Responsible Property Investment
- Defining the Challenge

Hermes believes that a comprehensive and clearly articulated approach to “Responsible Property Investment” is an essential step to addressing the growing CSR changes that exist within the property investment market. The ‘Challenges’ set out below articulate how Hermes Real Estate is addressing corporate and social responsibility as applied to Property Investment and provide a simple framework for others to consider their own strategy in this area. We would encourage and welcome others to enter into this debate and for understanding of the whole area of RPI to evolve. For more information on the Hermes Real Estate approach to this area we have prepared a twenty page document which expands on the detailed approach to the following challenges – please email j.searing@hermes.co.uk to request a copy or view the pdf version on this page.

Challenge 1: Compliance
Property Owners and Managers pursuing RPI strategies must ensure that they and the Property Assets that they manage comply with all current legislation and regulatory requirements and demonstrate preparedness for forthcoming legislation. In particular, they should demonstrate a commitment to the highest standards of health, safety and welfare, to the prevention of pollution and to the efficient use of resources.

Property Owners and Managers should:

1. Provide demonstrable proof that Property Assets comply with current legislation.
2. Demonstrate that they have sufficient knowledge concerning forthcoming legislation that is likely to affect their Property Assets and develop appropriate strategies to ensure preparedness.
3. Put plans in place to ensure continual compliance with legislation, including appropriate auditing and improvement programmes.
4. Liaise with appropriate stakeholders concerning legislative compliance.

Challenge 2: Good Practice
Property Owners and Managers pursuing RPI strategies should work towards good practice in relation to their most significant impacts. In particular they should cover the following areas:

• Environment: Ensure that Property Assets make a positive long-term contribution to the protection and enhancement of the local and global environment. Property Assets should be acquired, developed, managed and disposed of with particular regard to the efficient use of natural resources and impact on local ecology.
• Communities: Develop and manage Property Assets with consideration for the impact on local communities and support local communities in improving their quality of life.
• Stakeholders: Develop and manage Property Assets through effective relationships with stakeholders.

2.1 Environment
Property Owners and Managers should:

1. Make the best use of available land.
2. Take a pro-active approach to the management of insured perils that may result in direct physical risks to Property Assets (e.g. flooding, storms, fire) and reduce the risk wherever possible.
3. Seek to reduce the potential climate change impacts of their assets.
4. Seek to reduce water consumption.
5. Avoid the use of hazardous materials and seek to ensure materials are from sustainable sources.
6. Protect and enhance the ecology within and surrounding the Property Assets.
7. Seek to minimise the production of waste and recycle as much waste as possible.
8. Reduce car dependency seeking to ensure that Property Assets are easily accessible by a variety of different transport modes.

2.2 Community
Property Owners and Managers should:

• Seek to establish the needs of the local community and the potential of Property Assets to help in meeting these needs.
• Seek to create a competitive local economy through providing an appropriate mix of uses which are robust and diverse enough to withstand changes in the economy.
• Seek to enhance skills and employment opportunities for the local community.
• Seek to ensure the highest standards of health, safety and welfare within and surrounding the property asset and contribute to the long-term health and vitality of the local community.
• Seek to provide accessible environments.
• Seek to provide safe and secure local environments.
• Seek to provide a good quality public realm.
• Give careful consideration to the way in which local communities are affected during any major development or refurbishment programme.

2.3 Stakeholders
Property Owners and Managers should:

• Seek to identify key stakeholders, to understand their aspirations and concerns and engage in an ongoing and meaningful dialogue with them.
• Develop equitable, transparent and proactive relationships with occupiers to ensure that the Property Asset can meet their immediate and future needs.
• Treat suppliers fairly and ensure that they contribute to addressing these Challenges.
• Treat employees with respect and assist them in the development of their skills.

Challenge 3: Strategy
Property Owners and Managers pursuing RPI strategies should acquire, develop, manage and dispose of Property Assets in line with a strategy which takes into consideration the environmental and socio-economic risks and opportunities which contribute to the properties’ ability to deliver long term investment performance.

Property Owners and Managers should:

1. Ensure that long-term environmental and socio-economic risks and opportunities are reflected in processes for assessing and forecasting portfolio risks and opportunities.
2. Undertake appropriate risk assessments at each stage of the Property Process.
3. Reflect environmental and socio-economic risks and opportunities in processes for calculating property valuations, development returns and assessments of rental growth and future worth.
4. Participate in voluntary initiatives which seek to identify and minimise the externalisation of costs to the detriment of society at large.

Challenge 4: Management Systems
Property Owners and Managers should have appropriate systems and procedures in place to ensure that RPI can be effectively implemented. These should be supported by performance evaluation systems designed to incentivise the delivery of long-term investment value by those responsible for the Property Asset. Property Assets should be acquired, developed, managed and disposed of by those who are able to demonstrate that they have the strategies, competency, skills and resources in place to address these RPI Challenges.

4.1 Systems
Property Owners and Managers should:

1. Demonstrate that their organisation has a clear commitment to RPI.
2. Provide a clear outline of how they are seeking to work towards RPI, setting out key objectives and how they are seeking to achieve these.
3. Establish a programme of work to ensure that the RPI objectives can be met in relation to specific portfolios and properties.
4. Establish performance indicators and set quantifiable targets for improvement.
5. Establish responsibilities for developing and implementing management systems.effectively.

4.2 Custodians
Property Owners and Managers should:

1. Put into place appropriate financial and human resources to enable the effective implementation of
   an RPI strategy.
2. Demonstrate that appropriate programmes are in place to raise awareness and train employees to attain, maintain and develop the competency and skills required to address RPI issues.
3. Ensure that the system is reviewed on a regular basis.
4. Where none of a)-c) above is in place, demonstrate that there are current plans to work towards the challenges with clear deadlines.