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ESG Integration in Real Estate The European investors’ view UC Berkeley, 2 December 2010

ESG Integration in Real Estate The European investors’ view UC Berkeley, 2 December 2010. Hans Op ‘t Veld Head of Listed Real Estate PGGM. All investment activities in which environmental, social and corporate governance (ESG) issues are consciously taken into account.

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ESG Integration in Real Estate The European investors’ view UC Berkeley, 2 December 2010

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  1. ESG Integration in Real EstateThe European investors’ viewUC Berkeley, 2 December 2010 Hans Op ‘t Veld Head of Listed Real Estate PGGM

  2. All investment activities in which environmental, social and corporate governance (ESG) issues are consciously taken into account Responsible investment is one of our core Investments Beliefs: it is a necessity We want to integrate ESG factors in allasset classes and investment decisions Responsible Investing at PGGM

  3. Integral approach towards Responsible Investing • ESG Integration in investment decisions • ESG factors in all investments • Engagement & Voting • Active ownership: engagements to improve ESG • performance of companies/markets • Informed voting on all equities RI Policy Core themes Climate Change Governance Health care Weapons Human rights Integration RI in all asset classes • Exclusions • Based on our identity: • weapons and human rights • Accountability • Inform stakeholders what we have done and why • Annual RI report; quarterly engagement reports • Transparency in holdings

  4. Sustainability is wonderful…

  5. …but other factors need to be taken into account too Performance Prologis vs. FTSE EPRA/NAREIT Global Indexin US$, 31/12/2007 = 100 Comments • Performance of property companies is dependent on a lot of factors i.e. availabilty of financing • Independent of sustainability scores, companies face issues • In this case: Logistics companies like Prologis are hit particularly hard by credit crisis by drop in global trade ESG is onlyone factor in the investmentdecision and should be evaluated as such

  6. Sustainability: focus on risk and return Element Objective Return Risk • Improve portfolio total return • Through better leases • Through lower vacancies • Through higher value • Reduce risk of vacancies and soaring costs • Regulation • Building codes • Taxation • Tenant’ demands Integrationin investment processis the real challenge

  7. We engage with companies to improve ESG standards for illustration Actions Example Environmental Governance • Query companies on environ-mental factors • Energy • CO2 • Measure environmental performance of companies and portfolio • Engage with companies to improve governance structure • Discuss issues with financial authorities where needed • Liaise with trade organisations to improve self-regulation What are sensiblemetrics to engage on?

  8. PGGM Real Estate has commissioned the Maastricht University to research sustainability of portfolio Focus of environmental study • Maastricht University commissioned by PGGM, APG and USS to initiate an environmental real estate survey • Focused on the main environmental aspects • energy • water • waste • CO2 • Data is collected to provide overview of entire portfolio: • Complete indirect property sector: listed and non-listed • Covering the main sectors: retail, office, residential and industrial • Partnership with other investors and associations (EPRA, INREV and ACSI) Goal is to measure and to monitor the environmental performance of the real estate portfolio

  9. To measure is to know: are companies practicing what they are preaching? Policy Implementation • Do companies work with a policy regarding environmental aspects? • What are the elements of such a policy? • Do companies look at environmental aspects in portfolio decisions (i.e. in buying – holding and selling assets)? • Are companies measuring the output? • CO2 emissions • Water use • Waste • Is the output externally verified? • There are several rating standards • Are ambitions formulated to drive down the environmental impact? Promises, promises Walking thetalk!

  10. Focus on existing stock: 98% of portfolio Since only 2% of stock is added yearly, focus should be on existing stock Considerations • The most sustainable real estate is no real estate • Is adding new green real estate sustainable? • Not just real estate in isolation: but also environment to take into account • Or should we focus on improving existing stock? • Different metrics • Cost / benefit analysis of retrofitting

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