Incorporating ESG into Investment Strategy Drive performance, attract investors, and increase NOI RETHINK WHAT AP CAN BE THE BUXE Company
Ou Our sp speakers Roxana Isaiu Dan Winters Sean Daley Kylie Ford Michelle Winters GRESB GRESB Goby Goby Goby THE BUXE Company 2
Why ESG? Drivers behind participation • Respond to existing investor requests for increased disclosure • Attract new investors • Improve company performance & NOI • Identify and mitigate ESG risks • Stay ahead of industry trends THE BUXE Company
How to Engage with ESG Disclosure Mechanisms Elevating Metrics • Disclosure frameworks: GRESB, SASB, UNPRI, CDP, etc. Overlap & synergy • • Industry trends towards environmental disclosure/carbon footprinting TCFD expected to become wider- • spread Communication frameworks Company published ESG reports, GRI, • etc. THE BUXE Company
How to Engage with ESG Disclosure Mechanisms What do investors actually see? • GRESB Investor Members are able to review Public Disclosure Data for all entities THE BUXE Company
How to Engage with ESG Participation Driving Strategy • Reporting frameworks create engagement within the company • Requires participation across departments/regions • Breaks down communication barriers • Creates a platform for investor/company collaboration • GRESB/other disclosures inform long-term strategy • Highlights areas for improvement • Prompts questions of what else can be done • Drives participation in other ESG disclosure/reporting mechanisms THE BUXE Company
Most Asked Questions Institutional Investors + ESG Data + Real Estate | Infrastructure Portfolios 1. Why do Institutional Investors focus on ESG issues? 2. Which issues matter most? 3. How do the capital markets use ESG data?
IN INSTIT ITUTIO IONAL IN INVESTORS ESG O Objectives 8
Objectives Engagem emen ent t on Materi on erial ESG Issues ues Primary Pr Achieve superior risk adjusted returns Str tron ong Implement industry best practice Govern ernance Invest in best-in-class management teams Risk Ri sk Miti tigati tion on Stra trateg egies es Secondary Mitigate reputational risks Sup uperi erior or Long-term, intergenerational view Risk Ri sk-Adj djus usted ed Return turns
UNPRI Signatory Growth Accelerating since 2014
ESG Issues UN Principles for Responsible Investment En Envi vironmen ental So Socia ial Go Governa nanc nce Climate change Human rights Tax avoidance causes and effects Labor standards Executive pay Water access / scarcity Employee relations Corruption Sustainable land use Conflict zones Director nominations Fracking Cyber security Methane release Plastics
Rating Agencies
World Economic Forum’s 2017 Risk Landscape 13
World Economic Forum’s 2019 Risk Landscape 14
World Economic Forum’s 2019 Risk Landscape 15
https://d8g8t13e9vf2o.cloudfront.net/Uploads/y/h/b/eu_sustainabilitydisclosures_2019_622816.pdf https://ec.europa.eu/info/files/192020-sustainable-finance-teg-benchmarks-handbook_en 16
EU Disclosure Regulations – ESG / Sustainability EU regulators emphasizing: 1. The importance of ESG considerations in business strategies 2. Encouraging firms to be proactive in relation to ESG considerations EU Disclosure Regulation requires: • Integration of sustainability risks in investment decision-making /advisory processes • Transparency regarding financial products which target sustainable investments, including reduction in carbon emissions • Specific financial product disclosure requirements • pre-contract • website disclosures • periodic reports [quarterly / annual]
1. C . Climate c change i innovators: : spotting the sleeping giants 2. N . New t terms f for c capital: : ready or not, here comes ESG 3. R . Re-valuing r real e estate: investing in the eye of hurricane 4. T . The h human c capital p paradox: Juggling layoffs and shortages 5. K . Keeping s score o on stakeholder c capitalism: looking for accountability in all new places 18 https://www.msci.com/documents/10199/02f6473f-6fd8-aa8f-be72-443196478ec3
IN INSTIT ITUTIO IONAL IN INVESTORS ESG Is Issues :: R :: Real E Estate 19
Phase I 2009-2014 Management Practices PLAN PL Stakeholder Policy & Engagement Disclosure Risks & GRESB GR Opportunities ACT AC DO DO INDIC IN DICATOR SC SCORE Building Certifications Monitoring & EMS CHECK CH ECK Performance Indicators Tailored Aspects ISO Approach 20
