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Principal Global Investors

PRI reporting framework 2018

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Post-investment (monitoring and active ownership)

Overview

PR 08. ESG issues in post-investment activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

08.1. Indicate if your organisation, and/or property managers, considers ESG issues in post-investment activities relating to your property assets.

08.2. Indicate whether your organisation, and/or property managers, considers ESG issues in the following post-investment activities relating to your property assets.

08.3. Describe how your organisation, and/or property managers, considers ESG issues in post-investment activities related to your property assets.

Property managers are contractually required to contribute to ESG efforts through the Pillars of Responsible Property Investing initiative, including to but not limited to the following:

Environmental Measurement

  • Targeted portfolio-wide environmental (GHG emissions, water, and waste) reduction target of 10 percent by 2020, and a recently revised energy reduction target of 20 percent by 2020, in addition to significant reductions already achieved.
  • Benchmark energy and water consumption/costs and waste production/costs monthly in EPA’s ENERGY STAR Portfolio Manager.
  • Develop a sustainability plan as part of the annual budgeting process, implement sustainable building remodeling and operations practices.
  • Create safe, healthy living and work environments through green cleaning and integrated landscape and pest management practices.
  • As requested, participate in the Energy Playbook program to develop an energy target and identify and implement energy conservation projects to achieve the target.
  • Comply with our Utility Data Management policy, which requires property teams to ensure accurate and timely data on energy, water, waste and other key metrics.

Resource Management

  • Achieve standard practices that enable cost savings through no- and low-cost measures, strategic capital improvements, and best-in-class building operations.
  • Implement Energy Playbook and property assessment program to perform in-depth analysis to identify financially viable technologies and efficient operational techniques.
  • Establish transportation and sustainable purchasing policies.

Stakeholder Engagement

  • Utilize our newly updated green leasing language, which allows us to: pass through energy efficiency-related capital expenses to tenants, require disclosure of tenant utility consumption information for the purposes of whole building benchmarking, require tenants to purchase efficient equipment and fixtures during tenant improvement projects, and install submeters to track tenant space energy consumption.
  • Leverage utility and regional incentives, rebates and technical resources.
  • Increase performance certifications such as ENERGY STAR, LEED, and BOMA 360.
  • Develop a tenant and community engagement plan.

Additionally, Principal Real Estate Investors initiated/continued the following programs with select properties:

  • We launched a pilot Energy Playbook program to assist property managers in setting energy performance targets and identifying efficiency projects to achieve their goals in 2016.  This program was expanded in 2017 to include more than 60 properties.  In total, these properties have identified more than 350 energy efficient projects contributing to an estimated $2.2 million in annual avoided energy costs, with an average payback of 4.2 years.

  • Targeted site visits and energy audits to identify no- and low-cost operational improvements.

  • Advanced energy monitoring to provide better information and enable property teams to respond to energy demand and efficiency opportunities as well as energy procurement and curtailment strategies.

  • Innovative group-purchasing, geographic, and technology campaigns to leverage economies of scale and in-house engineering expertise for accelerated performance results. For example, in 2016, Principal Real Estate Investors collaborated with two lighting vendors to upgrade common area lighting at ten properties in Florida, Georgia, and North Carolina. The program identified the opportunity to replace 2,086 lamps in parking lots, garages, and wall mounted fixtures with high-efficiency LED replacements. Once installations are complete, the campaign is expected to reduce annual operating costs by over $160,000 and save over 1,515,000 kWh annually with a 3.6-year simple payback. To date, the properties have saved more than $73,000 and 690,000 kWh since installation, which represents a 23% energy cost reduction and a 28% energy use reduction for the participating assets.

  • We provide extensive guidance, instructional resources, templates, and tips to property managers to streamline their execution of ESG initiatives. We have created handbooks outlining property manager responsibilities and containing worksheets to summarize the PRPI requirements, "how-to" guidelines for using ENERGY STAR Portfolio Manager, "field guides" for common energy efficiency opportunities, and sustainable building and operations/maintenance protocols.

As part of our RPI philosophy, we believe that by conducting business equitably and ethically, we can strengthen local marketplaces, improve the health and productivity of occupants, and subsequently reinforce the financial performance of our properties.

To this end, we work with our property managers to integrate a number of protocols in the course of their business practices:

  • Designing, constructing, and overseeing capital and tenant improvements with the health, safety, and welfare of tenants in mind.
  • Ensuring consistent treatment of tenants and vendors through standardized building-management practices.
  • Managing tenant comfort and satisfaction through indoor air-quality and water-infiltration risk-mitigation plans and operations and maintenance protocols.
  • Promoting quality craftsmanship and fair labor practices through responsible contracting and standardized construction contracts and service agreements.
  • Encouraging increased tenant engagement and community outreach.
  • Promoting supplier diversity through vendor and purchasing initiatives.
  • Fostering safe and healthy work environments through recycling, green cleaning, integrated pest management, and green landscaping practices.
  • Ensuring compliance of federal, state, municipal or other governmental law, ordinance, rule or regulation through accessibility assessments and third-party reports.

