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CCLA

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.

CCLA recognise the importance of ESG criteria in determining the value of property assets over the longterm. We note that a combination of legislation, regulation and tenant preferences are likely to penalise the worst ESG rated properties. 

For this reason, we have developed bespoke ESG criteria to be considered prior to property acquisition. This includes details such as, but not limited to:

  • Flood Risk: We recognise that climate change is likely to accentuate extreme weather patterns. Within the UK Commercial Property sector this could affect the value of properties that are located in areas that are prone to flooding.
  • Contaminated Land: contaminated land can affect the value of the property asset and the health and safety of those working and living in and around the facility.
  • Energy Efficiency: As a responsible investor we support the UK government's Minimum Energy Efficiency Standards for property assets. We also recognise that restrictions upon leasing the worst rated assets place the value of properties with poor EPC ratings at risk. 
  • Building Safety and Materials: The tragic Grenfell Fire highlighted the possible implications of the use of poor quality, or unsafe, materials. As a consequence, reviewing the safety of building materials is a core part of our due diligence process and has led to use walking away from prospective investments in previous years.
  • Health Safety and Wellbeing: All properties are assessed on a wellbeing metric prior to acquisition. We believe that this will make our properties more attractive to tenants, which will in turn increase the possible return.
  • Public Transport: When reviewing office assets we review the ability for our tenants' employees to travel via public transport or other environmentally conscious modes of transport

Our responsible investment due diligence is co-ordinated by BNP Paribas and analysed by CCLA as part of our investment decision making. Poor ESG scores can lead to us offering a lower price for an asset, mandating refurbishment or walking away from an investment opportunity.

All transactions are completed in accordance with CCLA's Conflicts of Interest Policy. We also screen prospective tenants against our anti-corruption and bribery criteria.

This process is overseen by the Quarterly Responsible Property Investment Meeting.

 

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

          Contaminated land can affect the value of the property asset and the health and safety of those working and living in and around the facility.
        

Environmental example 2, description

          As a responsible investor we support the UK government's Minimum Energy Efficiency Standards for property assets. We also recognise that restrictions upon leasing the worst rated assets place the value of properties with poor EPC ratings at risk.
        

Environmental example 3, description

          We recognise that climate change is likely to accentuate extreme weather patterns. Within the UK Commercial Property sector this could affect the value of properties that are located in areas that are prone to flooding.
        

Social example 1, description [OPTIONAL]

          The tragic Grenfell Fire highlighted the possible implications of the use of poor quality, or unsafe, materials. As a consequence, reviewing the safety of building materials is a core part of our due diligence process and has led to use walking away from prospective investments in previous years.
        

Social example 2, description [OPTIONAL]

          All properties are assessed on a wellbeing metric prior to acquisition. We believe that this will make our properties more attractive to tenants, which will in turn increase the possible return.
        

Social example 3, description [OPTIONAL]

          When reviewing office assets we review the ability for our tenants employees to travel via public transport or other environmentally conscious modes of transport
        

Governance example 1, description

          Prospective tenants are reviewed by the ethical screening manager to establish any anti-corruption and bribery risks. This is based upon the methodology that we have developed to assess companies in our listed equity portfolios.
        

Governance example 2, description

          All acquisitions are made in accordance with CCLA's Conflicts of Interest Policy
        

Governance example 3, description

          As a matter of course we review buildings' regulatory risks
        

04.4. Additional information. [Optional]


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.

To ensure the best possible implementation, and recognising the need for specialist knowledge, we have employed our third party managing agents, BNP Paribas Real Estate Services, to provide additional due diligence and property management. This ensures that we receieve comprehensive information on properties' ESG standards, allowing CCLA to properly assess the assets' value, and benefit from their network of service providers. 

BNP are responsible for collating data on properties' ESG performance from a variety of sources. However, due to this relationship, CCLA do not receieve unanalysed, raw, data on properties.


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.

          ESG impacted the due diligence process to become a key source of investment data and future management planning
        

06.3. Additional information.

CCLA believe that ESG criteria are likely to affect the longterm value of property assets. For this reason, it has affected our investment process in a number of ways throughout the reporting year.

First, we reject investment  opportunities where we believe that poor ESG standards place value at risk. An example of this was a prospective investment in an industrial unit in Banbury. Having considered and debated the merits of this investment it was decided to abort our interest due to a number of environmental issues that had been revealed by the vendor.  The issues centered on an historic spillage incident that resulted in the pollution of drainage systems and ground conditions with a threat to controlled waters and human health.  This was caused by an industrial oil leak and was sufficiently serious to require the involvement of the Environmental Agency. This historic, long-standing and unresolved incident that required future remedial action to be implemented was deemed unacceptable and represented a high risk on many levels.  It was decided that the investment should not be pursued and our interest was aborted.

Second, we place specific covenants within lease agreements and alter the price of our investments. An example of the latter was Bath Waterside (as it is known), a purpose-built hotel premises situated on the bank of the Kennet and Avon canal. The property is made up of the main hotel constructed in the 1980’s and later extended, and an old converted mill house. During the pre-purchase due diligence process an issue was identified concerning possible flood risk affecting an outbuilding on the site which impacted on buildings insurance for the property. A price adjustment of c.£50k was agreed to reflect necessary flood protection measures to the property which was agreed with the vendor.

Finally, due to the comprehensive nature of our due diligence process we sometimes identify ESG risks that we do not believe pose a threat to invested value. These are logged and prioritised for remediation through refurbishment (where possible)


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