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RPI Summary Report 2014
Planning ahead
Long term investment strengthens responsible property investment
www.hermesfundmanagers.com
Contents
In this report we present our views on how the long term and responsible investment debate
in the wider financial sector affects and supports the responsible property investment efforts
made in real estate over the last few years. The clear evidence of the financial, social and
economic benefits of responsible property investment will be further strengthened by long
term views. This points to the need for investment houses to manage these risks actively and
to capture the opportunities that lie in scaling up investment in green and energy-efficient real
estate for the benefits of their asset owners.
We present our approach focused on embedding these principles into our investment
processes across all organisational levels and with a proactive attitude towards fostering the
required changes in the industry. Finally we present our performance in the last years, as we
strive to continuously improve our asset management, support the communities around our
properties and reduce our environmental footprint.
P2
Our view: Long term and responsible property investment
P4
Our engagement: Our weight behind sector initiatives
P6
Our approach: RPI integrated across organisational levels
P8
Our commitment: Jobs and enterprise support at the centre:mk
P 10
Our performance: New management system sustains performance
Report coverage
This report is a summary of Hermes Real Estate’s 2014 Responsible Property Investment report; the full report is
available on-line. We report our RPI strategy and management approach for our whole portfolio through a narrative
approach. This includes our directly managed and indirect assets that we have influence over in UK and internationally
for the period June 2013 to May 2014. We report key environmental performance indicators for our UK assets over
which we have management control for the period January 2006 to December 2013.
For more details visit: www.hermes.co.uk/rpi_report_14
We believe our report to be in line with level C of GRI G3
We benchmarked our report against the Global Reporting Initiative Sustainability Reporting Guidelines GRI G3.
We have ensured that the report follows the guidelines of the GRI Construction and Real Estate Sector Supplement.
Advisor’s statement
In Q3 2013, Carbon Credentials assumed the role of supporting Hermes Real Estate for their Responsible Property
Management programme. In this role we work with Hermes and its agents to ensure that sustainability performance
is measured and reported. Most importantly, we support Hermes’ continuous focus on activities which can reduce the
environmental impacts of property management.
The energy and greenhouse gas data in this report has passed ISO 14064-3 Greenhouse Gas verification, as performed
by the independent assurance team in Carbon Credentials. As such, we see the information in this report to accurately
reflect the performance of the Responsible Property Investment programme.
2 | RPI Summary Report 2014
Cover image:
At 242 Marylebone, Hermes Central
London LP, we have delivered an excellent
environmental performance using our
RPM programme and the expertise and
motivation of our Property Managers, JLL.
Starting from a difficult HVAC system and
building design, the building now delivers
better comfort levels and a strong energy
performance with 13% energy reduction
during 2013, to the satisfaction of
its occupiers.
Who we are
Institutional fund manager working to deliver
excellent, long-term, performance – responsibly.
At Hermes Real Estate, part of Hermes Fund Managers , we are an active institutional fund
manager offering an experienced and stable investment foundation. We aim to lead the debate
and contribute to the transformation of the investment industry to the benefit of our clients,
their stakeholders and, ultimately, society at large.
1
OUR INVESTMENT STYLE AND PHILOSOPHY
We are committed to act consistently and clearly as stewards of the assets in which we
invest, with the aim to deliver investment excellence. With a strong focus on income delivering
returns and a disciplined approach to risk, we seek to consistently out-perform on a risk
adjusted basis to deliver robust and repeatable performance in line with our fiduciary
responsibility to our clients. We see environmental, social and governance (ESG) risks as
business critical to our funds and are committed to embedding responsible investment
principles across our investment practices.
Our strategy draws on understanding how occupiers assess real estate and the needs of
communities, which enable us to deliver buildings that anticipate and respond to market
demands. We have a clear understanding of the drivers of future performance, including an
in-depth understanding of how occupiers assess real estate and of the evolving regulatory
framework. We comply with all current legislation and demonstrate preparedness for
forthcoming regulatory requirements.
We believe that responsible, long-term investment enables investors to manage ESG risks
while capturing the social as well as the purely economic benefits of real estate. We have been
championing the case for many years to integrate responsible investment principles in real
estate investment and asset management processes and are working with the industry to
develop tools and methods to that effect.
1
n behalf of our clients Hermes have AUM of £26.9bn (GAV) as at 31 March 2014, and advise on over £103 bn through our
O
ESG (Environmental, Social and Governance) and stewardship services. Owned by BTPS
2
Hermes Real Estate as at 31 March 2014, £5.8bn NAV
Hermes Real Estate
Established
Investing since 1983
Offering
Client-focused, property
investment solutions
Team
22 property professionals with
19 years’ average industry experience
Assets under management
£6.5bn Gross Asset Value (GAV) 2 Segregated and
unitised solutions
BT Pension Scheme (BTPS) direct
property portfolio, Hermes Property
Unit Trust (HPUT), HUH US Real Estate
income fund, Hermes Central London
Limited Partnership (HCL LP), Metro
Property Unit Trust, Argent market
leading UK developer, MEPC specialist
investor in business estates.
Geographical coverage
UK, Europe, Americas, Asia Pacific
www.hermesfundmanagers.com | 1
Our view
LONG TERM DEBATE TO
STRENGTHEN RESPONSIBLE
PROPERTY INVESTMENT
“We are motivated by the impetus
the long term investment debate
is having on responsible property
investment. This should further
vindicate our conviction that by
embracing such an approach
the real estate sector can
generate wider socio-economic
benefits for society as well as
capturing the economic returns
for our investors.”
