS Limited has verified the reported emissions with the “2018 Responsible Property Investment Report” from the operations of BMO UK Property Fund ICVC consistent with the requirements of ISO14064-3 and provides limited assurance that the CO2 emissions for the 2018 reporting year are verifiable. Yours sincerely

Sorcha Anderson Lead Verifier


The content of this report constitutes confidential information of a proprietary nature that is strictly for the attention of the recipient as a limited partner of a BMO Private Equity-managed fund (the term limited partner shall be deemed to encompass both an actual limited partner of the LP and a prospective limited partner). Accordingly, such content should be utilised solely for internal purposes (such purposes to include the provision of the report to any third party professional adviser or auditor appointed by the recipient and who requires the same solely for the purpose of servicing the recipient in relation to the operation of the recipient’s normal business activities) save that a recipient shall be permitted to use the information contained within the report pack for the purpose of meeting any compulsory reporting obligations owed to any governmental or regulatory authority. Neither this report nor any extract thereof (with the exception of any provided by BMO Private Equity specifically for such purpose) shall otherwise be distributed, published, copied or reproduced to any third party.

© 2019 BMO Asset Management. All rights reserved. BMO Asset Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of BMO Global Asset Management EMEA of which the ultimate parent company is the Bank of Montreal. CM20369 (06/19-1203).

BMO Real Estate Partners

Company InformationBMO UK Property Fund ICVCExchange HousePrimrose StreetLondonEC2A 2NY

Authorised Corporate DirectorBMO Fund Management LimitedExchange HousePrimrose StreetLondonEC2A 2NY

Telephone: 0800 085 2752Facsimile: (0207) 600 4180

The ACD is authorised and regulated in the UK by the Financial Conduct Authority and is a member of the Investment Association.

Directors of the ACDB. Apfel, D. Logan, N. Parry, D. Sloper, M. Tonkin, R. Watts, T. Watts

Investment AdvisorBMO Asset Management LimitedExchange HousePrimrose StreetLondonEC2A 2NY

Independent AuditorsPricewaterhouseCoopers LLPAtria One144 Morrison StreetEdinburghEH3 8EX

Property Advisor & Property ManagerBMO REP Property Management Limited7 Seymour StreetLondonW1H 7JW

DepositaryState Street Trustees Limited

Registered Office20 Churchill PlaceLondonE14 5HJ

Head Office & Principal Place of BusinessQuartermile 310 Nightingale WayEdinburghEH3 9EG

Fund Accounting & Unit PricingState Street Bank and Trust CompanyQuartermile 310 Nightingale WayEdinburghEH3 9EG

Administrator & RegistrarDST Financial Services Europe LimitedDST HouseSt Nicholas LaneBasildonEssexSS15 5FS

Legal AdvisorsAddleshaw Goddard Milton Gate 60 Chiswell Street LondonEC1Y 4AG

Independent ValuerKnight Frank LLP55 Baker StreetLondonW1U 8AN

bmogam.com

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