Breakfast Session
Sustainability in Real Estate Investments
Ceres Conference
May 1, 2013 San Francisco
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
Sustainable Investing in Real Estate Equity
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)
Responsible Property Investing = ESG
§ Environmental § High Performance Property Operations § Sustainable Development & Redevelopment
§ Social § Job Creation – Fair Labor Practices § Economic Impact
§ Governance § Benchmarking, Monitoring, Reporting
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
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
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
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
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
TRUSTEE INVESTOR RELATIONS INVESTMENT ADVISOR
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
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.”
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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
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At the heart of sustainability
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
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Real Estate – ESG Integration
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
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Real Estate – ESG Integration
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
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• Real Estate – ESG integration
Sustainability in Real Estate Investments CERES Conference
Questions?
CERES Conference, May 2013 Darryl Neate, Director Sustainability
Sustainability & Shareholder Value Drivers & Lessons Learned
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1. Competitiveness
Core Drivers
2. Customers
3. Fiduciary Duty
4. Employees
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Our Drivers
Competitiveness
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Royal Bank Plaza Investment Decision
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Sustainable Intelligence
Target 2012 Management Decision
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Customers
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Investment Decisions - New Buildings
LEED Core & Shell Gold Certified, August 2011
RBC WaterPark Place Investment Decision
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Sustainable Intelligence
Occupant Engagement Management Decision
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Our Drivers CAPITAL & INCOME YIELD
CUSTOMERS & CO-OWNERS
EMPLOYEES
Our Fiduciary Duty
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Our Drivers
Our Employees
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• Data, Data, Data
Lessons Learned
• Credible & Performance Based Approach
• Complexity, Uncertainty & Transparency
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Our Drivers
Social Responsibility
Complexity, Uncertainty & Transparency
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Our Drivers
Management is Management Data, Data, Data
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Our Drivers
Credible, Performance Based Approach
The Townsend Group
The Townsend Group Sustainability in Real Estate Investment
2013
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.
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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
The Townsend Group
■ Fiduciary ObligaDon • Townsend is not responsible for making investment decisions solely based on ESG iniDaDves at the
por\olio, 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 por\olio 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.
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ESG Overview -‐ Challenges to Consider
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
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Examples – InsBtuBonal Focus
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
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Examples – Investment Manager Focus
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.
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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
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 por\olios. 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 por\olio 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.
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UN PRI Overview – Sample Townsend Client Mandate
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
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