Chris Taylor
Chief Executive Officer,
Hermes Real Estate
2 | RPI Summary Report 2014
Over the past decade we have witnessed
the emergence and inexorable spread of
the responsible investment agenda across
the real estate sector. In parallel, there has
been a wider discussion in the financial
sector to understand and address the root
causes of the recent financial and economic
crisis. Both highlight the benefits of long
term investment. We believe the long
term investment debate has important
implications for real estate and here
we consider how it might impact on the
responsible property investment agenda.
SPOTLIGHT ON LONG TERM INVESTMENT
A number of influential financial groups
have been established to debate possible
reasons for the crisis and contemplate
remedies to avoid a repeat. Some question
the established wisdom that a “risk free”
baseline exists and that in the mediumand long-term, markets will always rise3.
Most emphasise the beneficial role played
by long-term investors who are willing to
make a sustainable commitment to strategic
sectors that promote sustainable growth
and employment, such as infrastructure,
buildings and SMEs, and that also seek to
invest to foster innovation, human capital
and resource efficiency4. One of the preferred
outcomes suggested is the (re)emergence
of investment managers as advisers who
understand and manage risk over the long
term and help investors achieve their real
world goals. They also call for investors to
work with policy makers to promote a more
favourable regulatory framework for longterm investment, in particular focusing on
the many financial reporting and accounting
rules introduced since the financial crisis.
PLANNING AHEAD
Within recent Hermes Real Estate
responsible property investment (RPI)
reports and through our sector engagement
we have shared our views and stated
our conviction on the drivers behind RPI
uptake. These include the risks associated
with environmental and social regulations
and the growing market demand for
clearer governance and risk management
structures by institutional investors5. We have
emphasised how responsible investment
enables investors to release social capital as
well as capture the purely economic benefits
of real estate6. Finally, we have also reviewed
the obstacles to scaling up the benefits based
on these principles across the whole real
estate investment world and how they are
being addressed7. They comprise questions
on the real impact to financial performance,
understanding the risk profiles of investing
in green and energy efficiency buildings, and
the availability of standard processes and
methodologies to measure performance
and assess risks.
Our view
It is useful to consider how the long
term investment debate impacts these
arguments. The economic and social
benefits for responsible investment in
green and energy efficient buildings are
compelling. However, for the business
case to match investors’ expectations
it often requires them to take a longer
term perspective in investment
appraisals, in particular when it comes
to measuring the associated risks
and matching returns criteria. The
investment performance tends to be
strengthened when made over longer
time periods and when seen through
a wider lens encompassing the whole
investment process. Indeed to capture
these investment opportunities requires
that the tools and methodologies to
identify and assess them are embedded
in the investment process across all
organisational levels of an investment
house, covering operational, investment
and corporate levels. This will only
be achieved as part of a broader
review of governance of real estate
funds, from engagement with asset
owners, agreement on risk profiles,
risk management processes and
investment timeframes, including client
reporting requirements.
THE NEXT DRIVER FOR RESPONSIBLE
PROPERTY INVESTMENT
It is our view that the long term agenda will
act as a catalyst and will be the next driver
in influencing change in the real estate
industry. By doing so, it will enable the sector
to capture the many opportunities at hand.
This will happen through multiple channels
given the nature of real estate investment
and the diverse roles it performs. These
include real estate as a factor of production,
as a good which helps businesses, people
and wider communities create social capital,
and as a financial instrument contributing to
long term wealth creation both in terms of
capital and rent.
The initiatives described in the next page
are examples of industry efforts
to promote this evolutionary process.
They illustrate how our views on the need
to integrate responsible investment into
asset management are gaining strength,
both as a risk-management strategy and
to capture long-term investment
opportunities. As institutional investors will
increasingly be looking to select investment
managers who are guided by long-term
perspectives aligned with clients’ interests,
the benefits of implementing responsible
investment principles now are becoming
ever more apparent.
300 Club. 4Long Term Investment Club. 5Hermes RPI report 2011 & 2013; IIGCC; UNEP FI, 6EEFIG. 7UNEP FI; IIGCC; BBP; GRESB; IPD.
3
Leading the debate, Hermes Investment Conference 2013
Hermes Real Estate
www.hermesfundmanagers.com | 3
Our engagement
PUTTING OUR WEIGHT BEHIND
SECTOR INITIATIVES
Committed to doing the right thing we use our knowledge and
influence to contribute to the lively debates on long term and
responsible investment.
Long term investment
The following organisations are raising critical questions about
the structure and function of the financial services industry.
G20/OECD HIGH-LEVEL
PRINCIPLES OF LONG-TERM
INVESTMENT FINANCING BY
INSTITUTIONAL INVESTORS
September 2013
This document contains the eighth version of the G20/OECD
High-Level Principles on Long-Term Investment Financing by
Institutional Investors developed by the OECD Task Force
on Institutional Investors and Long-Term Financing. The
Task Force is open to OECD, G20, FSB, APEC members
and includes several international organizations.
