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:
- Greenhouse gas;
- Water; and
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.
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
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.
We are active owners and we engage with companies on different ESG issues and seek to improve disclosure where relevant. Please refer to our Proxy Voting and Engagement policies for more details.
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.
ESG is an important component of Investment Team staff variable remuneration.