SUSTAINABLE REAL ESTATE INVESTMENT · and Real Estate Equity and REITS, Bond and Debt Investors and...

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SUSTAINABLE REAL ESTATE INVESTMENT IMPLEMENTING THE PARIS CLIMATE AGREEMENT: AN ACTION FRAMEWORKFebruary 2016

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http://www.igcc.org.au/

http://www.iigcc.org/

http://www.ceres.org/investor-network/incr

http://www.unep.org/

http://www.unpri.org/

http://www.rics.org/uk/

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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

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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


Execution:IntegrateESGandclimateriskininvestmentstrategy

Alignment:Contractorsandmanagerselection


Marketengagement

Equities, Bonds and Debt investors and their Financial Advisors


Execution:IntegrateESGandclimateriskinrealestateinvestmentstrategy

Alignment:Directassetmanager,propertycompaniesordebtportfolioselection


Marketengagement

Appendices

Bibliography

Content

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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

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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.

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After Paris, time for action.

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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?

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‘Investing in a time of climate change’Mercer 2015

‘Developing an asset owner climate change strategy’, PRI 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


‘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


‘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

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Market Engagement

STEP

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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

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http://www.mercer.com/content/dam/mercer/attachments/global/investments/mercer-climate-change-report-2015.pdf

. http://aceee.org/files/pdf/fact-sheet/ee-job-creation.pdf


http://www.unpri.org/wp-content/uploads/PRI-Climate-Change-Pilot-Framework.pdf


http://www.iigcc.org/files/publication-files/Climate-Change-Investment-Solutions-Guide_IIGCC_2015.pdf


http://www.ceres.org/resources/reports/the-21st-century-investor-ceres-blueprint-for-sustainable-investing-summary





http://www.rics.org/Global/RICS%20UNGC%20Advancing%20Responsible%20Business%20-%20Full%20Report.pdf


http://www.iigcc.org/files/publication-files/IIGCC_2013_Trustee_Guide_-_Protecting_value_in_real_estate.pdf


http://www.unepfi.org/fileadmin/documents/Commercial_Real_Estate.pdf

http://www.igcc.org.au/Resources/Documents/property_assessing_climate_change_risks_for_investors.pdf

http://www.rics.org/uk/shop/Sustainability-and-Commercial-Property-Valuation-19782.aspx

http://www.climatebonds.net/standards

http://www.icmagroup.org/index.php/assets/documents/Regulatory/Green-Bonds/Green-Bond-Guidelines-for-the-Real-Estate-Sector-010615.pdf

https://d3n8a8pro7vhmx.cloudfront.net/intentionalendowments/pages/27/attachments/original/1420777456/ICGN_Model_Mandate_Initiative.pdf?1420777456

http://www.unpri.org/wp-content/uploads/Aligning_Expectations_2013.pdf

http://www.unepfi.org/fileadmin/documents/UNEPFI_SustainabilityMetrics_Web.pdf

http://www.unep.org/sbci/pdfs/greening_the_supply_chain_report.pdf

https://www.globalreporting.org/resourcelibrary/GRI-G4-Construction-and-Real-Estate-Sector-Disclosures.pdf

https://reporting.unpri.org/Download.aspx?id=1d8e379d-ae54-4514-8e95-2cf18389b2a0

http://www.unpri.org/wp-content/uploads/PRI_Case-for-Investor-Engagement.pdf

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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).

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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.

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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.

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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






‘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


‘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



‘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.


'Global Real EstateSustainability Benchmark'GRESB 2015 (annually)

'Sector led operational benchmark and indexes for Direct Investors, Real Estate Companies and their Advisers


‘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

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ES


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.





Passive mandates: Base selection on sustainability benchmarks and green property ratings.

Active ownership: Prefer investment managers with proven active management approaches.


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.



Contribute to sustainability benchmarking at portfolio and operational levels and assess performance results.





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

$


















http://www.climatebonds.net/standards









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.




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.