This version includes comments expressed on previous
versions at the occasions of 4 plenary meetings of the Task
Force and numerous written contributions, including inter alia
from the (OECD, G20, FSB and APEC) Members of the Task
Force, several OECD bodies [such as the Committee on
Financial Markets (CMF) and the Insurance and Private
Pensions Committee (IPPC)], International Organizations
(IMF, World Bank, FSB, various SSBs), G20 Study Group on
Finance for Investment and the European Commission. It
has also been submitted for public consultation, which
provided a a large number of very constructive comments
from various stakeholders (including industry and trade
unions). This version takes also into account the comments
expressed at the July 2013 meeting of the G20 Finance
Ministers and Central Banks Governors who welcomed the
Principles and called on the OECD to identify approaches to
their implementation. The present version is submitted to the
G20 Leaders for endorsement.
For further information, please contact Mr. André Laboul,
Head of the Financial Affairs Division, OECD [Tel: +33 1 45
24 91 27; Email: [email protected]] or Mr. Juan Yermo,
Deputy Head of the Financial Affairs Division, OECD [Tel:
+33 1 45 24 96 62; Email: [email protected]].
Organisation for Economic Co-operation and Development,
2 rue André-Pascal, 75775 Paris cedex 16, France
www.oecd.org
The 300 Club
LTIC
OECD
The 300 Club – leading investment
professionals from across the globe coming
together to raise uncomfortable questions
about the foundations of the investment
industry and investing itself. Hermes Fund
Managers was a founding member and is
an active contributor.
The Long Term Investors Club (LTIC)
emphasises how the financial and economic
crisis is revealing the fragility of short-term
orientated approaches and the complacency
that is setting in as regards risk.
OECD High-Level Principles of Long-Term
Investment Financing – aims to facilitate longterm investment by institutional investors by
addressing both potential regulatory obstacles
and market failures.
The 300 Club calls for the role of investment
managers to go beyond the struggle to
’beat the benchmark‘, and rather focus on
helping investor clients achieve their real
world goals. It challenges the current market
wisdom that a ‘risk free’ baseline exists and
that in the medium- and long-term, markets
will always rise. Indeed, over the centuries,
history has shown that governments,
countries and markets are far from risk free,
and ignoring this can end up being extremely
costly. The alternative is the development of
advisers who understand and manage risk
over the long term. Three conditions need
to be met between the investor clients
and the asset managers: clear alignment
of interest; focused expertise on the
assets being managed; strong long-term
commitment to move away from short-term
investment decisions8.
The LTIC promotes the beneficial role
played by long-term investors who make
a sustainable commitment to strategic
sectors. This includes all sectors that
foster sustainable growth and employment,
infrastructure and SMEs, and those who
invest to foster innovation, human capital
and resource efficiency. The LTIC is working
with policy makers to promote a more
favourable regulatory framework for longterm investment, in particular focusing on
financial reporting and accounting rules
introduced since the financial crisis, away
from short-term, mark-to-market value
and relating on high pro-cyclical incentives.
Ensuring coherence in policy making is
crucial, believes the LTIC, stating that
recent reforms such as Basel III have not
considered the nature of environmental risk
for the sustainability of the system which
could lead to externalities having to be
covered by the public sector in the long term.
The OECD established a framework for
encouraging institutional investment pension funds, insurance companies, and
sovereign wealth funds - in long-term
assets9. This includes the need for stable
macroeconomic conditions, a clear and
transparent government plan for projects,
as well as opportunities for private sector
involvement via public procurement and
public-private partnerships investment.
It calls for policies and the regulators to
ensure the tax and regulatory framework
reflect the particular risk characteristics of
the investments and improve incentives to
mobilise higher levels of long-term savings.
Last but not least, institutional investors
are asked to strengthen investment funds’
governance to provide the right incentives for
the adoption of a long-term perspectives and
the management of often illiquid assets.
www.the300club.org
www.ltic.org
www.oecd.org/finance
The 300 Club, October 2012, “From short-term salesmanship to long-term stewardship”
OECD, September 2013, “G20 OECD High-Level Principles of Long-Term Investment Financing by Institutional Investors”
8
9
4 | RPI Summary Report 2014
Our engagement
Responsible investment in real estate
Over the past two years, we have been working with real estate
sector organisations to develop and publish relevant research
and tools supporting our arguments.
Executive Summary
Institutional Investors Group on Climate Change
Energy Efficiency – the first fuel
for the EU Economy
How to drive new finance for energy
efficiency investments
Sustainability Metrics
TRANSLATION AND IMPACT ON PROPERTY
INVESTMENT AND MANAGEMENT
R A M M E
A report by the Property Working Group of the United Nations Environment Programme Finance Initiative
May 2014
N V I R O N M ENT
PROG
PROTECTING VALUE
IN REAL ESTATE
Part 1: Buildings (Interim Report)
U
N ITE D
N
ATI O N S
E
Managing investment risks from climate change
UNEP FI Property Working Group report · SUSTAINABILITY METRICS · TRANSLATION AND IMPACT ON PROPERTY INVESTMENT AND MANAGEMENT
IIGCC
UNEP FI
EEFIG
The Institutional Investors Group on Climate
Change (IIGCC) is a European investors’ forum
for (~€7.5trillion in assets) which encourages
public policies, investment practices, and
corporate behaviour that addresses longterm risks and opportunities associated with
climate change.
