Sustainability

The major contribution that the real estate industry can make to the creation of a sustainable environment is widely recognised, and with this in mind the property investment industry has continuously increased its efforts and activities in this area in the past years. As a consequence, sustainability reporting has become a natural part of a company’s annual reports and sustainability initiatives have advanced to play an important role in the operational performance of real estate investment vehicles.

The growing interest led to the discussion of introducing mandatory reporting regulation at both country and EU level with potentially significant implications for the non-listed real estate investment sector. A recently adopted directive requires EU member states in this respect to transpose national law to enforce reporting on environmental, social and employee-related, human rights, anti-corruption and bribery matters.

These guidelines were constructed to cover similar topics, summarised under the ESG framework, and its underlying business models, outcomes and risks of these policies and therefore function as forerunner to future regulatory requirements. It is essential to successfully include sustainability into a long term strategy as well as translate that strategy into annual objectives and targets for implementation. While sustainability has long been understood as reducing the consumption of environmental resources, that definition is now being expanded to also include governance as well as social indicators. In this new context, the level of information required is increasing, so there is a need to balance the delivery of comprehensive data on the one hand but also to not become too granular.

The INREV Sustainability Reporting Guidelines have been revised to form a disclosure framework that delivers meaningful data to increase visibility and insight into a vehicle’s ESG efforts and also details their next course of action for improvements. They aim to provide a coherent framework for ESG reporting in line with annual financial reporting and present a clear picture from the vehicle’s strategy through to environmental key performance indicators.

To allow easy implementation and consistent reporting methodologies the INREV Sustainability Guidelines have been aligned with current industry standards that are widely adopted in the sector (see chapter 4 Alignment with industry standards).


References in Sustainability Reporting Guidelines:

The Sustainability Reporting Guidelines include references to other industry standards which are implemented in the non-listed real estate industry; GRESB, GRI and EPRA. The references should support fund managers employing same information to different standards and making logical links in their vehicle documentation. The references only intend to show a topical overlap, they do not refer to identical information. Therefore being compliant with the INREV Sustainability Reporting Guidelines does not automatically lead to compliance with the referenced standards and vice versa. Information that applies to the different standards needs to be processed individually. Merely referring to an attached document – such as the GRESB survey – does not fulfil the principles of the INREV Sustainability Reporting Guidelines and is not sufficient to claim compliance.

The guidelines consist of mandatory sustainability reporting requirements and best practice recommendations. To integrate the guidelines into the INREV Guidelines Compliance Framework the mandatory requirements have been integrated into the Reporting Module.

Therewith an integrated reporting approach is provided adding ESG requirements to the obligatory INREV Guidelines Compliance Framework to reflect current market practice and create the relation between integrated reporting and sustainability reporting.

The mandatory requirements and best practices offer fund managers the ability to choose between different levels of detail and to customise the INREV Sustainability Reporting Guidelines for their own capabilities and investor needs.

While fund managers who are already familiar with ESG reporting and accordingly have ambitious goals can opt for the full set of requirements by including the best practices within the mandatory reporting requirements, those with limited resources or limited investor demands can opt for only the mandatory requirements to comply with the INREV Guidelines.

This flexibility allows vehicles to customise ESG reporting to specific investor needs. The additional guidance in the best practices has two functions: First, to be a guidance for those fund managers wanting to add more detail to their mandatory requirements to support comprehensive ESG reporting, and second to further describe the mandatory requirements and with that help understanding and interpretation of the guidelines. At the same time, the mandatory requirements result in a clear overview of the fund manager’s efforts in ESG matters, as well as their related annual goals and achievements. In addition, the best practices can provide guidance for a self-standing ESG report which can be disclosed alongside the annual reports.

This section breaks down the long term strategy described in ESG-LTS 1.1 and ESG-LTS 2.1 and translates it into a practical action plan on annual basis; including targets, investment and costs, action points. Targets should be quantified as far as possible

In this section it should be reported against the annual targets described in ESG-ANN 1.1 and ESG-ANN 2.1. Report on the progress that has been made, on the status of initiatives and on what has been achieved.

This section seeks to outline the alignment of the INREV Sustainability Reporting Guidelines with industry standards recognized to be applied in current market practice. The table below shows the references between the INREV Sustainability Reporting Guidelines, the INREV Reporting Guidelines, the INREV DDQ, the GRESB Survey and the GRI Sustainability Reporting Guidelines.

The references listed below aim to provide an indication of the alignment of the standards without any claim to comprehensiveness.

*Please note that in addition to the above stated references, GRI defines categories and aspects in the guidelines which further outline economic, environmental and social references to their reporting disclosures which may be in line with INREV reporting requirements.

