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EG Funds Management

PRI reporting framework 2020

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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.

EG views the principles of responsible investment as paramount to the investment decision-making process and has developed internal systems to entrench the principles of responsible investment in its decision-making process. These principles and ESG considerations are applied in the management of both existing assets and when making new investments. As a manager and developer of real estate assets, EG seeks the highest and best use for its sites while ensuring that the principles of social and environmental sustainability are applied.

EG believes that it is part of its fiduciary duty to consider all factors which affect its stakeholders, including ESG considerations. EG accordingly incorporates ESG principles throughout the life of an investment including the acquisition, management and the disposal of assets.

From the initial stages of investment evaluation, EG undertakes comprehensive asset due diligence to ensure that key ESG risks and opportunities can be identified and managed. EG’s due diligence process includes the use of EG’s own proprietary risk management system (PRISMS) and a bespoke due diligence checklist.

EG’s due diligence checklist has a comprehensive ESG section with 14 questions covering a range of ESG risks and considerations. These questions consider, amongst other items, the environmental impacts of the asset and how initiatives can be undertaken to improve energy, water and waste efficiency. Consideration is also given to climate change risk. Social considerations are also assessed which often includes profiling tenants and "quality of place".  EG's PRISMS software similarly allows for a systematic approach to undertaking asset due diligence and identifies, quantifies and monitors asset risks over time. These key risks are then registered, monitored and managed throughout the life of the investment. PRISMS® applies a highly quantitative approach to assessing risk and ensures that all prospective investments are considered in a systematic manner. EG provides an assessment of these ESG issues in its investment proposals. Moreover, EG is in the process of investigating net zero targets for all assets across our portfolio and when an organisational pathway is finalised, we will be including these items into the DD checklist. 

Where EG undertakes due diligence on an asset, external contractors (such as town planners, engineers, environmental consultants and designers) are engaged to perform assessments on a broad array of items, including: 

Contamination
Heritage
Biodiversity
Flooding
Traffic
Safe building materials
Natural hazards

The due diligence process identifies those risks and opportunities which will not only affect the financial performance of the asset but also have ESG impacts. Once these issues are identified, they can be responsibly managed.

The key risks identified as part of the due diligence and PRISMS® assessment are then logged, tracked and managed throughout the life of the investment. This risk register forms part of the asset strategy once acquired. Further, during the due diligence phase EG develops an asset plan for each asset which forms the basis of the ongoing asset management.

The asset management plan is then put in place to address issues and opportunities identified during due diligence. Each asset acquired is then continually assessed for ESG improvements and initiatives are put in place, for example, to improve the sense of community at a development and to improve the performance of assets, with a focus on low-cost initiatives that have a substantive positive effect on ESG. For EG developments, we also have proactive and transparent community engagement throughout the planning and construction phases.

EG believes that energy efficiency, water efficiency and waste management are fundamental components of the financial performance of buildings and tenant satisfaction. These factors are modelled into our financial models quarterly. EG will engage consultants to assess environmental factors before deal execution. 

We currently do not have a materiality threshold for ESG issues. However, when issues are identified, we will assess the risks and opportunities and determine whether it warrants either investigating further or dismissing.  Where we identify ESG issues which can be improved in our due diligence process, we take this as an opportunity to implement our skills in this area and improve the building’s performance as opposed to dismissing the investment. 

Some examples of ESG initiatives which EG undertakes are:

- Investigation into viability of solar panel installations
- Energy site audits for leakage of power usage
- Assessment of employment in the community
- Preserving heritage
- Improving building efficiency (electricity and water usage).

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

          Deakin University research suggests that the carbon cost for a 20,000sqm buildings constructed to a high environmental standard is 50 tonnes of greenhouse gases. In contrast an existing building of the same size will on average emit 1 tonne of greenhouse gases per year for base building energy. Therefore even if a new building can entirely eliminate greenhouse gas emissions from base building energy, the payback period is 50 years. Consequently, the HISOT fund specifically targets existing buildings, with a low NABERS rating transforms the building to optimize its environmental efficiency. An increase in NABERS energy rating by 2 stars can reduce emissions by up to 50%.  Because of this, we believe that there is more potential to contribute to efforts to combat climate change. A performance fee is based on how well the energy efficiency ratings are improved. 

All of EGs funds attempt to utilize their respective assets to the most optimal point, and are continually investigating how to implement energy efficient solutions.
        

Environmental example 2, description

          EG’s YPI funds support Transit Oriented Development and target sites around public transport corridors to encourage the use of public transport and provide key community facilities within close proximity to development, whilst mitigating the environmental impacts of urban sprawl and dependence on private transport. The fund applies high environmental design standards to its new assets to assist in reduce the fund’s overall environmental impact. The aim of these strategies is to reduce the environmental impact of investments whilst improving social amenity through access to services and green space.
        

Environmental example 3, description

          When acquiring any asset, contamination checks are carried out as part of our DD checklist. Wherever there is any form of contamination, EG will conduct the relevant procedures to decontaminate the site.
        

Social example 1, description [OPTIONAL]

          Building community -  EG's B.I.G thinking framework is embedded into everything that we do. From the initial stages of planning through to ownership of assets, EG engages with all stakeholders to improve the social outcomes for all.

Part of EGs purpose is to create and build premium developments which enhance existing neighborhoods and where new communities will flourish and grow.

One example of this, is the development of the Flour Mill at Summer Hill. This development involved collaboration with expert consultants hand picked for their expertise in complex heritage projects with an industrial overlay. This, combined with an extensive consultation with the local community was vital in ensuring that community expectations were exceeded and a vibrant community was created.
        

Social example 2, description [OPTIONAL]

          The YPI fund uses proprietary software which assists us in assessing accessibility. We consider proximity to employment hubs, high performing schools, green recreational areas, transport and community infrastructure as part of deal selection.
        

Social example 3, description [OPTIONAL]

          Prior to Aluminium composite panels (ACP) being banned, EG removed all ACP from its buildings.
        

Governance example 1, description

          EG has strict policy about bribery and corruption. In order to minimize and/or manage conflicts of interest, all staff members and officers of EG Group must comply with the comprehensive policy. For example:

(a)      not solicit, accept or offer commissions, fees, gifts, favors or entertainment which might influence, or appear to influence, their business judgment; avoid engaging in any practice that could be seen as bribery, fraud or otherwise unethical;

EG also has whistle blowing policies made known to all staff, to ensure that if any of these activities are observed, that they are reported to the relevant staff.
        

Governance example 2, description

          Extensive policy to identify and manage conflicts. The policy sets out not only statutory requirements but also what EG believes to be best practice.
        

Governance example 3, description

          EG has an executive committee that oversees all investments, as well as a dedicated compliance officer. EGs flat line structure allows for anyone to approach board members, executive committee members or the compliance officer.
        

04.4. Additional information. [Optional]

There are ESG risks associated with every investment. During due diligence, we consider not only the substantive impacts of these risks but also the potential reputational risks for investors and EG if these risks were to be realised. It should be noted, however, that industry segments or businesses facing high ESG risk are not within our mandates and investors in each of our funds have veto rights. These risks are discussed in our Review/Investment Committee process. We have a 122 due diligence checklist which we complete prior to the acquisition of an asset and 14 of these items relate to ESG considerations. ESG risks and opportunities are also identified and reported on in investment proposals submitted to fund investors. 


PR 05. Types of ESG information considered in investment selection (Private)


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.


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