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The international business of Federated Hermes (formerly Hermes Investment Management)

PRI reporting framework 2020

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Post-investment (monitoring and active ownership)

Overview

PR 08. ESG issues in post-investment activities

08.1. Indicate if your organisation, and/or property managers, considers ESG issues in post-investment activities relating to your property assets.

08.2. Indicate whether your organisation, and/or property managers, considers ESG issues in the following post-investment activities relating to your property assets.

08.3. Describe how your organisation, and/or property managers, considers ESG issues in post-investment activities related to your property assets.

Over the years, focus on RPI has demanded fresh thinking and new ways of working. Federated Hermes has thus created a range of dedicated tools and procedures that cover all aspects of our operations.

Our responsible asset and property management programme integrates the following RPI procedures and tools:

  • Minimum sustainability requirements for refurbishments and developments, including: Construction contractors comply with sustainability guidelines; Environmental site selection requirements; Environmental site development requirements; Resilient building design and orientation; Minimum requirements on pollution, sustainable materials, waste, energy, water, biodiversity.
  • Dedicated responsible property management guidelines for Federated Hermes’  directly managed assets, covering the following ESG matters: water efficiency requirements; energy efficiency requirements; energy generation from on-site renewable sources; waste management plans at sites, occupier’s health and well-being requirements.
  • Strategic and operational sustainability benchmarking of Federated Hermes Real Estate's funds
  • Active data management systems for utilities and waste
  • Ongoing monitoring of performance with continuous feedback between property managers, asset managers and sustainability experts
  • Stringent risk and safety requirements and supporting tools
  • Community and occupiers engagement tool and programmes

Federated Hermes has been monitoring its sustainability performance for its directly managed assets since 2006. We have annual targets which are monitored and reported against in our public responsibility report.

Over the years there have been relevant questions about the limitations of current approaches in delivering measurable outcomes beyond performance to investors, the economy and society.

Our “Impactful Intent” approach aims to deepen our Responsible Property Investment practice, by intentionally seeking a defined positive environmental or social outcome in a particular place or market as a core focus of our responsible investment strategy, in addition to strong risk-adjusted financial returns.

This involves using a purposeful framework to focus our real-estate operations on three specific impactful investment themes. For each of these investment themes we are committing to activities with measurable environmental, economic and societal outcomes, which ultimately support specific targets of the UN sustainable development goals (SDGs). Out impactful investment themes are:

  • Meaningful place-making that creates civic pride
  • Healthy, engaged and productive communities that drive desirable social and environmental outcomes
  • Climate and resource efficiency. Achieving a just transition to a low-carbon, circular economy in order to help prevent further adverse climate change and resource scarcity

Property monitoring and management

PR 09. Proportion of assets with ESG targets that were set and monitored

09.1. Indicate the proportion of property assets for which your organisation, and/or property managers, set and monitored ESG targets (KPIs or similar) during the reporting year.

(in terms of number of property assets)

09.2. Indicate which ESG targets your organisation and/or property managers typically set and monitor

Target/KPI
Progress Achieved
          5% reduction in absolute CO2 emission per year on a like-for-like basis
        
          40% reduction in absolute (tCO2) and relative (tCO2/m2) CO2 emissions of standing portfolio by 2020 compared to 2006
        
          80% on- and offsite waste recycling per year
        
          20% reduction between 2017/2018
9% yearly average reduction since 2006
        
          7% emissions decrease against 2006 baseline 
28% emissions reduction on 2017, largely due to the decrease in portfolio size
        
          64% of waste recycled both on and offsite in 2018. 3% rise in on-site recycling
        
Target/KPI
Progress Achieved
          92% risk and safety improvement requirements completed on time
        
          All property managers to comply with stakeholder (community & occupiers)  engagement minimum requirements
        
          Engage with all occupiers during lease negotiations with the intention of including sustainability clauses in all lease agreements
        
          Achieved
        
          Achieved
        
          Achieved
        
Target/KPI
Progress Achieved
          BREEAM: Ensure that all new developments and refurbishments in excess of £3m n cost) have independent BREEAM assessments completed; intention of obtaining "very good" ratings
        
          All new developments and refurbishments in excess of £3m and £100,000 have independent audits and achieve at least EPC “C” and “D” rating, respectively
        
          Review annually flood plans for assets at a high risk of flooding based on the environmental agency flood maps and guidance
        
          Achieved
        
          Achieved
        
          Achieved
        

09.3. Additional information. [Optional]

We set and monitor ESG targets for 100% of the directly managed assets in our portfolio, representing over 80% of our investment (the remaining 20% are indirect investments). These are published as part of our annual responsible property investment disclosure.

For our indirect and international non-directly-managed assets, we engage with the direct investment and asset manager to ensure ESG issues are integrated into the investment process, and encourage them to set and monitor targets on a regular basis. We also ask all of our indirect to report to the GRESB global benchmark and share their GRESB results with us for monitoring on their ESG integration and enable more detailed engagement on the issues.


PR 10. Certification schemes, ratings and benchmarks

10.1. Indicate whether your property assets are assessed against certification schemes, ratings and/or benchmarks

10.2. List the certification schemes, ratings and/or benchmarks your property assets are assessed against and what proportion of your property assets they apply to.