UN Environment Programme Finance
Initiative (UNEP FI) is a partnership between
policy makers and financial intermediaries,
with over 200 members from around the
world, UNEP FI’s mission is to bring about
systemic change in finance to support a
sustainable world by ‘Changing finance,
financing change’.
The Energy Efficiency Finance Institutions
Group – established by the European
Commission and over 50 finance institutions
to create a dialogue and work-platform
on how to deliver long-term financing for
energy efficiency.
The IIGCC, representing European pension
funds’ position on climate change, makes
a clear call to pension fund trustees to
measure and manage investment risks
emanating from climate change and
sustainability issues10. It emphasises how
growing regulation in Europe, increased
market demand for green buildings, and
heightened risks from physical impacts on
buildings associated with extreme weather
events are already changing the real estate
market. In turn, leading investors across
Europe recognise that green building
investment decisions made today will
impact investment performance.
The most effective way to manage these
new risks is for investors to embed longterm and responsible investment principles
in standard risk assessment methods and
through their selection and monitoring
processes. IIGCC published a trustees’ guide
for asset owners helping them determine
whether their current governance practices
integrate these risks11. The guide states the
important role of pension funds in setting
minimum requirements that their fund
manager should meet to manage these
risks on their behalf.
www.iigcc.org
UNEP FI in its latest property group
investor briefing12, sheds light on the
investment opportunity in energy-efficient
and green buildings of over US$230 billion
a year globally by 2020. It relates this to a
strong body of evidence regarding the cost
effectiveness of these investments compared
to most sectors of the economy. It goes on
to show that a correlation exists between
more energy-efficient buildings, higher rents
and higher sales prices, in specific sectors
such as premium office buildings and more
developed geographies.
It proposes a responsible market-driven
approach for investment managers
supported by a corporate sustainability
management system (CRESM) to embed
it into a fund’s governance structure13.
The system covers the investment processes
across all the organisational levels:
corporate, portfolio and single building.
By ensuring that sustainability information
is translated into a valuable resource for
boards and key decision makers,
it enables both to mitigate risks and
capture opportunities.
www.unepfi.org
EEFIG identifies a strong economic and
social rationale for up-scaling energy
efficiency investments buildings14. The
investment opportunity in European buildings
is €60-100 billion annually to achieve
Europe’s 2020 energy efficiency targets –
yet current investments are less than half
of these requirements. The value added
to asset owners is multilayered, through
energy savings and the impact on financial
performance. It also brings significant public
benefits in terms of increased employment
(2 million jobs), energy security benefits
(€400bn of EU energy imports in 2012),
mitigating impact of rising energy prices,
and lower carbon emissions supporting the
EU climate and energy targets to 2030.
Whilst there is no single solution, EEFIG
identifies a framework of cross-cutting
measures to deliver the targeted increase
in energy efficiency investments focused
on both supply of and demand for finance.
These range from making well articulated
evidence available to the right decision
makers through to standardisation of
processes and tools. Crucially, setting
up these measures requires market
stakeholders and policy makers to work
in partnership.
ec.europa.eu/energy/efficiency/studies
10
IIGCC, June 2013, “Protecting value in real estate - Managing investment risks from climate change“. 11IIGCC, Jan 2014, “Protecting value in real estate: A trustee’s guide”. 12UNEP
FI, Feb 2014: “Investor briefing: Commercial Real Estate: Unlocking the energy efficiency retrofit investment opportunity”. 13UNEP FI, May 2014: “Sustainability metrics: Translation and
impact on property investment and management”. 14EEFIG, April 2014, “Energy efficiency – the first fuel for the EU economy. How to drive new finance for energy efficiency investments.
Part 1: Buildings (interim report)”
Hermes Real Estate
www.hermesfundmanagers.com | 5
Our approach
RPI INTEGRATED ACROSS
ORGANISATIONAL LEVELS
Responsible investment policy and strategy
A clear vision and objectives including targets and minimum
responsible investment requirements for our investment and
asset management teams.
Risk management
Regulatory risk assessment of standing portfolio against European
and UK medium and long term policy requirements.
Sustainability benchmarks
Portfolio and property level sustainability benchmarks to compare
and assess absolute and relative performance against market.
Sustainability questionnaire for valuers
Using the IPD Eco-Pas tool we helped develop, our valuers collect
and assess building sustainability characteristics, in line with RICS
valuation guidance.
Acquisitions and transactions
Sustainability due diligence for new acquisitions, working with
our investment teams to identify cost effective environmental
improvements required to future proof the value of assets.
Risks are integrated into our discounted cash flow analysis.
International
Active engagement on our indirect and international investments
focusing on governance, alignment of interests and fee structure,
and sustainability performance.
Refurbishments
Minimum sustainability requirements for refurbishments and
developments to capture environmental and health improvement
potentials at this crucial step of the building life cycle.
Asset Management
A dedicated responsible property management programme
and minimum environmental performance requirements and
targets for asset and property managers. Active sustainability
management system to sustain continuous performance,
including monthly and quarterly monitoring of performance with
continuous feedback between property managers, asset managers
and sustainability experts.
Risk & Safety
Stringent risk and safety requirements and supporting tools
involving monthly monitoring with property managers.
Community
Community and occupier engagement programmes and best
practice tools to deliver social and community benefits, with a
strong focus on skills and employment in line with local demand.
