At the recent annual conference of Ceres, a forum of investors to discuss environmental issues, I moderated a nice panel on how institutional investors (can) integrate sustainability into their real estate decisions. The line-up was pretty amazing, with Laurie Weir of CalPERS, Jennifer Young of the Townsend Group, Mike Ibarra of Landon Butler & Co (responsible for the MEPT fund), and Darryl Neate of Ofxord Properties (OMERS). Here's the full slide deck, very interesting to see the different views:
20. Multi-Employer Property Trust (MEPT)
§ $5.65 billion open-end commingled core real estate fund
§ 7.64% gross return since inception. Benchmark 7.01%
§ Portfolio of 136 assets (333 buildings) in 30 US markets
§ 357 pension plan investors across the U.S.
§ Leader in Responsible Property Investing (RPI)
§ 100% Union Labor for all construction
§ Leadership in LEED and EPA Energy Star Programs
§ Ranked as #1 diversified-asset fund in US by the Global
Real Estate Sustainability Benchmark (GRESB)
22. RPI Performance Impact on MEPT
Enhances portfolio income and stability
§ Superior asset operations and workplace environment retains tenants
§ Operating costs lowered by up to 30% in green buildings
§ Tax credits and reduced zoning/permitting costs
§ Higher revenue + Lower costs = Increased property income
Increases long term property values
§ Highly skilled construction labor results in better buildings
§ Investors and tenants willing to pay a premium for sustainable assets
Reduces risk for MEPT investors
§ Emerging corporate and governmental environmental policies and mandates
§ Transparent governance and reporting protects investors and trustees
§ Quarterly mark-to-market process ensure accurate asset values
23. Environmental Benchmarking Programs
US Green Building Council LEED : Leadership in Energy and
Environmental Design (LEED) is a points-based certification system for
existing buildings, tenant improvement work and new construction.
§ Currently 49 buildings representing $3.2 billion are LEED
Certified
ENERGY STAR: A joint program of the U.S. Environmental Protection
Agency (EPA) and the U.S. Department of Energy that promotes energy
efficiency to reduce greenhouse gas emissions.
§ Currently 84 buildings representing $3.2 billion are in Energy
Star
24. Responsible Contractor Policy
§ MEPT maintains a Responsible Contractor Policy
§ All work be performed by contractors signatory to a collective
bargaining agreement
§ New construction, renovation or rehabilitation, and tenant
improvements
§ Require that janitorial services be provided by signatory
contractors
25. Economic Impact Benchmarking
Econometric Modeling Methodology
Period “Green” Job Hours based on Total
Project Investment
Estimated Economic Impact
2009 5.6 million $1.1 billion
2010 2.0 million $401.6 million
2011 8.0 million $1.6 billion
2012 YTD 5.4 million $1.1 billion
TIs 1.0 million $196.7 million
Total (‘09-’12) 22.0 million $4.3 billion
Period Job Hours based on Total Project
Investment
Economic Impact
Since MEPT’s
Inception 85.0 million $17.9 billion
26. ESG Benchmarking of MEPT
§ UNPRI – MEPT is signatory to United Nations Principles
of Responsible Investment
§ MEPT scored in first quartile of global asset owners
§ GRESB – Global Real Estate Sustainability Benchmark
survey – 443 respondents with $1 trillion in real estate
§ MEPT ranked #1 diversified fund in the US
§ Energy Star Partner of the Year - Bentall Kennedy
recipient 4 years in a row
TRUSTEEINVESTOR RELATIONS INVESTMENT ADVISOR
27. Sustainability in Real Estate Investments
CERES Conference
CERES
Sustainability in Real Estate
Investments
Laurie Weir
Senior Portfolio Manager
Investment Office
CalPERS
Towards Sustainable Investment
UNEP FI Property Working Group
May 1, 2013
28. Sustainability in Real Estate Investments
CERES Conference
Why sustainable investment?
“Sustainable Investment in its simplest form is the
ability to continue, and for a long-term investor like
CalPERS with long-term liabilities, it’s at the heart of
what we do.”
