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AMP Capital Investors

PRI reporting framework 2019

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Pre-investment (selection)

PR 04. Incorporating ESG issues when selecting investments

04.1. Indicate if your organisation typically incorporates ESG issues when selecting property investments.

04.2. Provide a description of your organisation's approach to incorporating ESG issues in property investment selection.

Property investment selection is aligned with the investment strategy for the relevant fund, which incorporates ESG elements: see PR 04. Consideration of ESG factors begins at the earliest stage of the investment process and continues through to the investment decision making process of the Real Estate Investment Committee.

Due diligence. The Property Transactions Team manages due diligence in conjunction with the Fund Manager and Asset Management Team (the entity responsible for managing and maximising value and performance of the asset). The Property Transactions Team may appoint external advisors such as engineers or environmental consultants where specialist skills or technical knowledge is required to inform the transaction due diligence process.

Due diligence identifies key ESG opportunities, risks and impacts that may materialise over the investment horizon. It considers both the immediate markets and sectors, and broader factors including changes in government policy, legislation, tenancy demand and investor sentiment, as well as relevant sustainability issues including contaminated land, hazardous materials and, operational energy and water efficiency, and climate change risk. These are taken into account in asset pricing and risk management plans, as well as the decision to proceed with the acquisition. ESG issues are also considered in a Fund's recommendation to dispose of an asset, if they cannot be managed in a manner beneficial to our client's interests.

Acquisition. Recommendations to invest are brought to the Real Estate Investment Committee, inclusive of any ESG issues raised. The potential acquisition must be accretive to the fund, and ESG issues must not negatively impact the investment or other investments within the fund. The recommendations extend to management of ESG issues post-investment.

Whenever we invest, AMP Capital considers the specific asset, the industry sector in which it lies, and the market or economy in which it operates. AMP Capital therefore draws on comprehensive proprietary and externally-sourced ESG perspectives when making its property selection decisions.

Access to broad ESG perspectives. AMP Capital was one of the first global investment managers to genuinely integrate ESG factors into traditional financial analysis. That has given us the time to develop, test and improve our proprietary approaches, to build the data sets and relationships that allow a richer understanding of ESG issues, and to build the team to act on those insights. Our team is one of the largest and most experienced of its kind in the Asia-Pacific. It has the bandwidth to pursue active international ESG stewardship with investees and other investors, to develop proprietary tools and analyses, and to integrate those insights across all major asset classes and investment teams.

ESG perspectives relevant to our property investments extend beyond the real estate sector, to broader social, environment and economic issues, and to the sectors which rely on properties. AMP Capital's ESG Research Team supplements its extensive proprietary in-house research with data from external providers. Additional information and insights on ESG issues are derived from a range of sources:

•    Over 600 one-on-one meetings with investee companies per year

•    In-house research on over 200 ESG metrics, with information drawn from company meetings, ESG disclosures, and other stakeholders (e.g. labour unions, NGOs etc.)

•    ESG data from external service providers

•    Non-consensus information sources including suppliers, customers and industry bodies

•    Insights gained from AMP Capital teams including our Investment Strategy& Economics, Credit Markets and Multi-Strategy teams

•    Investment team meetings to share news and ideas, discuss implications, and explore different perspectives.

Access to transaction-specific ESG perspectives. AMP Capital's Property Transactions Team may appoint internal and external advisors, such as engineers or environmental consultants, to add asset-specific technical knowledge to our broader ESG knowledge. These advisors may uncover historical issues which may influence the decision to invest in the property. Examples are potential contamination issues, technical life cycle of equipment, climate change physical or transition risks, heritage listings, government notices of rectification, or other legal or planning implications.

Specialist advisers may then be called on for perspectives on any potential ESG issue. The Property Transactions Team may include funds management executives, transaction manager, asset manager, operations, sustainability manager, debt advisory, tax advisors and development managers. The Property Transactions Team reviews the incoming asset to ensure any potential ESG issues are raised and investigated and can appoint  external experts to provide additional advice and coverage.

04.3. Indicate which E, S and/or G issues are typically considered by your organisation in the property investment selection process, and list up to three examples per issue.

Environmental example 1, description

          During 2018, as part of the acquisition due diligence for a mixed-use site (commercial and retail) in Queensland, a preliminary feasibility study evaluating the potential to accommodate the future installation of a solar photovoltaic energy generation system (PV) was carried out. Combined with consideration of the energy efficiency rating (NABERS Rating), the presence of an embedded network that facilitates the owner generating income from the on-sale of electricity to the tenants, the site potential for the future installation of a solar PV system was a positive factor that supported the business case for the acquisition. The relevant fund acquired the shopping centre, a detailed feasibility study evaluating the viability solar PV will be conducted.
        

Environmental example 2, description

          Energy and water efficiency: all transactions include an evaluation of the energy efficiency of the proposed real estate asset, typically based on the NABERS Energy rating, which is used to evaluate if exposure to high operating costs may pose a risk to investment returns, e.g. whether local market tenant demand for efficient buildings might result in higher vacancy rates for lower efficiency assets.
        

Environmental example 3, description

          The Transaction ESG Checklist includes a requirement to evaluate the risk of extreme weather/natural disaster susceptibility at the site, which is typically addressed as part of an Environmental Impact Statement or other technical due diligence investigation by a relevant consultant. An example of a transaction during 2018 involved the due diligence on 2 commercial assets. A Climate Change Risk Assessment report identified that key risks for the site location were heat stress and storms. During the diligence investigation, the stormwater drains were inspected to review adequacy to manage heavy rainfall, and were assessed to be in good condition. HVAC systems were assessed to be likely to be able to manage heat stress
        

Social example 1, description [OPTIONAL]

          Workplace health, safety and wellbeing issues:  The Property Transaction Committee consider Health and Safety issues as an important part of the pre-investment screening and due-diligence process. Wellbeing is considered in relation to issues such as whether the property has provisions for bicycle parking, lockers and change rooms with showers, whether it has a gym or other fitness options for occupants, and proximity to food retail and other community amenities relevant to occupant health and wellbeing.
        