Interactive ESG Data platform I N I N V E S T S T O R E S G A N A L Y T I C S E S P E R S P E P E P E C T I V E E S G P E R E S E R F O R O R M A N C E E S G A N A L Y T I C S E S D A T A D A T GR GRESB ESB Fund m managers Institutional In Assessments As Listed c companies In Investors
Applications Opportunities for portfolio de-risking Capital M Markets | In | Institutional In Investors Industry S In Sectors | P | Participants Positive screening for capital allocation Understand ESG related portfolio risks and manager selection and opportunities Transparency mechanism for pursuing Identify industry best practices in ESG enhanced risk-adjusted returns performance Additional measure of performance Perform gap analysis / introspection Ongoing engagement tool with Develop tailored action plans for investment managers improvement Carbon footprint reporting Metrics for investor communications 22
ESG Integration: APG Asset Management Private real estate investment decision and engagement process 23
ESG Advances Engagement GRESB @ 2020+ Private equity fund underwriting Ticking a box ESG of interest but not a main consideration – Are you a signatory to the UNPRI? – Do you have a policy on sustainability issues? – Do you take account of sustainability issues in investment decisions? No consideration Hygiene “Tie breaker” Reason to appoint ESG considered central to the investment process and needs to the client – How do you use ESG factors to add value and influence your investment beliefs? – Outline whether you perceive there to be a link between environmental performance and financial risk and return. – Demonstrate how incorporating ESG factors have benefited your investments. 24
ESG Advances Due Diligence GRESB @ 2020+ pre-investment phase Due Diligence Criteria in Contracts Failure – We ensure that every – We will not invest if a – GRESB performance / new investment target fund fails our internal ESG completes the GRESB country and tenant questionnaire survey by way of a exclusion check – Corporate governance side letter record Support / Engagement Country & Tenant Exclusion – We work actively with weaker – Prior to investment we request funds that require extra and review the target’s rent roll guidance and support to represented by companies / improve their ESG credentials countries on our exclusion lists 25
IN INSTIT ITUTIO IONAL IN INVESTORS Use o of E ESG D Data 26
Common ESG Investment Strategies 1. 1. Negative/exclusionary s screening • Eliminate companies in specific industries / countries 2. 2. No Norms-based s screening • Eliminate companies that violate a set of norms [eg UN Compact 10 Principles, etc] 3. 3. Po Positive/best-in in-class s screening • Selecting companies with strong ESG performance based on metrics 4. 4. Su Sustainability-themed a allocations • Renewable energy, clean water, carbon reduction 5. 5. ESG In Integration • Includes ESG factors in fundamental company deep-dive analysis efforts 6. 6. Active o ownership / / e engagement • aka ‘a seat at the table’ 7. 7. Im Impact In Investing • Actively seeking investments that make positive impact(s) at competitive market returns
HBS Survey 400+ portfolio managers [2017] URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2925310 28
ESG Data Uses GRESB scores | aspects | KPIs 1. M . Management E Engagement active strategies 2. F . Full E ESG In Integration individual stock valuation fundamental analysis 3. P . Positive S Screening best-in-class 4. T . Thematic S Strategies issue-by-issue ESG analysis 5. P . Portfolio T Tilt indices 29
ESG Advances Investment Spectrum GRESB @ 2020+ Traditional Responsible Sustainable Impact Philanthropy De Delivering competitive returns Mitigating ESG risks Mi Pur Pursui uing ng ESG oppo pportuni unities Fo Focusing on (measurable) high-im impact solutio ions Limited or no Mitigate risky Adopt Address societal Address societal Address societal Address societal regard for ESG practices in progressive ESG challenges that challenges challenges that challenges that environmental, order to pr protect practices that generate where returns require a below- cannot generate social or va value may en enhance e co competi titi tive are as yet market financial a financial return governance value va financial returns fi unproven return for for investors (ESG) risk for investors investors management practices 30 Source: Bridges Ventures
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