Hermes Central London fund
In 2013 the Hermes Central London LP was launched, as a joint
venture between BT Pension Scheme (BTPS) and the Canada Pension
Plan Investment Board (CPPIB). Both asset owners are known for
their long-term view and support of responsible investing. CPPIB*
believes that organisations that manage Environmental, Social
and Governance (ESG) factors effectively are more likely to create
sustainable value over the long term than those that do not. As part
of their due diligence process, they reviewed Hermes Real Estate
RPI and ESG approach and programmes. The team’s responsible
investment expertise was a key part of their assessment of Hermes
as an investment house. We have integrated our RPI programme
and tools into the investment structure of this joint venture.
100 New Oxford Street
Timely and sustainable refurbishment of this building, delivering
good rental returns.
*
We recognise the importance of collecting, sharing and linking
sustainability and RPI information between the various organisational
levels of our investment and asset management process. Thus, we
have developed and integrated a series of RPI tools and procedures
that link our strategic investment targets with portfolio strategies
and the management of property’s technical characteristics and
operational performance.
http://www.cppib.com/en/how-we-invest/responsible-invest-approach.html
For full report visit: www.hermes.co.uk/rpi_report_14
6 | RPI Summary Report 2014
Our approach
ACTIVELY ENGAGED TO DEVELOP
SECTOR WIDE KNOWLEDGE
AND TOOLS
As part of our approach we are engaged to actively contribute to the
following sector initiatives.
Institutional Investors Group on Climate Change
We chair the property programme and actively engage on climate
change policies with institutional investors and EU institutions.
Finance Initiative
Changing finance, financing change
UNEP Finance Initiative
We co-chair the Property Group which aims to analyse and
propose solutions to embed sustainability into real estate
investment management processes and to scale up finance
in green buildings.
Urban Land Institute
We sit on the European Sustainable Development Council, which
works to foster awareness and solutions to address global climate
change which are both feasible and effective.
British Property Federation
We sit on the policy and sustainability committees to assess and
manage the risks associated with existing and future UK and
EU regulations, and to emphasise the wider benefits of real estate
to society.
Better Buildings Partnership
As members of the board we support the BBP objective
to transform the real estate market by developing and
disseminating practical toolkits.
Building Performance Institute Europe
As a member of the advisory board we influence the strategy and
assumptions of BPIE, a think tank supporting evidence-based
policy making in the field of energy performance in buildings.
Global Real Estate Sustainability Benchmark
Sitting on the advisory board, we ensure the benchmark evolves
into a robust and transparent tool to enable investors and
managers to better communicate sustainability processes
and performance.
IPD Eco-PAS
As a member of the technical committee we help identify which
key sustainability risks to investment performance the tool should
be tracking and benchmarking.
Hermes Real Estate
www.hermesfundmanagers.com | 7
Our commitment
JOBS AND ENTERPRISE SUPPORT
AT THE CENTRE:MK
The centre:mk is a vibrant, regionally
dominant shopping and leisure destination
that sits at the heart of Milton Keynes.
Attracting 27 million customers per year it
provides a dynamic mix of retail, dining and
leisure operators. With a clear and strong
commitment to support the community,
it has a comprehensive programme of
community initiatives focusing on a diverse
range of audiences including family,
education and charitable programmes.
At the centre of this activity, given its thriving
economic catchment and the current
employment climate, is the centre:mk’s work
in relation to stimulating jobs and enterprise.
www.thecentremk.com
MK JOB SHOW – JANUARY 2014
The largest recruitment event held in the
city in nearly ten years was hosted at the
centre:mk, with over 70 exhibitors from
wide ranging sectors and representative
companies. The Centre offered free access
to JS Media Limited to run the Job Show
event in Middleton Hall, the Centre’s
event space.
Visitors to the MK Job Show were offered
numerous workshops and seminars to help
them with their preparation for interviews.
A general recruitment area offering training
and careers advice was set for non sector
specific companies with a view to support
social and economic development for the
local community. The workshops covered
subjects such as ‘Mid-life career review’,
‘How to shine at interviews’ and ‘Building
confidence and motivation’. Seminars were
also presented by experts highlighting career
prospects in engineering, leisure, hospitality,
finance and the complete spectrum of
employment opportunities.
As a result of the good organisation,
attractive company representation, and
extensive marketing, on the event day the
footfall in Middleton Hall rose by 50%.The
success of the one day show has ensured
the event is already booked to run again in
the Centre in September 2014 and twice in
2015 with the prospect of holding a Graduate
Recruitment event and at other shopping
centres in London.
The centre:mk has seen a new
investment partner AustralianSuper
join BT Pension Scheme (BTPS) in
late 2013. AustralianSuper is a long
term investor who considers ESG as
an investment-related risk and their
trustees are required to assess and
manage all foreseeable risk factors
effectively*. The comprehensive RPI
programme in Hermes Real Estate
and at the centre:mk was reviewed as
part of the due diligence process and
was well received by the new owner.
YOUNG ENTERPRISE TRADE FAIR 2014
For over 10 years the Centre team have run
a one day regional Young Enterprise event
in the centre free of charge to support this
national education charity. Young Entreprise’s
aims to forge links between schools and
business and to inspire young people,
through business mentors, to learn about
enterprise and employability. Students are
tasked to set up their own company, with
key roles taken by students, raising start up
capital and then running the company for
a year. At the end of the year a full Board
Report, P&L and Business & Marketing
Plan is presented and then judged by the
business sector at a series of regional
events around the country, including at
the Milton Keynes event.