Social example 2, description [OPTIONAL]

          Transport connectivity and disability access: The Transaction ESG Checklist prompts the Property Transaction Committee to consider proximity to public and private transport options, as well as the physical accessibility of the site and buildings. The cost of any works that would be required to be carried out to achieve compliance with Disability Discrimination Act (DDA) requirements for physical accessibility such as level thresholds and ramps are factored into the transaction financial model, and considered as non-development capital works which will be required during the operation phase of the asset, and these assumptions are reflected in the valuation that informs the decision whether to purchase the asset.
        

Social example 3, description [OPTIONAL]

          Occupant satisfaction: The Transaction ESG Checklist prompts the Property Transaction Committee to consider occupant satisfaction in relation to potential impact on vacancy rates and lettability. Copies of tenant satisfaction surveys are sought as part of the due diligence process, and investigations are undertaken into any sources of persistent tenant complaints or grievances which might affect an existing tenant's decision whether to renew their lease, or the future 'leasability' of any part of the property
        

Governance example 1, description

          Conflicts of Interest: The AMP Conflicts of Interest Policy provides principles on the management of conflicts within AMP Group, including AMP Capital Real Estate. The policy assists AMP staff to identify if a conflict may arise and to provide principles on how to manage conflicts in an appropriate and consistent manner. All AMP staff are required to comply with this Policy, including those involved in real estate transactions.
        

Governance example 2, description

          Risk management and regulatory compliance reporting: The ESG Transactions Checklist prompts the Property Transaction Committee to consider any breaches or potential breaches of ESG related laws or regulations as part of the due diligence process. AMP Capital also has an Environmental Legislative Compliance Committee, which addresses operational ESG risk for existing assets.
        

Governance example 3, description

          Disclosure of ESG performance using recognised third-party benchmarks and auditing (e.g. GRESB, NABERS, Green Star): A key sustainability governance mechanism is AMP Capital’s use of third-party benchmarking, rating and certification schemes (e.g. GRESB, NABERS and Green Star) to validate AMP Capital Real Estate Funds’ and Assets’ sustainability performance. This facilitates internal benchmarking of real estate assets within our portfolio, as well as external benchmarking against industry peers. The use of these third-party rating tools provides a high degree of transparency about the sustainability performance of our assets to our investors, customers and the market. AMP Capital’s sustainability performance data is also verified by third-party auditors as part of the annual disclosure of our Carbon Footprint to the Clean Energy Regulator through the NGERS regulations, and as part of our annual GRESB submission. Further audits are conducted as part of our Environmental Management System which is aligned with ISO14001. This benchmarking using credible third party sustainability rating systems enables us to evaluate prospective acquisition properties against our own portfolio’s performance, as well as the broader market, and is valuable in evaluating the sustainability risks and opportunities associated with an acquisition.
        

04.4. Additional information. [Optional]

AMP Capital takes a holistic approach to ESG issues that incorporates both macro and asset-specific issues from a variety of perspectives. On the specific areas:

Environment. AMP Capital is focused on ways to meaningfully reduce the environmental impacts of its property assets, including through energy efficiency, remediation of contaminated sites and using appropriate benchmarking tools to evaluate performance of assets against relevant environmental factors (e.g. energy, water, waste).

Social. Assets managed by AMP Capital are an integrated part of their local community, affecting tenants, employees, contractors, service providers and the general public. AMP Capital therefore needs to monitor the expectations of these stakeholders, and whether we are meeting them. Relevant matters extend to the health and safety of employees and the public, transport connectivity and that privacy legislation is met regarding gathering and disclosure of any personal details.

Governance. AMP Capital Real Estate's internal management structure has committees or boards for the legal and operating aspects of real estate investment. These include:

•    Real Estate Investment Committee for major decisions (e.g. acquisitions);

•    Health, Safety and Compliance Committee for potential workplace, health& safety and other potential risks at the asset level; and

•   Property Business Operation Committee which coordinates all operational aspects of the Property business within the broader AMP Capital risk and compliance framework.


PR 05. Types of ESG information considered in investment selection

05.1. Indicate what type of ESG information your organisation typically considers during your property investment selection process.

05.2. Provide a brief description of how this ESG information was incorporated into your investment selection process.

See section PR 07.2 for a description of the extensive internal and external data and sources used by AMP Capital in its property investment processes.

Country level data/benchmarks used include national benchmarking tools Green Star & NABERS.

International initiatives, declarations or standards used include GRI and GRESB.


PR 06. ESG issues impact in selection process

06.1. Indicate if ESG issues impacted your property investment selection process during the reporting year.

06.2. Indicate how ESG issues impacted your property investment deal structuring processes during the reporting year.

06.3. Additional information.

ESG issues have helped AMP Capital gain a more accurate appreciation of an asset's investment appeal. For example:

  • Evaluating opportunities to improve occupant and community amenities to create additional asset value (e.g. installing end-of-trip facilities to improve tenant wellbeing, or landscape amenity improvements to improve biodiversity and amenity)
  • Considering the financial impacts of an investment targeted for acquisition due to levels of contamination requiring remediation, but deciding that the primary risk lay with the lessee of the property not the owner and was therefore not material, and
  • Altering the price offered/paid due to a better understanding of the capital expenditure needed to mitigate potential risks associated with contamination, flood risk, and to improve energy performance in line with market expectations.

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