Property monitoring and management

PR 09. Proportion of assets with ESG targets that were set and monitored

New selection options have been added to this indicator. Please review your prefilled responses carefully.

09.1. Indicate the proportion of property assets for which your organisation, and/or property managers, set and monitored ESG targets (KPIs or similar) during the reporting year.

(in terms of number of property assets)

09.2. Indicate which ESG targets your organisation and/or property managers typically set and monitor

Target/KPI
Progress Achieved
          A portfolio-wide environmental (GHGs, water, and waste) reduction target of 10% by 2020, and a recently revised energy reduction target of 20% by 2020.
        
          100% adherence to the RPI guidelines implementation of green cleaning, integrated pest management, and green landscaping practices across office, retail and residential portfolios.
        
          Ecological impact, mitigation risks or needs, and opportunities for property enhancement
        
          Achieved 16.4% reduction in energy use over baseline, avoiding 107K metric tons of GHG emissions. Water/waste baseline reporting established in 2016 is currently undergoing analysis.
        
          Principal Real Estate Investors annually requires property teams to certify compliance with ESG policies. At December 31, 2017, 100% of property teams certified compliance.
        
          As of December 31, 2017, 59 properties were ENERGY STAR certified, with an average ENERGY STAR score of 85.5, and 87 properties were LEED certified.
        
Target/KPI
Progress Achieved
          100% compliance with all federal, state, municipal or other governmental law, ordinance, rule or regulation through accessibility assessments and third-party reports.
        
          100% compliance with the creation and implementation of community engagement plans across our office, retail, and residential portfolios.
        
          Above-average tenant comfort and satisfaction survey scores to ensure healthy living and work environments through indoor air quality and water-infiltration risk-mitigation plans.
        
          100% compliance was achieved.
        
          At December 31, 2017, 100% of property teams certified compliance.
        
          Surveys showed an average of 4 out of 5 possible points in “overall satisfaction” across all property types in 2017.  Scores improved vs. 2016.
        
Target/KPI
Progress Achieved
          100% adherence of employees to the Corporate Code of Business Conduct and Ethics, verified through our Compliance Certification Process.
        
          Engage independent third-party vendors to perform annual audits of investment processing controls and audits of financial statements for all Funds.
        
          Promote transparency through tracking, monitoring, and disclosing key financial and environmental data including annual progress under the PRI, GRESB, and EPA’s ENERGY STAR platform.
        
          100% of employees adhered to the Corporate Code of Business Conduct and Ethics.
        
          100% of Funds receive annual independent audit.
        
          Reported to both the PRI (received “A+” rating) and GRESB (“4-Star rating”). Continued tracking energy, water, and waste in EPA’s ENERGY STAR platform.
        

09.3. Additional information. [Optional]

100% of Principal Real Estate Investors properties meet our target to comply with all federal, state, municipal and other governmental, laws, ordinances, rules, and regulations. For example, all properties meet disability access requirements in accordance with ADA code.

ESG issues are included in standard property management agreements, which are standard for all property management partners, including in cases when property managers are affiliated with joint venture partners. Property manager performance reviews take their ESG services and accomplishments into account. Adhering to our policies and procedures is an expectation of their standard performance and part of their management fee. We do not provide additional reward or incentivize them monetarily for these achievements.

To monitor each property manager's progress and provide feedback on how we measure progress, we have created a web-based status board, which tracks progress against several metrics. The status board is viewable by all property managers. While specific properties are not listed, management firms are shown so that firms can see how they are performing against their peers. Status board information is also included in our annual Property Manager Scorecard, which grades property teams on their data management, data accuracy, and responsiveness to ESG responsibilities.

We employ the following tracking, monitoring, and benchmarking protocol to assess performance and identify trends and opportunities:

  • Continually track and monitor energy, water, and waste performance data across all office, retail, and multifamily properties with the EPA's ENERGY STAR Portfolio Manager benchmarking tool.
  • Annually participate in the Global Real Estate Sustainability Benchmark (GRESB), allowing for select fund benchmarking across critical environmental performance, governance, management, and policy
  • Maintain an internal property performance Status Board to monitor and communicate performance metrics and deliverables with our property management partners.
  • Annual certification by property management firms to ensure adherence to all policies and procedures including our Pillars of Responsible Investing Initiative.

 


PR 10. Certification schemes, ratings and benchmarks (Private)


Property developments and major renovations

PR 11. Proportion of developments and refurbishments where ESG issues were considered

New selection options have been added to this indicator. Please review your prefilled responses carefully.

11.1. Indicate the proportion of active property developments and major renovations where ESG issues have been considered.

(by number of active property developments and refurbishments)

11.2. Indicate if the following ESG considerations are typically implemented and monitored in your property developments and major renovations.