This year the competition saw eight teams
competing for marks in business categories
including trade stands, company reports,
best presentation and innovation. A team of
sixth formers from The Beaconsfield School
was named overall company of the year
at the Buckinghamshire & Milton Keynes
Final of the Young Enterprise competition.
Their Med-A-Lert products, designed to help
paramedics deal with people in medical
need, were praised by the judges as having
a real potential social impact, with the team
showing ‘passion and commitment’.
SKILLSCENTRE:MK
In its eleventh year of business the
skillscentre:mk provides pre-employment
training to low-skilled job-seekers. Acting as
a sub contracted training provider on behalf
of Barnfield College and Adult Continuing
Education, many of the courses now
running focus upon building the confidence
and improving the skill levels of the
unemployed to help them on their
journey to employment.
Many of the skillscentre learners are in hardto-reach groups within the local community,
34% are from ethic minority groups, 41%
live in deprived areas and 56% of learners
do not hold a Level 2 qualification. Many
students have not had the advantages that
traditional educational opportunities provide
and many have low self esteem through
unemployment and personal issues. They
benefit from the committed, enthusiastic
and professional approach of the team with
learner retention and achievement rates of
100%, reflecting the quality of delivery and
the learning experience. Many learners are
now gaining qualifications for the first time.
Recognised qualifications with clear
progression routes which meet the needs
of both employers and individuals help to
develop a local economy with a sustainable
and long term future. Working with a
network of local partner organisations,
including YMCA, Richmond Fellowship,
Connexions, National Employment
Programme, National Careers Service and
SEMLEP the skillscentre is working hard to
meet the training and employment needs
of the local community.
*http://www.australiansuper.com/investments-and-performance/approach-and-holdings/our-investment-governance.aspx
8 | RPI Summary Report 2014
Our commitment
1. Job seekers networking and
connecting at the MK Job show
1
2. Aerial view of centre:mk
3. Lord Younger of Leckie,
opening the MK Job Show
4. Youngsters exhibiting at the Young
Enterprise Trade Fair 2014
5. Sixth formers from The
Beaconsfield School named
‘Overall company of the year’
2
A few selected comments from
the Job Show participants:
3
4
“There is a tremendous sense of
opportunity and a tremendous sense
that they, exhibitors and participants,
are doing well. It is encouraging indeed
at this point for our government to see
such activity.”
Lord Younger of Leckie, Parliamentary Under
Secretary of State for Intellectual Property
“Within the first 2 hours we saw over
200 people, by the end of the day over
1600 ACE brochures were given out to
those actively looking to take a course
or work with us.”
Adult Continuing Education
5
“We have since recruited 2 people within
the space of a week and have further
interviews arranged.”
Steven Eagle, Toyota
“Already experienced a significant
increase in our Cabin Crew
applications.”
Easyjet
Hermes Real Estate
www.hermesfundmanagers.com | 9
Our performance
NEW MANAGEMENT SYSTEM
SUSTAINS PERFORMANCE
We have made good progress with our environmental and risk
performance over the last seven years. As the portfolio structure
changes to reflect market cycles we address the challenge of
maintaining our continuous improvement targets year on year. This
year we introduced a new active sustainability management system
that provides greater granularity in our reporting and better connects
the information across our multiple organisational levels.
ACTIVE SUSTAINABILITY MANAGEMENT SYSTEM
We have worked closely with Carbon Credentials, an independent
sustainability services provider, to update our responsible property
management systems. The ultimate aim of this project is to develop
our data collection tools into an active sustainability management
system integrating all organisational levels of investment and
asset management.
Targets
Risk and Safety
100% risk and safety improvement
requirements completed on time
CO2 emissions
The new system focuses on more detailed and regular monitoring
across the portfolio. It provides monthly monitoring and reporting
of key sustainability indicators for assets with significant impacts,
as well as detailed quarterly reporting and the development of
asset sustainability passports across the board. This data and the
associated reports are shared at all levels of our asset management
process, from on-site facility managers to fund level asset managers.
The data outputs allow Carbon Credentials and our property
managers to make recommendations for additional projects such as
engagement-based work or technological intervention. This enables
us to capture efficiency improvements and make informed decisions
that will lead to carbon and energy savings and a more sustainable
business model.
40% reduction in absolute CO2
emissions of standing portfolio
by 2020 compared to 2006*
CO2 emissions
5% reduction in absolute CO2
emission per year* on a like-for-like
basis
CO2 intensity
5% reduction in CO2 emissions intensity
of standing portfolio per year
Waste
80% on and off site waste recycling
by 2013
Water
20% water consumption reduction by
2020 compared to 2006
*Where we have the ability to delineate between owner
and occupier’s areas, we report on owner data only, where
this is not possible we have included occupier’s data.
