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Intentionality to Outcomes: Positive Impact Investment in Real Estate

Home / Perspectives / Intentionality to Outcomes: Positive Impact Investment in Real Estate

Tatiana Bosteels, Head of Responsible Property Investment
28 July 2017
Real Estate

“As a society we are in a phase of transition, and there are a number of megatrends that will influence the real estate investment sector in the near future, including seismic shifts in geopolitics, demographics and technology. As part of our responsible property investment programme, we focus our attention on issues most material to the real estate sector and analysing whether markets are pricing sustainability risk accurately, including externalities, in their measurement of real estate values and worth.”

During 2016-17 our focus has been on the role of real estate in achieving a transition to a low-carbon economy, and in particular the role it can play in scaling up finance for energy efficiency. Real estate also has an important role in helping to meet the UN’s Sustainable Development Goals, and we strongly believe that developing and disseminating Positive Impact Finance approaches will be an important delivery mechanism. These are reported in our 2017 Responsible Property Investment report: “From intentionality to outcomes: Positive impact investment in real estate”

Active engagement for market transformation

As part of actively promoting responsibility, market transformation and managing long-term risks, in the last year we have been working with UK, European Union (EU) and G20 policy makers and regulators, through active contributions to selected responsible property investment initiatives, and we are our pleased with the following achievements:

  • EU engagements making energy efficiency a priority and calling for long-term decarbonisation plans up to 2050 in the Commission draft of the Energy Union
  • Engagement on the EU Capital Market Union leading to recognition of the need to integrate sustainable finance and climate priorities into financial regulatory frameworks
  • Focus on climate action after the Paris Agreement among the G20 nations, which support the agreement as ‘irreversible’, and engaging with national governments on initiatives including the UK Emissions Reduction Plan. We have supported the G20 FSB Climate Related Financial Disclosure Taskforce recommendations, leading to the recognition of the need for scenario analysis to assess and manage medium- and long-term climate risk.
  • A greater focus on energy efficiency in real estate investments, leading to the launch of the G20 Energy Efficiency Investment Toolkit – a unique dialogue between investors and G20 countries – and an initiative for de-risking energy-efficient investments from the European EEFIG finance group. This draws on the DEEP evidence-based platform and the energy efficiency underwriting toolkit.

For these initiatives, we worked with UNEP Finance Initiative (UNEP FI), the Institutional Investors Group on Climate Change (IIGCC), the Principles of Responsible Investment (PRI), the Royal Institution of Chartered Surveyors (RICS), the UK the British Property Federation (BPF) and the Better Building Partnership (BBP).

Positive impact investment in real estate

While responsible or sustainable real estate investment has grown steadily over the last few years, the positive impact investment approach is considerably less mature, with only a handful of impact funds currently focusing on real estate. Discussions about positive impact investment in real estate so far have tended to focus more on financing social initiatives, such as affordable housing, aged care and education, while environmental preservation has received considerably less attention.

At Hermes, we do not label our real estate activities as impact investment, but we have been exploring how to apply the UNEP FI positive impact finance principles. As part of our active responsible property investment programme, we have been assessing what positive impact investment would mean for each step of our investment process. We believe such a framework should be based on three key elements:

  1. Intentionality: defining objectives in terms of real-world impacts, and the targets and indicators we will use to gauge progress
  2. Monitoring the outcomes
  3. Promoting transparency as a way of developing trust in the industry about these issues, including through benchmarking, verification and certification.
  • Embedding ESG targets throughout the investment process: By aiming to deliver specific outcomes through our responsible property investment programme since 2006, we have achieved a number of ESG targets included throughout all of our investment processes
  • Measuring impacts and outcomes: For the last couple of years, we have reported on our impacts by using case studies of specific assets and performance reviews since 2006. The case studies illustrate the variation in outcomes that can be measured, including social and tenant engagement, and raise questions about how to standardise a positive impact measurement approach. Meanwhile, our performance review provides robust quantitative historical trends of environmental performance outcomes:
    • Carbon-emissions performance on a like-for-like basis:
      • 10 consecutive years with like-for-like reductions in carbon emissions
      • 14% decline in like-for-like carbon emissions across the  portfolio in the last year
      • 8% average annual fall in carbon emissions per year over the past 8 years
      • Carbon emissions across our whole portfolio have risen in absolute terms due the increase in our assets under management. However we have seen a continuous improvement in carbon and energy intensity, with a 57% reduction in carbon emissions intensity in offices since 2006 and 35% reduction in carbon emissions intensity in shopping centres since 2006
      • We have outperformed our waste management target by achieving a 92% on-and-off-site waste reuse and recycling and energy recovery score

Changes in absolute carbon emissions for selected case studies of landlord-controlled properties across the portfolio that have delivered efficiency savings between 2006 and 2016 (tonnes CO2e/year). Percentage figures below compare 2016 with the acquisition year

rpi-report-chart-jul-17

Source: “Intentionality & Outcomes”, Hermes Responsible Property Investment report, July 2017.

  • Benchmarking performance against peers: In monitoring and reporting the impact of our investment initiatives, it is also important to assess and compare the relative effectiveness of our programme compared to a peer group of UK and global real estate investors through the GRESB and REEB sustainability real estate benchmarks. Hermes was awarded five GRESB green stars in 2016. Our office portfolio was ranked fifth in the BBP REEB league table in 2016 and our average benchmark was more efficient than the REEB good practice benchmark.

The full 2017 Responsible Property Investment report is available here:
“From intentionality to outcomes: Positive impact investment in real estate”

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Tatiana Bosteels Head of Responsible Property Investment Tatiana joined Hermes Fund Managers in 2008 to lead, develop and implement the integration of ESG in real estate investment and asset management practices to protect and enhance asset value over time. In 2016, she was appointed Director within Hermes' Responsibility team and tasked with developing Hermes' carbon risk strategy and supporting the integration of ESG across all private market strategies, including real estate, infrastructure and private equity. Tatiana has experience developing innovative sustainability programmes through public private partnerships. At the London Climate Change Agency, where she advised the London Deputy Mayor, she developed and delivered the Better Buildings Partnership (BBP) and contributed to the establishment of the first London ESCO. Her previous work covered UK and international climate change policy, carbon markets and instruments, and third-party energy efficiency financing. Tatiana is chair of the Institutional Investors Group on Climate Change (IIGCC) property programme, board member of the Investment Commission's UNEP Finance Initiative, and she has been an active contributor to public policy and sector engagement. Tatiana is an active member of the Better Buildings Partnership, and she sits in the British Property Federation’s sustainability committee and the advisory boards of the Building Performance Institute Europe and the Global Real Estate Sustainability Benchmark. Tatiana holds an MSc in Environmental Management from Imperial College London, an MSc in Mechanical Engineering from UCL Leuven Belgium and is a Fellow of the Royal Society of Arts.
Read all articles by Tatiana Bosteels

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