Metrics for Responsible Property Investing: Developing and Maintaining a High Performan... - 0 views
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GroundUp Validation Responsible_Property_Investing Socially_Responsible_Investing Sustainability Metrics
shared by Janine Shea on 29 Nov 12
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To date, however, the industry has yet todevelop standards to evaluate ESG datathat compare to its traditional evaluation o portolio perormance.
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5 Responsible Property Investment [RPI] is anemerging investment strategy and disciplineconcerned with integrating environmental,social, and governance [ESG] data intoinvestment decision-making
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Real estate investment plays a undamentalrole in determining how society usesresources, how the built environmentshapes social lie, how economic activitycan be sustainable over time. As an assetclass, real estate oers especially tangibledemonstrations o the importance o ESGanalysis in creating value or investors andsociety alike. We believe that a robustmetrics system can help shape the marketto better create sustainable outcomes or allstakeholders
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6 Institutional real estate is in the midst o a major downturn
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growing awareness among investorsthat environmental and social analysis canenhance their ability to assess building andportolio perormance over the long term.
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Energyuseingreenbuildingis29to50 percent less than non-green counterparts. •Greenbuildingsuseanestimated40 percent less water. •Carbondioxideemissionsingreen buildings are reduced by 33 to 39percent. •Solidwasteattributabletogreenbuildings is reduced by 70 percent
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In practice, these issues havebeen treated as vital by many investors – RPIoers a means to bring them together into acoherent ramework
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SmartGrowth
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SocialEquityandCommunity Development
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UrbanRevitalization
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size o the US commercial real estate marketat $5 trillion, with approximately $2.5 trillionin assets owned by institutional investors.
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EnergyConservation
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EnvironmentalProtection
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WorkerWell-Being
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HealthandSafety
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LocalCitizenship
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CorporateCitizenship
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Figure 2: “Market standard” fund performance characteristics
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The increased global and 2.2 Impacts o Sustainability on Institutional Real Estate Table 1: Sustainability Impacts on Real Estate social awareness about sustainability ingeneral has sharply impacted institutional realestate in several interrelated ways,
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Global Reporting Initiativeand Principles or Responsible Investing
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Ideally, a unied approach could also be takento visualizing, analyzing, and managing thedata obtained or individual metrics, buildingupon the action items mentioned aboveto create a dashboard or monitoring andimproving portolio perormance in the contexto RPI and investor and stakeholder interests.
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The eld o RPI lacks a powerul, standardizedset o portolio-level metrics which isrecognized and used by investors andmanagers across the real estate industry,thereby dening and giving credibility to thepractice o RPI
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CBRE Standardso Sustainability
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we have developed a seto 26 quantitative metrics that can helpinvestors to nd, create and articulate valuethrough improving the economic, social, andenvironmental prole o their investments.
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Thesemetrics were selected or their ability to allowreal estate proessionals to better addressrisks and identiy opportunities or long-termvalue creation.
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Table 2: Proposed RPI Metrics
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Measuring the walkscore or a property isa simple as putting in the address into thewalkscore calculator (www.walkscore.com)
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the premiums suggesthigher rents, occupancy and general marketdemand or walkable properties.
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By trackingthe ability o properties to create jobs andprovide services or underserved areas,investors can lower risks associated withregulation and community opposition as wellas setting an example o social sustainability
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Buildings – even green buildings – oten lacka close connection to their surrounding areaand community. Developing CommunityEngagement plans on a site-by-site basisallows projects to be sensitive to the needso the citizens and areas in which they areconstructed
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ensures that negative impacts and publicopposition to projects will be minimized.
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These plans should also include provisionsor the public use o private space, which haswell-documented success in San Franciscoand other cities. Across a portolio, investingin projects that positively contribute to thecommunity in which they are anchoredcreates a positive image, minimizes, risk, andimproves social sustainability
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Table 3: Portfolio Characterization
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Several categories contain RPI metricswhich investment managers could directlytie to value either through their indication o decreased operating expenses or indirectlyaid in obtaining higher rents, lower vacancy orselling the property at a higher price. Othercategories do not link directly to asset value,rather allow the investor to property determinethe correct ESG measures which must bein place in order to achieve maximum RPIbenets
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Prudent portolio managers will look toenter into portolio wide contracts orcommissioning, eciency, renewables, andother measures to improve perormance,and use RPI metrics to track the value o improvements portolio wide
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Environmental metrics are perceived as havingmore direct links to value, however socialmetrics are seen as helpul in characterizingprogress on advancing the social agenda o the und, while maintaining nancial returns
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Environmental metrics are more malleablethan social metrics—in other words, mostenvironmental metrics can be improved overtime across the portolio, whereas socialmetrics are oten determined at the point o acquisition, and remain static (walkability, CBDproperties, etc.)
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To ensure ease o collection and interpretationo the additional data, systems should be putinto place to ensure the metrics are trackedat each property and easily aggregated to theportolio level.
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Portolio managers, property managers,and stakeholders will be able to engage ina dialogue regarding value created acrossthe triple bottom line through responsibleinvestment practices
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The scope o RPI is broad. It includes, orexample, “deep green” projects that ocuson poor communities or environmentallyragile areas, energy ecient buildings thatoer clear nancial advantages throughreduced operating costs, aordable housingprojects that draw upon local tax credits,and now carbon reduction projects thathedge risk and result in renewable energycerticates.
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There are many useul sotware tools on themarket- rom EnergyStar Portolio Manager(mentioned previously) to proprietary systemssuch as Tririga (www.tririga.com). Tririgacombines portolio management tools withportal views or property managers, andacilities management unctionality. Thishelps to integrate goals and establishcommon metrics rom asset to asset
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In a changing and volatileinvestment environment, there is a uniqueand urgent need to better understandthe benets o making a commitment toresponsible property investing. The potentialor improvements at the portolio level isgreat, with benets accruing to investors,the industry, and society as a whole, and thepotential or these considerations to improvethe industry as a whole is even greater.
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•Long-termvaluecreationthrough increases in assessed value o property •Greatlyreducedoperatingcostsbydriving environmental metrics •Minimizationofriskinseveralkeyareas during acquisition •Improvedpublicimageandinvestor condence •Improvedrelationshipbetweeninvestors and asset managers •Increasedvisibilityandtransparency•Demonstrationofvaluesinpractice
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26 The benets o committing to RPI arepotentially signicant, but a lack o uniormmetrics which can be adopted industry-wide has hindered the potential impact o RPI on the real estate sector.