Specify
          Energy performance certificates
        
Proportion of property assets these apply to

(in terms of number of property assets)

Specify
          GRESB
        
Proportion of property assets these apply to

(in terms of number of property assets)

Specify
          BREEAM
        
Proportion of property assets these apply to

(in terms of number of property assets)

10.3. Indicate if your organisation uses property specific reporting standards to disclose information related to your property investments’ ESG performance.

          EPRA sustainability reporting standards
        

10.4. Additional information.

We use different types of BREEAM certification. Since 2008 we have targets to secure BREEAM certification for new building and refurbishment for all our assets going through refurbishment or new development. Since 2018 we have also been rolling out BREEAM In Use across our operations, with 29 assets having gained the certifications so far.


Property developments and major renovations

PR 11. Proportion of developments and refurbishments where ESG issues were considered

11.1. Indicate the proportion of active property developments and major renovations where ESG issues have been considered.

(by number of active property developments and refurbishments)

11.2. Indicate if the following ESG considerations are typically implemented and monitored in your property developments and major renovations.

          Biodiversity
        

11.3. Additional information. [Optional]

Federated Hermes' responsible property development and refurbishment guide was updated in February 2019 to take into account progress in the industry, including BREEAM specifications and a more extensive approach to refurbishments. The guide includes minimum requirements and the establishment of action plans for all our directly-managed refurbishment and development projects of a certain size. For smaller projects, ESG criteria that are relevant to the scope of the project are integrated.

For our indirect and international non-directly managed assets, we share our guide and engage with the direct investment and asset manager to ensure that ESG issues are integrated into the refurbishment and development projects.

The Guide is available at: https://www.hermes-investment.com/uki/capabilities/real-estate/responsible-property-investment/


Occupier engagement

PR 12. Proportion of property occupiers that were engaged with

12.1. Indicate the proportion of property occupiers your organisation, and/or your property managers, engaged with on ESG issues during the reporting year.

(in terms of number of occupiers)

12.2. Indicate if the following practises and areas are typically part of your, and/or your property managers’, occupier engagements.

          Engage on health and well being
        

12.3. Additional information. [Optional]

We actively engage with our office and retail occupiers through information sharing, holding energy and waste events, and offering other community engagement activities. They represent on average from 50% to 60% of our direct investment depending on the fund. Through our Responsible Property Management Programme, our property managers raise and discuss environmental and social issues with all occupiers at monthly meetings.

Our new Collaborative Asset Performance Programme+ initiative includes active dialogue with the occupiers to manage the assets aiming to improve health and well-being.

We find it more difficult to engage with occupiers in other asset classes given the type of lease and structure of their activities.

Engagement with our occupiers in our indirect funds are made by the managing partners.


PR 13. Proportion of green leases or MOUs referencing ESG issues

13.1. Indicate the proportion of all leases signed during the reporting year that used green leases or the proportion of Memoranda of Understandings (MoUs) with reference to ESG issues.

(in terms of number of leases or MoUs)

13.2. Additional information.

We have developed clauses as part of our standard lease since 2008.  We have proposed a Modern Slavery Act clause in all our leases since 2017.

We negotiate these green clauses in all new leases, however, a refusal (very rare) by a tenant to include them does not stop the lease going forward.

We count all leases where at least one green clause has been included.


Community engagement

PR 14. Proportion of assets engaged with on community issues

14.1. Indicate what proportion of property assets your organisation, and/or your property managers, engaged with the community on ESG issues during the reporting year.

(in terms of number of property assets)

14.2. Indicate if the following areas and activities are typically part of your, and/or your property managers’, community engagement.

          Retail skills development; job and skills development support in our refurbishment and development projects
        

14.3. Additional information.

We manage our community engagement programme through our property managers and have established a stakeholder engagement tool, which provides support to our property managers, sets minimum requirements and additional community engagement activities. We monitor our community engagement programme once a year and reward best performance at our Responsible Property Investment annual awards.

Following growing awareness in the investment industry, we believe responsible investors need to go beyond standard key performance indicators (KPI) and develop qualitative processes to assess the wider socioeconomic impacts of their investment programmes, occupiers' and tenants' engagements. Since 2006 we have been reporting on our environmental performance using KPIs that we measure and monitor on a continuous basis.

At Federated Hermes, while not labelling our real estate activities as impact investment, we have been exploring how to apply the UNEP FI positive impact principles and can argue that we follow the three key principles with regards to our climate and energy efficiency investment practices. As part of our active responsible property investment programme, Responsible Property Investment in Practice, we have been assessing what positive impact investment would mean for each step of our investment process.

We have also reported on the socioeconomic impacts through a narrative approach based on case studies for the last few years. We are working on expanding our reporting boundaries to provide more specific qualitative and quantitative details on the positive social, economic and environmental impacts of some of our investments, whether large urban regeneration or through community engagement in existing buildings.

Our annual report is available at:

https://www.hermes-investment.com/uki/capabilities/real-estate/responsible-property-investment/


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