11.3. Additional information. [Optional]

In 2016, we formalized our sustainability approach as it relates to design and construction activities through the PRPI Guidelines for Real Estate Development. These guidelines encourage new development partners and stakeholders to pursue designs that achieve performance certifications and incorporate procedures that enable staff to track and monitor energy, water, and waste in Portfolio Manager, in addition to other requirements.

In accordance with our Guidelines for Real Estate Development, nearly all new developments and major renovations are built to LEED standards and obtain certification. LEED provides a comprehensive framework to ensure a broad range of ESG issues are addressed. We also work with property managers to ensure that design, construction, and overseeing capital and tenant improvements is consistently accomplished with the health, safety, and welfare of tenants in mind.

The primary drivers behind our ESG approach in new developments and existing buildings include:

  • Reduce costs and enhance asset value.
  • Meet client and investor objectives.
  • Fulfill commitments of the United Nations Principles of Responsible Investment.
  • Align operations with community, tenant, and stakeholder expectations.
  • Fulfill regulatory requirements.
  • Gain competitive advantage.

We utilize standard AIA contracts with all contractors to ensure contractor compliance and require ongoing status reports. We promote quality craftsmanship and fair-labor practices through responsible contracting and standardized construction contracts and service agreements. Our "Indoor Air Quality Guidelines and Building Maintenance and Operations Protocol," includes steps to maintain air quality during construction. Contractors are required to follow the guidelines and property managers are responsible for verifying their compliance.


Occupier engagement

PR 12. Proportion of property occupiers that were engaged with

New selection options have been added to this indicator. Please review your prefilled responses carefully.

12.1. Indicate the proportion of property occupiers your organisation, and/or your property managers, engaged with on ESG issues during the reporting year.

(in terms of number of occupiers)

12.2. Indicate if the following practises and areas are typically part of your, and/or your property managers’, occupier engagements.

12.3. Additional information. [Optional]

Promoting sustainability to our tenants is part of our Pillars of Responsible Property Investing program for our property managers. They are directed to develop an education, communication and engagement plan for the tenants. We expect property managers to encourage tenants to implement sustainable building practices within their business operations, provide tenants with information and tools on benchmarking, and actively promote and enforce sustainable building practices and initiatives. To increase engagement and enforcement, we also strive to incorporate green lease clauses into our standard lease form as well as incorporate sustainability standards into the building rules and regulations and the tenant improvement guidelines.

Tenant engagement programs are specific to each building and vary by market. Property managers are asked to include tenant and community engagement in their sustainability plans.

In 2016, we created the PRPI Handbook and Addendum, a comprehensive set of resources that includes property manager responsibilities as they relate to tenant engagement in addition to other responsible property investing policies and guidance materials. Components of the Handbook and Addendum include: Broker education materials, a Tenant/Resident Guide to Saving Energy and Water, Vendor education sheets, and community outreach recommendations to better inform and organize participation by stakeholders on environmental, social, and governance issues related to the property.


PR 13. Proportion of green leases or MOUs referencing ESG issues

13.1. Indicate the proportion of all leases signed during the reporting year that used green leases or the proportion of Memoranda of Understandings (MoUs) with reference to ESG issues.

(in terms of number of leases or MoUs)

13.2. Additional information.

In 2017, we completed and incorporated revisions to our standard Green Leasing Language. This new language allows us to: pass through energy efficiency-related capital expenses to tenants, require disclosure of tenant utility consumption information for the purposes of whole building benchmarking in Portfolio Manager, require tenants to purchase ENERGY STAR and/or WaterSense certified equipment and fixtures during tenant improvements, and install submeters to track tenant space energy consumption. As a result of these efforts, we earned the 2017 Green Lease Leaders Award from the Institute of Market Transformation and the U.S. Department of Energy. This leasing language is currently being rolled out across our portfolios.

Principal Real Estate Investors encourages the use of green lease language for its transactions and is developing further guidance for property managers, brokers, and staff. We have also adjusted our standard lease language and direction to property managers to ensure that we and our building occupants remain in compliance with local energy disclosure mandates as they become increasingly prevalent. We recognize that utility costs are part of the total cost of occupancy for tenants and encourage leasing brokers and property managers to recognize this and factor into any lease negotiations.

Lease language is modified to fit specific situations, property types and market conditions. More comprehensive language may be used especially if the building is LEED certified or intends to become LEED certified. The building rules and regulations are also modified to address building standards and building operations and practices.

All leases are required to include the following minimal information:

Energy and Environmental Initiatives. Tenant shall fully cooperate with Landlord in any programs in which Landlord may elect to participate relating to the Building's (i) energy efficiency, management and conservation; (ii) water conservation and management; (iii) environmental standards and efficiency; (iv) recycling and reduction programs; and/or (v) safety, which participation may include, without limitation, the Leadership in Energy and Environmental Design (LEED) program and related Green Building Rating System promoted by the U.S. Green Building Council. All carbon tax credits and similar credits, offsets and deductions are the sole and exclusive property of Landlord.


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