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





http://www.igcc.org.au/resources/Documents/IGCC_Adaptation_Guidance_web_Full_FINAL.pdf



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.



& climate strategy


selection process


reporting Market

engagement

$



strategy

Keyelementsofthisprocessincludeareviewtheselectionofthetypeofinvestmentstrategywithafocusonactivemanagementfordirectreal estate investment and active engagement and proxy voting forequity,debtandbondsinvestments.

Execution IntegrateESGandclimateininvestmentstrategy


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.


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


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:



“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.


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.

$











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.




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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.


• Determineandsetappropriate,verifiableandmaterialtargets,bothquantitativeandqualitative,tomanageenvironmental,socialandgovernanceissuesinyourportfolio.


• HaveanEnvironmentalManagementSystem(EMS)thatappliestotheentitylevel.• Use relevant Real Estate sustainability benchmarks to monitor and compare absolute and performance

againstmarketpeers.• Haveclearreportingrequirementsincludingnarrativeandquantitativereportingagainsttargets.• PubliclyreporttheirESGandclimateriskassessmentsandmanagementactivities.• EngagewithmanagersandrequestthemtoreportontheextenttowhichtheysupportorresistESGand


• 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


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.


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



https://www.gresb.com/

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.


Contribute to sustaina-bility benchmarking at portfolio and operation-al levels and assess performance results.


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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.


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,


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.


SECTOR DISCLOSURES

CONSTRUCTION AND REAL ESTATE

PRI REPORTING FRAMEWORK 2014/15 Organisational Overview

September 2014

[email protected]

+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.



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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.






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SHOULD

SHOULD

COULD

Assess risks and

opportunities

Develop ESG and climate

policy


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:


36

SHOULD

COULD

COULD


policy

Set targets


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.


• Quantitative and qualitative targets to address social impacts of the portfolio, including communityengagementandcontributiontolocalcommunities.

• Setquantitativetargetsfortheinclusionofgreenleaseclausesintheleaseagreementswithtenants.• Targetforaspecifiedproportionofthefund’sbuildingstobepoweredbycleanenergy,tobehighlyenergy

efficient,toachieveminimumrequirementsforrenovations,ortobe“bestinclass”withrespecttoresourceintensity.


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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


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


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.







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.





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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.


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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.

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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.


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.


COULD

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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.

$


Thereporthelpsset thestrategicagendaforcompaniesoperating in the sector, real estate users and investors,throughclearactionitemssupportedbyalistofbenefits

andreallifecasestudies.


ThisguidecoversthekeyquestionswhichassetownersandinvestmentmanagersshouldbeaskingthemselveswhendevelopingtheirESGandclimatepolicyandstrategyandtheirinvestmentstrategytointegrateESGandclimaterisksintotheirbusinesses. Itcoversfourareas:Assessingrisks

and opportunities, managing regulatory risks, manager selection,incentivesandrewards.





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

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IN F O R M AT I O N IN

CEN

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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

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Recommended Best Practices in Accounting for GHG Emissions in the Commercial Real Estate Sector

Whose Carbon is it?GHG Emissions and Commercial Real Estate







http://c.ymcdn.com/sites/www.realpac.ca/resource/resmgr/industry_sustainability_-_research_reports/ghgpublicationfinsp.pdf

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.





& climate strategy


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Direct Investors

45

Recommended Actions

Thefollowingisanon-exclusivelistofactionsaddressingESGandclimaterisks,whichshouldbeconsideredforinclusionduringthecontractorsandmanagerselectionprocess:

SHOULD


Focusselectionengagementprocessonspecificdirectrequestsandpastperformanceratherthanopen-endedquestions,thesecouldinclude:


• Requestdescriptionofhowthe investmentmanager implementsESGandclimate risks in theirassetandpropertymanagementapproachesthroughouttherealestateinvestmentcyclewithrequestedevidenceoftrackrecordsandconcreteexamples.

