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Schroders

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.

At Schroder Real Estate sustainable Investment applies to all stages of managing a property portfolio from investment selection, acquisition, through the period of holding the investment and to sale. SREIM has an Investment Procedure for Transactions which confirms Fund Manager responsibility for ensuring all necessary due diligence is undertaken to include, inter alia, the primary considerations set out below:

•          Legal title review

•          Environmental review

•          Flood and other relevant hazard risk review

•          Technical review/structural survey

•          Sustainability risk assessment

•          Tax risk review

These requirements are supplemented by the Schroder Real Estate’s Sustainability Guidance for Investment and Asset Management which outlines the importance of sustainability aspects for an asset's longer term resilience and ability to deliver performance. Sustainability considerations may improve an asset i.e. by reducing occupational costs and improving internal comfort for the benefit of tenants and should help retain and attract tenants, support or boost rents, manage obsolescence and improve investor appeal. We believe that consideration should be given to the risks and rewards of providing more sustainable built environments whilst also ensuring regulations are adhered to. Risk and reward assessments carried out for any potential investment are made at asset level and across the portfolio.

All proposed investments are subject to the approval of the SREIM Investment Committee before they can be progressed for acquisition.

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

          Energy Performance Certificates are reviewed to ensure they reflect the building type and location appropriately, regulation and Schroder minimum standards,
        

Environmental example 2, description

          Occupiers and individuals are becoming increasingly aware of the Health & Wellbeing benefits of space with good air quality, natural light, external views especially to (green) space, good acoustics as well as the ability to control thermal comfort and artificial lighting levels.The onset of handheld devices to monitor indoor environmental quality will lead to more appreciation and the need to optimise conditions for the benefit of users of space. The choice of materials and finishes for works, refurbishments and developments should also be considered in respect of Volatile Organic Compounds.Consideration should be given to understanding and monitoring indoor environmental quality and communication of this to space users for example through certifications.
        

Environmental example 3, description

          Flood risk includes river, tide, surface and ground water flooding, considerations include: whether the asset located in an area of flood risk (consider i.e. Government agency (i.e.UK Environment Agency) map and insurers own maps), what is the level of risk; the asset itself and the immediate vicinity, access routes and surrounding infrastructure and customers, community and clients: are there flood management systems in place locally that mitigate the risks; whether there are strategies that could be employed at the asset to support both its and the community situation further;  the insurance position, the impact on the premium for the fund and would other investors be able to obtain insurance at an acceptable rate
        

Social example 1, description [OPTIONAL]

          
        

Social example 2, description [OPTIONAL]

          
        

Social example 3, description [OPTIONAL]

          
        

Governance example 1, description

          Schroders Guidance for Transactions refers to Schroders Anti Bribery and Corruption policy which sets out Schroders' position in relation to any acts, offers or commitments which might be regarded as bribery. It underlines the Group's commitment to zero tolerance towards bribery, provides high level guidance on what may be regarded as bribery and sets out the consequences of breaching the policy for Staff and the Group.
        

Governance example 2, description

          Schrroders Group Conflicts of Interest Policy, which applies to both regulated and non-regulated entities within the Group with respect to the identification and management of potential and actual conflicts of interest, which arise or might arise in the course of carrying out their business and which might entail a material risk of damage to the interests of one or more of its clients and/or the reputation of Schroders. This is supported with a Direct Property Investment Allocation policy.
        

Governance example 3, description

          Insurance: Transactions Guidance requires that insurance risks have been taken into account in any Transaction and that appropriate insurance is in place for the portfolio at all times. The insurance impact of any flood risk and other relevant local/natural hazards should be specifically considered and addressed in any proposed acquisition.
        

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.

All information and data ascertained during the initial analysis of a potential investment is analysed by the investment manager and advisors involved in the acquisition. We aim to ensure all the risks and opportunities for a potential acquisition are fully understood to allow potential returns to be modelled accurately. ESG considerations together with all other investment matters are assessed to determine the risk profile of the asset and conclude the prospects for long term rental growth and investment value.

An example of how ESG information is incorporated into our investment selection process is the building's Energy Performance Certificate. These are assessed to determine whether the certificate rating is appropriate for the building type and location and for existing and potential occupiers. Where the rating is not appropriate thought will be given to what can be done to improve the rating and whether the costs required to be spent to deliver an improved rating make economic sense. It may be that such costs lead us to reduce the amount of money we are prepared to pay for a potential investment.

Information will be gathered by internal staff and using external advisors for example environmental specialists, building surveyors and lawyers. Additionally a third party valuer will provide an asset valuation assessed in accordance with the Royal Institution of Chartered Surveyors rules.

Records are maintained of all information identified and obtained for consideration of potential investments.


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 are considered for all investments proposed. The impact on the investment selection process and deal structuring will vary depending on the nature of the issue identified and its impact in the context of the individual asset acquisition proposed. A risk may be negligible, manageable for the asset or fundamental to the investment decision. For example a significant flood risk may lead to an investment being abandoned or an inappropriate energy performance certificate rating may lead to a lower price being offered to reflect the cost of works required to improve the building's rating.


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