This report presents an example of ESG reporting in alignment with the INREV Sustainability Reporting Guidelines 2016 and aims to support the implementation of the guidelines.

The information is based on a fictional investment vehicle adduced for this example. 
The report includes elements to comply with the mandatory reporting requirements as well as elements representing best practice recommendations of the INREV Sustainability Reporting Guidelines. 
The mandatory Sustainability Reporting requirements are integrated into the INREV Reporting Guidelines. Claiming compliance with the INREV Reporting Guidelines therefore requires compliance with the mandatory Sustainability Reporting Requirements.

Legend
	Sustainability Reporting Requirement
	Sustainability Reporting Best Practice

The Phoenix Property Fund is a balanced European based property fund covering industrial, retail and office properties. 

Taking a sustainability approach is a priority for this fund. We see it as an opportunity to improve the risk-return profile of the fund as well as contribute positively from ESG standpoints while continuing to meet the fiduciary responsibilities of the fund’s investors. 

	The fund has in place a long term strategy which ensures that we act on the feedback of all identified stakeholders to shape the policy, processes and methods used to manage ESG across the fund.
	The fund sets both long term and short term targets relating to each ESG aspect identified as material for the fund, and report quarterly against targets, at asset and fund level. The fund also ensures that we have a governance structure to identify key material, sustainability aspects for the fund, review policies and processes, set targets and regularly monitor performance against annual and long term targets.
	We measure, monitor and report on all environmental aspects of the fund, and ensure that all quantitative data is externally assured. At an asset level, we undertake sustainability due diligence during all fund acquisitions. We also ensure that all developments and refurbishments employ the best practice sustainability techniques and achieve a sustainability accreditation.
	We recognise our responsibilities to national and European legislation requirements for ESG so we ensure compliance with all applicable ESG legislation. Through our dedicated sustainability manager, we also monitor, manage and mitigate risks due to proposed future ESG legislation.
	To improve our expertise on this issue, the fund will ensure all staff, agents and suppliers involved in the fund management receive regular ESG related training and are incentivised through sustainability targets both in contracts and appraisal processes.
	The fund will also play a role to encourage innovation and industry participation to further the knowledge of sustainability in the property sector. This includes building an online library system to share case studies with all stakeholders in order to promote sustainable performance of property

These annual objectives are derived from the fund’s overall ESG approach and strategy as set out in section 1. The fund seeks to meet these objectives during the next financial year with regular reports on progress through the fund’s quarterly reports, as set out in section 3.

No	Significant Aspect targeted	Measurement	Completion
	Asset sustainability plans Ensure each managed asset has an asset sustainability plan that seeks to reduce energy, water and waste.	Q1	Q1
	Development and refurbishment Achieve an EPC of a B rating and a BREEAM excellent or Lead Gold standard for all major developments and refurbishments.	Report	Quarterly
	Acquisitions Ensure that all acquisitions are assessed for potential improvements to environmental performance.	Report	Quarterly
	Environmental targets Reduce energy and water consumption in like-for-like assets by 5% during the year. This will be achieved through various initiatives such as new lighting systems and maintenance improvements. Ensure at least 85% of waste is diverted from landfill during the year.	Percentage reduction comparing YTD	Quarterly
	Legislative risks Ensure all UK assets hold an EPC and that all F&G rated EPC’s have a strategy to mitigate the risks.	Percentage F&G EPCs in the fund by NLA and ERV	Quarterly
	Environmental Risks Ensure all managed properties hold an ISO14001 certification by the end of 2016.	Percentage of funds covered by ISO 14001	Quarterly
	Employee and Supply chain targets Set sustainability targets for all employees and monitor progress by year end.  Set sustainability KPIs in all new relevant suppliers let during the year.	Targets in employee objectives, KPI’s in supplier contacts let.	Q1 Year end
	Benchmarking Participate in the GRESB benchmarking exercise	Complete survey by end of June	Issue results in September

 Example Property Fund           Landlord Environmental Data                   Quarter 1

• We are confident that the electricity and carbon targets for the year can still be achieved once the controls have been repaired at 5 Bluebird Place. 
• The increase in water usage due to the two showers being installed at two multi-let offices, mean it will not be able to achieve our like for like water targets this year.

November 2019: The references to the GRESB survey and UN PRI have been updated.

April 2016: Sustainability initiatives have advanced to play an important role in the operational performance of real estate investment vehicles and sustainability reporting has become a standard part of a company’s annual reports. To support this the INREV Sustainability Reporting Guidelines have been revised to increase visibility and provide insight into a vehicle’s Environmental, Social and Governance (ESG) efforts and also details their next course of action for improvements.