• Request and review performance against benchmarks to ensure that ESG and climate risk criteria areeffectivelyintegratedinassetmanagementprocesses.


COULD

Selection requirements

ESG and climate risk in service

agreement


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.


• 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.



• Setquantitativetargetsfortheinclusionofgreenleaseclausesintheleaseagreementswithtenants.Requireperiodicreportsonprogressagainsttargets;SpecificincentivesareprovidedforESGandclimate.


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.


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.



“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.


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

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GreeninGThe BUiLDinGSUPPLY ChAin

Promoting Policies and Practices for Sustainability

Sustainable Buildings and Climate Initiative

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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.





& climate strategy


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SHOULD

SHOULD

COULD

Monitoring process


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.


• 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.



• 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


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.



ThroughGRESB,direct realestate investormembersareabletomonitortheannualGRESBsurveyresultsforalltheirdirectinvestmentsand,iftheyinvestinlistedrealestatesecurities,alllistedrealestatecompanies’results. By using the GRESB Portfolio Analysis tool,



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


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


SECTOR DISCLOSURES



September 2014

[email protected]

+44 (0) 20 3714 3187




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Market engagementDirect Investors

Key elements







& climate strategy


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reporting Market

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Recommended Actions








52 53

FRAMEWORK FOR ACTIONFOREQUITIES,BONDSANDDEBTINVESTORSANDTHEIRFINANCIALADVISORS

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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.





& climate strategy


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reporting Market

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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.



Equities, Bonds, Debt

55

Recommended Actions

Thefollowingisanon-exclusivelistofactionswhichformthecorecomponentsrequiredtodevelopanESGandclimateriskpolicyandstrategywhichfocusesonmaterialrisksandopportunities:

SHOULD

SHOULD

COULD

Assess risks and

opportunities

Develop ESG and climate policy and

strategy


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.


56

SHOULD

COULD

COULD


policy

Set targets


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.


• Setquantitativetargetsfortheinclusionofgreenleaseclausesintheleaseagreementswithtenants.• Targetforaspecifiedproportionofthefund’sbuildingstobepoweredbycleanenergy,tobehighlyenergy

efficient,toachieveminimumrequirementsforrenovations,ortobe“bestinclass”withrespecttoresourceintensity.



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


‘‘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


‘‘ 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


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.



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













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.



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Keyelementsofthisprocessincludeareviewtheselectionofthetypeof investmentstrategywitha focusonrelevantassetclasses,activeengagement and proxy voting for equity/REITS, integration of ESGinvestmentproceduresfordebtandcertificationofbondsinvestmentstogreenpropertybondsstandards.



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”.

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Resource mapping and selected resources to integrate in investment process

Theprojectteamreviewedtheavailableliteratureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailabletoimplementthisstep,seeAnnexes.BelowareselectedresourcesofparticularrelevanceforEquity,BondandDebtinvestorswhendevelopingtheirinvestmentstrategy.


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 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.







© 2015 GRESB BV

Green Bond Guidelines for the Real Estate Sector

GRESB Green Bond Guidelines

Prepared by GRESB







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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.





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Recommended Actions

Thefollowingisanon-exclusivelistofactionsaddressingESGandclimateriskswhichshouldbeconsideredforinclusionduringthedirectrealestateinvestmentmanagerand/orpropertycompanyselection:

COULD

ESG and climate risk in service

agreement


in Investment Mandates agreement

Favouractive investmentand investmentmanagersdemonstrating integrationofESGandclimaterisks in theirinvestmentprocesses.


Focusselectionengagementprocessonspecificdirect requestsandpastperformancerather thanopen-endedquestions,thesecouldinclude:


• 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.


• Adviser/consultanttodemonstratethattheirESGandclimateresearchisunderstoodandimplementedinsomemeaningfulwaybytherealestate/propertyresearchersandthatESGandclimateisnottreatedasaspecialistsilo.