For full report visit: www.hermes.co.uk/rpi_report_14
10 | RPI Summary Report 2014
Quarterly performance report at 242 Marylebone Road
Our performance
Financial savings
Risk and safety
Delivered by our responsible property management program in 2013
Performance in implementing improvement
requirements in 2013
Energy savings from our property
management activities
Averted direct landfill tax from all
managed waste
Improvement requirements completed
on time
2013: £288k
2013: £416k
2013: 99.6%
CO2 emissions. Annual change in absolute carbon emissions and energy consumption on like-for-like basis, adjusted for weather (%)*
4%
15
10
8
5
0
-5 -3
-10
-6
-4
-5
-8
-5
-15
-7
-11
-8
-5
-2
-3.7
-3
-6
-18
-20
-25
reduction
between 2012/13
0.8
-7
-4
-16
-21.9
2006
to 2007
Electricity
2007
to 2008
2008
to 2009
Natural gas
2009
to 2010
2010
to 2011
2011
to 2012
2012
to 2013
CO2
* This is the only chart that refers to CO2 historical performance and does not use the
updated DEFRA GHG emissions factors for 2006 to 2011/12. This does not affect 2012
to 2013 performance as numbers are calculated separately for every period.
The bulk of the reduction
has been achieved through
continued energy monitoring
and management practices at
individual properties. Examples
include Clarks Village (11%
reduction in electricity) where
photovoltaic panels have been
installed during the year, already
supporting a reduction in
electricity, 242 Marylebone Road
(13% reduction in electricity) due
to a new Building Management
System installation and controls
review and Wimbledon Bridge
(24% in electricity) due to
continued success of light sensors
(PRI) and of LEDs installed in
common areas.
UK greenhouse gas conversion
factors for company reporting
Over the years, for our carbon emission reporting, we have used
the UK greenhouse gas conversion factors for company reporting,
published by DEFRA. In 2013 DEFRA changed significantly this
methodology, removing the previous 5 year grid rolling average
figures for electricity, and introducing a single average factor for a
particular year. As a consequence, previously reported performance
needed to be re-baselined. In this report we have followed DEFRA’s
recommended approach. We have recalculated historical CO2
emissions using the new emission factors for each year going
back to 2006. This caused slight differences between this year and
previously reported carbon emission values and trends. Energy
consumption data is not affected.
Hermes Real Estate
www.gov.uk/defra
Environmental Reporting Guidelines:
Including mandatory greenhouse gas emissions
reporting guidance
June 2013
www.hermesfundmanagers.com | 11
Our performance
CO2 emissions. Changes in absolute carbon emissions and energy consumption of standing portfolio year on year (tonnes of CO2) between 2006 and 2013
30,000
25,000
46%
22%
60%
reduction overall
across all portfolios
20,000
reductions in
offices including
tenants emissions
38% reduction
15,000
46% reduction
22% increase
60% reduction
10,000
5,000
0
38%
2006
2007
2008
2009
2010
2011
2012
increase in
shopping centres
reduction in
offices’ owner
controlled areas
2013
49
75
69
76
83
75
75
69
properties properties properties properties properties properties properties properties
All properties (incl. R. Warehouse, Industrial, R. Units)
Offices – consumption (incl. occupier)
Offices – Landlord controlled (excl. occupier if submetered)
Shopping Centres
Behind the 22% increase since
2006, we have seen a 13% annual
reduction in 2013. The large
increase in 2012 was attributed
to acquiring management control
of 3 energy intensive shopping
centres, (adding 19% floor area).
In 2013 improvements are due to
the sale of The Friary Centre and
the implementation of an effective
asset management programme
at Royal Victoria Place (8%
reduction) and Castle Court (8%
reduction). Further reductions
through asset management and
green energy include Fleetwood
Village (23% reduction) and Clarks
Village (17% reduction).
The reductions can be attributed
to both the implementation of
best practice asset management,
new acquisitions and sales within
the portfolio and especially the
ability for offices to differentiate
owner controlled and occupier
consumption through submetering. This represents a shift
in accountable emissions from
owners to occupiers, from 2
assets in 2009 up to 21 in 2013.
The downward trend is also
attributable to high performing
assets include Compass House
(11% reduction), Wellington Gate
(17% reduction) and Wimbledon
Bridge House (15% reduction).
CO2 intensity. Changes in carbon emissions intensity and energy consumption intensity of standing portfolio year on year (tonnes of CO2 /m2)
from 2006 to 2013
61%
250
200
150
100
61% reduction
71% reduction
12% reduction
50
0
2006
2007
2008
2009
2010
2011
2012
2013
37
44
37
39
33
35
44
44
properties properties properties properties properties properties properties properties
Offices – consumption (incl. occupier)
Offices – Landlord controlled (excl. occupier if submetered)
Shopping Centres
12 | RPI Summary Report 2014
12%
reduction in
offices including
tenants’ emissions
71%
reduction in
shopping centres
between 2006/13
reduction in
offices’ owner
controlled areas
Despite the peak increase in
emissions in 2012 due to the 3
new energy intensive assets, in
2013 we have achieved a 12%
reduction compared to 2006.
This is largely due to
implementing effective asset
management practices at Royal
Victoria Place and Castle Court.
Braintree Village, Fleetwood
Village, Junction 32 and Clarks
Village have also all shown year
on year reductions in emissions of
between 8% and 23%.
Performance over time has
been achieved through efficiency
improvements at managed
properties, acquisitions and
sales during the period and a
change in the ability to exclude
occupier consumption. By 2013
26% of total office electricity was
excluded through sub-metering.
Nonetheless, between 2012/13
offices achieved a reduction of
14%, such as at 242 Marylebone
Road (13%) following active
management and building
management systems
(BMS) installation.