12
29. Sustainability in Real Estate Investments
CERES Conference
Financial Capital
Includes equity, debt, public
and private investments
Physical Capital
Includes use of natural
resources and buildings
Human Capital
Includes labor practices
Long-term value creation
13
At the heart of sustainability
30. Sustainability in Real Estate Investments
CERES Conference
CalPERS putting principles into practice
• Environmental
– 2004 to 2009: Exceeded 20 percent energy reduction goal in
core portfolio over five-year period
– 2012: CalPERS and Core Managers join ULI Greenprint and
begin participation in its Carbon Index Report
– Most portfolio assets that are new construction are built to
LEED certification standards
14
Real Estate – ESG Integration
31. Sustainability in Real Estate Investments
CERES Conference
CalPERS putting principles into practice
• Social
– Established revised Responsible Contractor Policy and new
Neutrality Trial Responsible Contractor Policy
• Governance
– Alignment of Interests: investment contract documentation
that aligns external managers with CalPERS
– Upcoming Manager Expectations: develop a set of
expectations for internal (staff) and external managers for
ESG integration
15
Real Estate – ESG Integration
32. Sustainability in Real Estate Investments
CERES Conference
CalPERS putting principles into practice
• United Nationals Environment Programme Property Working Group
– Property investors from around the globe
– Advisory Group of experts
– Responsible Property Investment
• 30 case studies
• CalPERS Responsible Contractor Policy
– Upcoming projects
• Energy Efficiency Retrofit Finance
• Valuation
16
• Real Estate – ESG integration
50. The Townsend Group
■ The
Townsend
Group
became
a
signatory
to
the
Principles
for
Responsible
Investment
(PRI)
on
April
13,
2010
and
are
in
acDve
conversaDons
with
the
Global
Real
Estate
Sustainability
Benchmark
(GRESB)
to
collaborate
on
best
pracDces
for
measuring
the
impact
of
sustainability
on
real
estate.
■ The
Townsend
Group
integrates
an
analysis
of
ESG
issues
into
its
due
diligence
efforts
through
quarterly
monitoring
of
investment
posiDons
and
ongoing
dialogue
with
investment
managers
acDve
in
the
space.
■ ESG
acDvists
include
asset
owners
(and
many
Townsend
clients),
investment
managers
and
professional
service
partners.
• Townsend
esDmates
that
it
monitors
over
15
separate
vehicles
with
over
90
investment
posiDons
in
urban/revitalizaDon
focused
investments.
• Townsend
monitors
3
investment
posiDons
in
2
pure
“Green”
funds
and
sits
on
the
Advisory
CommiSee
of
one
Green
fund.
• Raising
awareness
has
led
to
increased
acDvity
in
this
space
since
2010,
as
denoted
by
the
number
of
signatories
to
the
UN
PRI
and
growing
parDcipaDon
in
GRESB.
34
Townsend
ESG
Overview
&
ObjecBves
UN
PRI
Signatories
(2010)
UN
PRI
Signatories
(2011)
UN
PRI
Signatories
(2013)
Asset
owners
210
241
268
Investment
managers
438
527
736
Professional
service
partners
161
152
184
Total
809
920
1188
51. The Townsend Group
■ Fiduciary
ObligaDon
• Townsend
is
not
responsible
for
making
investment
decisions
solely
based
on
ESG
iniDaDves
at
the
porolio,
investment
and/or
property
level.
However,
Townsend
believes
it
becomes
a
beSer
fiduciary
by
expanding
due
diligence
efforts
to
include
ESG
consideraDons.
■ Limited
Performance
History
• Analyzing
past
performance
remains
a
crucial
part
of
Townsend’s
underwriDng
process.
There
are
fewer
realized
exits
in
ESG
assets
and
limited
data
supporDng
the
performance
of
ESG
properDes.
Benchmarking
and
consistency
in
reporDng
pracDces
will
be
crucial
to
understanding
the
cost/benefit
analysis
for
incorporaDng
sustainability
at
the
property
level.
■ Uncontrollable
Elements
• Clients
– Client
preferences,
specific
porolio
needs
and
market
opportunity
will
conDnue
to
guide
real
estate
investment
strategies.
• Managers
– Clients
and
Consultants
will
not
directly
influence
ESG
adaptaDon
at
the
property
level,
as
discreDon
generally
lies
with
the
real
estate
managers.
• Property
Owners
– Fund
managers
may
outsource
property
management
services,
thus
limiDng
involvement
in
the
decision-‐making
process.
• Tenants
– End
users
are
not
contractually
obligated
to
adhere
to
ESG
principles,
making
it
difficult
to
control.
35
ESG
Overview
-‐
Challenges
to
Consider
52. The Townsend Group
■ Townsend
clients
are
amongst
the
signatories
to
the
UN
PRI
and
members
to
GRESB.
A
sample
list
is
below.
• Allianz
Global
Investors
France
France
• Amundi
(formerly
Crédit
Agricole
Asset
Management
Group)
France
• ATP
-‐
The
Danish
Labour
Market
Supplementary
Pension
Denmark
• CalPERS
USA
• CalSTRS
USA
• Canada
Pension
Plan
Investment
Board
Canada
• ConnecDcut
ReDrement
Plans
and
Trust
Funds
(CRPTF)
USA
• Crédit
Agricole
Assurances
France
• Government
Pension
Fund
of
Thailand
Thailand
• Hermes
Pensions
Management
UK
• Illinois
State
Board
of
Investments
USA
• Korea
NaDonal
Pension
Service
(NPS)
South
Korea
• Los
Angeles
County
Employees
ReDrement
AssociaDon
(LACERA)
USA
• New
York
City
Employees
ReDrement
System
USA
• SEIU
Pension
Plans
Master
Trust
USA
• Strathclyde
Pension
Fund
UK
• Teachers'
ReDrement
System
of
the
City
of
New
York
USA
• United
NaDons
Joint
Staff
Pension
Fund
InternaDonal
36
Examples
–
InsBtuBonal
Focus
53. The Townsend Group
■ Several
investment
managers
are
signatories
to
the
UN
PRI
and/or
report
to
GRESB,
a
sample
of
which
is
below.