The mandate or investment management agreement should include clear and detailed expectations forincorporatingESGandclimateriskfactorsandtheprocessformonitoringESGandclimateriskimplementationandperformance.Forequityinvestmentmanagertheseshouldbepartoftherequirementstoundertakeengagementandvotingactivitieswiththeassetsinvestedin.Theinvestmentmanagershouldberequiredto:

• Incorporatecriteriatoassessthecapabilitiesofmanagers/advisersinmeasuringandmanagingthephysicalrisksofclimatechange.


• 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


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SHOULD

COULD


in investment mandates


targets

• Haveclearreportingrequirementsincludingnarrativeandquantitativereportingagainsttargets.• PubliclyreporttheirESGandclimateriskassessmentsandmanagementactivities.• EngagewithmanagersandrequestthemtoreportontheextenttowhichtheysupportorresistESGand


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.


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.







ALIGNING EXPECTATIONS

GUIDANCE FOR ASSET OWNERS ON INCORPORATING ESG FACTORS INTO MANAGER SELECTION, APPOINTMENT AND MONITORING

FEBRUARY 2013







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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.





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SHOULD

SHOULD

COULD

Monitoring Process


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.


• Includefree-formcommentstothestandardanddatadrivenformattoenablereportingonpolicyandprocessimplementationprogresses.

• Identifyandintegratedatasourcesfromacrosstheinvestmentprocessandensurethatreportsarefurnishedsystematicallywiththemostrelevantandupdateddatarelevanttotheassetowner.

• Requestregularperformanceupdatesagainstselectedbenchmarksandinformationaroundexemplarorbest-in-classactivities.


PubliclyreportESGandclimateriskassessmentsandmanagementactivities.

DefineESGandclimaterisk-relatedexpectationsinreportingrequirementstoexternalstakeholders.

• Selectreportingstandards,anddefinescopeanddepthofreporting,withafocusonmaterialitytothebusinessandvaluedriversandaccountingforgeographicalorregionalnormsandregulatoryexpectations.




• Ensure“deepdive”ondivergentassets(withpositiveornegativeimpact)tounderstandtheoverallportfolioeffectofthese.

Recommended Actions

Thefollowingisanon-exclusivelistofactions,whichshouldbeconsideredforinclusionintheinvestmentstrategywithspecificrecommendationsforeachtypeoffinancialinstruments:

Sustainable Real Estate Investment - Framework for Action: Feedback loop

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SHOULD

COULD

COULD


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.


Selected reference tools for Monitoring & Reporting

Managingandmonitoringofassetmanagers’sustainabilityperformancehasbecomesimplerandmoretransparentwiththeemergenceanduptakeofalargenumberofglobalandregionalsustainabilitybenchmarksandreportingguidelines.Theprojectteamreviewedtheavailableliteratureandbasedonbestpracticedefinedamapoftherelevanttoolsandpracticalknowledgeavailabletoimplementthisstep,seeAnnexes.BelowareselectedresourcesofparticularrelevanceforMonitoring&Reportingbasedontheresultofthesurveyofglobalpractitioners.



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.


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.


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


SECTOR DISCLOSURES



September 2014

[email protected]

+44 (0) 20 3714 3187




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Market engagementEquities, Bonds, Debt

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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


selection process


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


‘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


'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

$


Strategy


selection process


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.

http://aceee.org/files/pdf/fact-sheet/ee-job-creation.pdf

http://aceee.org/files/pdf/fact-sheet/ee-job-creation.pdf

http://www.betterbuildingspartnership.co.uk/green-lease-toolkit

http://www.iigcc.org/files/publication-files/IPCC_AR5_-_Implications_for_Investors.pdf

http://www.iigcc.org/files/publication-files/IPCC_AR5_-_Implications_for_Investors.pdf


http://www.ceres.org/files/investor-files/statement-of-investor-expectations-for-green-bonds

https://www.climatebonds.net/files/page/files/overview_of_the_green_property_standards_0.pdf

https://www.climatebonds.net/files/page/files/overview_of_the_green_property_standards_0.pdf

