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Resolution Capital Limited

PRI reporting framework 2019

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
100 %
Total actively managed listed equities 400%

01.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

Our investment objective is to deliver superior risk adjusted long term returns when compared with relevant benchmarks.

We believe this can be achieved by investing in a concentrated portfolio of carefully selected listed real estate securities. When stocks are selected there is an emphasis on avoiding fundamental flaws which could reasonably result in permanent impairment of the underlying investments. This aligns our investment process and security selection with clients’ objectives of long term wealth creation.

Primarily through bottom up research, we seek to identify and invest in a select group of high quality stocks which afford unique characteristics that the market continues to under appreciate.

The stringent filtering process focuses on identifying and exploiting three key attributes:

  • High barrier property markets where landlords have the best potential for long term pricing power;
  • Strong balance sheets which can successfully withstand and exploit market cycles; and
  • Management teams with skill, discipline and alignment.

ESG considerations are an integral part of RCL’s investment philosophy. We believe these initiatives benefit the broader community and that strong ESG practices of the companies in which we invest are likely to be additive to their performance and hence investor’s will ultimately be rewarded through superior investment outcomes.

The following section highlights some of the ESG factors we consider in our investment process.

Environmental

Environmental policies that lead to greater energy, water and waste efficiencies reduce operating expenses, making assets more profitable and environmentally sustainable. Additionally, tenants and consumers are increasingly setting minimum standards for sustainability. Buildings that meet such requirements have higher occupancy. Finally, buildings with high environmental standards may receive better pricing upon sale, due to a wider pool of potential buyers.

Where possible we measure the company’s consumption (per square metre), like-for-like change and targets for:

  • Energy;
  • Greenhouse gas;
  • Water; and
  • Waste.

However, in our opinion, environmental ratings can’t be measured in isolation, for a number of reasons, including:

Limited data availability across all REITs;

  • Inconsistent methodology between different regions and sectors; and
  • Does not take into account properties acquired for the intention of retrofitting to raise sustainability ratings.

Hence, we do not think it is always appropriate to rank the environmental rating of the static portfolio, but rather we track how each company is improving.

Whilst we take industry measures of sustainability into account, it is critical to consider the objectives and track record of management. We use meetings with management and property tours to discuss environmental credentials and review how they are incorporated into asset management and development.

Social

Real estate touches many facets of our everyday lives and therefore it’s important to consider how companies interact with all stakeholders. We consider, partly from a risk perspective, a number of the company’s policies and performance, including:

  • Customer and local community relationships/engagements;
  • Safety track record (including fatalities);
  • Adherence to human rights (in the supply chain); and
  • History of illegal activities/corruption.

In terms of company employees we, where practicable, review of the following factors:

  • Employee engagement and training;
  • Staff turnover (treatment); and
  • Diversity.

Governance

We believe that good governance and good management are imperative to an entity’s long term success. We have observed that companies with aligned management typically outperform companies with inferior alignment over the long term. We focus on:

  • Management share ownership;
  • Remuneration structure and KPI’s;
  • Board composition (including diversity);
  • Track record, transparency, integrity;
  • Minority shareholder protection; and
  • Conflicts of interest/related party transactions.

Approach

The responsibility of incorporating ESG into the investment process sits with the Investment Team. The team integrates ESG factors in the investment process. Investment Analysts and Portfolio Managers are responsible for identifying and assessing relevant ESG factors. A discussion of these factors is included in stock initiation and research reports and are explicitly factored into valuations via adjustments to the company’s earnings forecasts and / or valuation multiple, where applicable.

 

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]


LEI 02. Type of ESG information used in investment decision (Private)


LEI 03. Information from engagement and/or voting used in investment decision-making (Private)


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

We seek to avoid investing in companies with poor governance and this manifests in our avoidance of externally advised structure where management teams are often incentivised to grow assets for higher fee revenues rather than improved returns for shareholders.

Screened by

Description

Our portfolio is heavily skewed towards companies with strong ESG credentials. 

For example, our concentrated portfolio owns the top 4 companies in GRESB's latest survey (FTSE Developed Index constituents only). 

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

RCL's investment philosophy has not changed. ESG considerations are an integral part of RCL’s investment philosophy. Our process is focuses on identifying and exploiting companies which have the following three key attributes:

  • High barrier property markets where landlords have the best potential for long term pricing power;
  • Strong balance sheets which can successfully withstand and exploit market cycles; and
  • Management teams with skill, discipline and alignment.

We don’t invest in companies with poor governance, unless that’s the only way to get exposure to the underlying real estate sector. Our portfolio heavily skewed towards companies with strong ESG credentials. 

Our quarterly commentary indicates changes in the portfolio, as well as the rationale for such moves. We identify and report adverse changes in corporate governance – both in structure and in policy – when they occur.

We also maintain current versions of our RI policy on our website.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

GRESB data is released once a year. 

We update in-house ESG data on a continued basis.


LEI 06. Processes to ensure fund criteria are not breached (Private)


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

We systematically research E and G issues for all companies based on external and in-house research. Social research is more limited but we have stated KPIs that we try and screen for.


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information.[Optional]


LEI 10. Aspects of analysis ESG information is integrated into (Private)


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