• AEW
Europe
France
• BlackRock
USA
• CBRE
Investors
USA
• MulD-‐Employer
Property
Trust
USA
• Deutsche
Asset
Management
Germany
• DEXUS
Property
Group
Australia
• Hamilton
Lane
USA
• Henderson
Global
Investors
UK
• JPMorgan
Asset
Management
USA
• Kennedy
Associates
Real
Estate
Counsel,
LP
USA
• LaSalle
Investment
Management
UK
• Legg
Mason
Asset
Management
Australia
Limited
Australia
• Lend
Lease
Investment
Management
Australia
• Longview
Partners
UK
• PrudenDal
Real
Estate
Investors
USA
• Principal
Global
Investors
USA
• Schroders
UK
• Standard
Life
Investments
UK
• Stratus
Brazil
37
Examples
–
Investment
Manager
Focus
54. The Townsend Group
Sample
Ques3ons
from
Request
For
Proposal
(Winter
2013)
■ Please
describe
your
resources
relevant
to
analyzing
ESG
issues,
risks
and
opportuniDes
in
real
assets.
Please
idenDfy
any
individuals
dedicated
to
this
area
within
your
firm.
■ If
ESG
responsibiliDes
are
spread
across
the
investment
team,
discuss
your
process
for
ensuring
adequate
experDse.
Please
list
any
third-‐party
resources
you
use
to
provide
ESG
analysis
and
research.
■ What
is
your
expected
allocaDon
to
“sustainable”
funds?
What
areas
are
of
parDcular
interest?
■ Please
explain
how
you
idenDfy
suitable
sustainable/ESG-‐focused
investments.
38
UN
PRI
Overview
–
Sample
Townsend
Client
Request
for
Proposal
Property
Infrastructure
Restricted
Some
controversy,
mixed
environmental
impacts.
Investment
may
depend
on
specific
impact
and/
or
management
N/A
Not
currently
willing
to
participate
in
GRESB
• Gas
fired
power
generation
• Gas
pipelines,
distribution
• Nuclear
power
generation/
storage
• Desalination
plants
• Tidal
barrages
• Seaports
and
ferries
• Military
establishments
• Hydro
• Dams
Excluded
N/A
Not
currently
willing
to
participate
in
GRESB.
High
carbon
energy
• Coal
fired
power
generation
• Oil
pipelines
and
refineries
High
carbon
transport
• Motorways
&
service
stations
• Roads
&
road
bridges
• Airports
&
traffic
control
55. The Townsend Group
Sample
Investment
Mandate
(Fall
2010)
The
Manager
will
act
in
the
best
long-‐term
interests
of
its
beneficiaries
and
believes
that
environmental,
social,
and
corporate
governance
(“ESG”)
issues
may
affect
the
performance
of
investment
porolios.
As
one
part
of
its
responsible
investment
strategy,
the
Manager
has
signed
the
Principles
for
Responsible
Investment
("PRI").
This
is
an
industry
focused
iniDaDve
that
promotes
long
term
responsible
investment
and
share
ownership,
and
the
integraDon
of
material
ESG
issues
into
investment
analysis.
• The
Manager
intends
to
remain
an
acDve
and
engaged
member
of
the
PRI,
and
meet
its
ongoing
membership
commitments.
• The
Manager
is
willing
to
make
available
to
the
Client
on
request
a
copy
of
each
assessment
quesDonnaire
that
it
submits
to
the
PRI,
as
well
as
the
PRI's
analysis
of
its
relaDve
performance.
The
Client
may
also
request
copies
of
the
voDng
and
engagement
work
undertaken
within
the
context
of
the
PRI.
• The
Manager
will
noDfy
all
clients
if
its
intenDon
to
remain
engaged
with
PRI
changes,
for
example
if
the
PRI
materially
changes
in
a
way
it
does
not
support
and
will
fully
explain
to
clients
its
raDonale
for
withdrawing.
• The
Manager
will
report
to
the
Client
on
an
annual
basis
on
its
responsible
investment
acDviDes
and
included
therein
will
be
comments
on
such
acDviDes
which
(a)
specifically
relate
to
the
porolio
that
is
managed
on
the
Client’s
behalf
and
(b)
generally
relate
to
all
of
the
above.
This
will
be
delivered
to
the
Client
in
an
electronic
format
as
specified
by
the
Client,
within
at
least
25
Business
Days
from
the
year
end.
39
UN
PRI
Overview
–
Sample
Townsend
Client
Mandate
56. Panel
• Nils Kok, UC Berkeley/Maastricht & GRESB
• Mike Ibarra, Landon Butler & Co (MEPT)
• Laurie Weir, CalPERS
• Darryl Neate, Oxford Properties (OMERS)
• Jennifer Young, Townsend Group
40