Our performance
Waste. Proportion of waste by disposal route of standing portfolio measuring waste by weight year on year (%)
100
90
80
70
60
50
40
30
20
10
0
85%
on and off-site
recycling in 2013
2006
2007
2008
2009
2010
2011
2012
2013
Direct-to-landfill or incineration without energy recovery
Incineration with energy recovery
Off site recovery (at Materials Recovery Facilities)
Segregated onsite for recycling, reuse or composting
We have exceeded our target
of 80% on- and off-site waste
recovery by 2013. This is due to
active waste management and
improvements across the whole
portfolio. Royal Victoria Place, for
example, achieved a recycling rate
of 84% due to its ‘ready steady
green’ campaign, clearly marked
waste streams and Materials
Recovery Facilities (MRF) recycled
content information.
Water. Changes in relative water consumption of standing portfolio between 2006 and 2013 (m3/m2)
34%
0.80
0.70
offices reduction
0.60
0.50
34% reduction
15% increase
0.40
0.30
0.20
0.10
0
2006
2007
2008
2009
2010
2011
2012
2013
31
40
31
30
24
25
35
35
properties properties properties properties properties properties properties properties
Offices - Landlord controlled (excluding occupier if sub-metered)
Shopping Centres
Hermes Real Estate
Improvements in efficiency as well
as changes in the portfolio in the
last 24 months have contributed
to long-term reductions in water
intensity. Office consumption is
for whole building which makes
performance heavily dependent
on occupier demand. Not only
is water consumption difficult
to control considering occupier
demand but also due to one-off
leakages and challenging
meter locations.
15%
shopping centres
increase
Shopping centres overall
have increased consumption
between 2006 and 2013, however
compared to 2012, consumption
has decreased in both relative
(11%) and absolute (25%) terms.
Despite water being difficult to
control, work has been carried
out to reduce mains water
dependency such as at the
centre:mk shopping centre.
www.hermesfundmanagers.com | 13
Excellence. Responsibility. Innovation.
Hermes Fund Managers
Hermes Fund Managers is focused on delivering superior,
sustainable, risk-adjusted returns – responsibly.
Hermes aims to deliver long-term outperformance through active
management. Our investment professionals manage equity, fixed
income, real estate and alternative portfolios on behalf of a global
clientele of institutions and wholesale investors. We are also one of
the market leaders in responsible investment advisory services.
Why Hermes Real Estate?
Hermes Real Estate is one of the largest real estate investment
managers in the UK, with over £6.5bn Gross Asset Value (GAV)1 of
assets under management in both UK and International portfolios.
It offers client-focused, property investment solutions through
segregated and pooled structures.
1
Hermes Real Estate as at 31 March 2014, £5.8bn NAV
Our investment solutions include:
Alternatives
Commodities, Hedge Fund Solutions, Infrastructure and
Private Equity
Equities
Asia, Emerging Markets, Europe, Global and Small & Mid Cap
Fixed Income
Global High Yield Bonds, Multi Strategy Credit, UK Government
Bonds and UK & Global Inflation-Linked Bonds
Real Estate
International Real Estate, Pooled Funds, Segregated Mandates,
UK Real Estate and UK Real Estate Debt
Responsible Investment Services
Corporate Engagement, Intelligent Voting, Public Policy
Engagement and PRI
Offices
London | New York | Singapore | Sydney
Contact information
United Kingdom +44 (0)20 7680 2121
Africa
+44 (0)20 7680 3726
Asia Pacific +65 6808 5858
Australia
+61 (0)2 8079 2901
Canada
+1 212 542 3469
Europe
Middle East
+44 (0)20 7680 3726
United States
+1 212 542 3469
Enquiries
[email protected]
+44 (0)20 7680 2121
This document is for Professional Investors only.
The views and opinions contained herein are those of Hermes Real Estate, and may not necessarily represent views expressed or reflected in other Hermes communications, strategies
or products. The information herein is believed to be reliable but Hermes Funds Managers does not warrant its completeness or accuracy. No responsibility can be accepted for errors
of fact or opinion. This material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. This document has no
regard to the specific investment objectives, financial situation or particular needs of any specific recipient. This document is published solely for informational purposes and is not to
be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Figures, unless otherwise indicated, are sourced from Hermes. The distribution
of the information contained in this document in certain jurisdictions may be restricted and, accordingly, persons into whose possession this document comes are required to make
themselves aware of and to observe such restrictions.
Issued and approved by Hermes Investment Management Limited (“HIML”) which is authorised and regulated by the Financial Conduct Authority. Registered address: Lloyds Chambers,
1 Portsoken Street, London E1 8HZ. In Australia, this document is distributed by Hermes Fund Managers (Australia) Pty Ltd (“HFMA”) which is registered with the Australian Securities
and Investments Commission (“ASIC”) under financial services licence number 351784. In Singapore, this document is distributed by Hermes Fund Managers (Singapore) Pte. Limited
(“HFM Singapore”), which is a capital markets services holder for fund management under the Securities and Futures Act, Cap 289 (“SFA”), and an exempt financial adviser under
Section 23(1) (d) of the Financial Advisers Act, Cap 110 (“FAA”). Accordingly, HFM Singapore is subject to the applicable rules under the SFA and the FAA, unless it is able to avail itself of
any prescribed exemptions. HFM Singapore is regulated by the Monetary Authority of Singapore. HIML is a registered investment adviser with the United States Securities and Exchange
Commission (“SEC”). CM151256
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