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014L0095&from=EN

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014L0095&from=EN

http://www.annualreviews.org/doi/abs/10.1146/annurev.energy.25.1.537



http://www.green-rating.com/

http://www.green-rating.com/

https://gresb-public.s3.amazonaws.com/content/Green%20Bond%20Guidelines%20for%20the%20Real%20Estate%20Sector.pdf









http://www.uss.co.uk/Documents/IIGCC-2010-Property-Reporting-Guide-Final1.pdf

http://www.uss.co.uk/Documents/IIGCC-2010-Property-Reporting-Guide-Final1.pdf

http://www.iigcc.org/files/publication-files/IIGCC_Protecting_Value_in_Real_Estate.pdf

http://www.iigcc.org/files/publication-files/IIGCC_Protecting_Value_in_Real_Estate.pdf



http://www.iigcc.org/files/publication-files/IIGCC_2015_Driving_New_Finance_for_Energy_Efficient_Investments_final_WEB.PDF




http://www.iea.org/publications/freepublications/publication/WEO2015SpecialReportonEnergyandClimateChange.pdf

http://www.lasalle.com/research

http://mckinsey.com/globalGHGcostcurve

http://www.mercer.ch/insights/point/2014/climate-change-scenarios-implications-for-strategic-asset-allocation.html

http://www.mercer.ch/insights/point/2014/an-investment-framework-for-sustainable-growth.html

http://www.mercer.com/services/investments/investment-opportunities/responsible-investment/investing-in-a-time-of-climate-change-report-2015.html

http://www.munichre.com/en/reinsurance/business/non-life/natcatservice/index.html

http://www.munichre.com/en/reinsurance/business/non-life/natcatservice/index.html

https://www.pik-potsdam.de/news/in-short/archive/2014/global-warming-can-be-limited-to-2-degrees-with-major-technological-and-institutional-change-ipcc-report

https://www.pik-potsdam.de/news/in-short/archive/2014/global-warming-can-be-limited-to-2-degrees-with-major-technological-and-institutional-change-ipcc-report

http://intranet.unpri.org/resources/files/PRI_The_environmental_and_financial_performance_of_buildings_September_2012.pdf





http://2xjmlj8428u1a2k5o34l1m71.wpengine.netdna-cdn.com/wp-content/uploads/PRI_Climate-Change-Framework1.pdf

http://www.unpri.org/areas-of-work/reporting-and-assessment/reporting-framework/

https://www.realpac.ca/resource/resmgr/industry_sustainability_-_research_reports/ghgpublicationfinsp.pdf

https://www.realpac.ca/resource/resmgr/industry_sustainability_-_research_reports/ghgpublicationfinsp.pdf

http://renovate-europe.eu/wp-content/uploads/2015/10/Multiple-Benefits-Study_Key-Messages-Brochure.pdf

http://renovate-europe.eu/wp-content/uploads/2015/10/Multiple-Benefits-Study_Key-Messages-Brochure.pdf

http://www.rics.org/ch/knowledge/professional-guidance/guidance-notes/sustainability-and-commercial-property-valuation-2nd-edition/

http://www.rics.org/ch/knowledge/professional-guidance/guidance-notes/sustainability-and-commercial-property-valuation-2nd-edition/



http://www.sasb.org/

http://www.unepfi.org/fileadmin/documents/responsible_property_investing_01.pdf

http://www.unepfi.org/fileadmin/documents/responsible_property_investing_01.pdf

http://www.unepfi.org/fileadmin/documents/FinancialInstitutionsTakingActionOnClimateChange.pdf



http://www.unepfi.org/fileadmin/documents/fiduciary_duty_21st_century.pdf


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/

http://www.ceres.org/

www.igcc.org.au

www.iigcc.org

http://www.unpri.org

http://www.unepfi.org

www.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

http://www.carboncredentials.com/

http://www.climatestrategy.com/

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