re 26000 · iso 26000: social responsibility, and sustainable management core social responsibility...

RE 26000

Risk Management & Asset Performance

www.pwc.com

RE 26000

PwC

Agenda

1. Real Estate Risk Management

2. Introduction to Green Value

3. “RE 26000”

Risk & Sustainable performance Management tool (PwC © 2013)

4. Other areas of expertise

RE 26000

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PwC

What is “Responsible Property Investing”

“The integration of Environmental, Social and Governance (ESG) issues into investors’ decision-

making regarding real estate.”

UN Environment Programme Finance Initiative, 2012

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RE 26000

PwC

The business case hypothesis

Business benefits

• Improved operational efficiency • Preserve licence to operate

• Enhanced brand and reputation • Promoting and increasing innovation

• Customer attraction and retention • Improved access to capital

• Enhance human and intellectual capital • Building and sustaining shareholder value

• Attracting and retaining talented staff • Identification of new opportunities

• Improving risk management • Generating increased revenues

RE 26000 4

PwC

Real Estate Risk Management

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PwC

RE Risk Management

Law pressure:

Directive 2010/31/UE on the energy performance of buildings (19 May 2010)

It promotes the improvement of the energy performance of buildings within the Union, notably:

• “ …minimum energy performance requirements for buildings […] are set with a view to achieving cost-optimal levels.” both for new and existing buildings;

• “by 31 December 2020, all new buildings are nearly zero-energy buildings…”.

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RE Risk Management

Sustainability pressure:

GRI: Sustainability reporting is gaining momentum:

• GRI produces one of the world's most prevalent standards for sustainability reporting. GRI seeks to make sustainability reporting as routine as financial reporting.

• A dedicated “Construction and Real Estate Sector Supplement” (CRESS) has been created for the Global Reporting Initiative (GRI). A CRESS exists a in the former 3.1 scheme. The GRI scheme 4.0 has been issued in May 2013 without any updated CRESS version.

• PwC Luxembourg is GRI official trainer.

ISO 26000: Social responsibility, and sustainable management

Core social responsibility subjects : Consumer issues, Environment, community involvement and development, etc.

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PwC

RE Risk Management

Customer pressure:

What they are looking for…

• Comfort, health and well being:

More and more quality standards are requested, notably EN 13779, about rate of air exchange, and EN ISO 7730:2005 that determines and interprets the thermal comfort using PMV (Predicted Mean Vote) and PPD (Predicted Percentage of Dissatisfied) indices and local thermal comfort criteria.

• Lower operational expenses, as it directly impacts the tenant’s P&L;

• Better sanitary conditions: air quality (temperature, moisture, venting),

epidemiological study, …

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PwC

RE Risk Management

Law, environment and customer pressures now expose any RE portfolio to more depreciation

Any building is subject to depreciation and obsolescence:

• However, the changing RE environment implies an even higher depreciation and sooner obsolescence for buildings that won’t adapt quickly enough;

• On the other hand, buildings that are able to adapt quickly enough will decrease depreciation and postpone obsolescence.

Market Value depreciation is caused by many factors:

Building depreciation

Building-related factors

Site value changes

Changes in supply and demand

Environmental obsolescence

Building obsolescence Physical obsolescence

Functional obsolescence

Technological obsolescence Tenure-related

factors Decreasing

tenure quality

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PwC

RE Risk Management

This combined regulatory and market evolution has several direct and indirect impacts on the real estate industry:

• Non-green characteristics become increasingly less desirable to tenants than green alternatives : non-green properties will end up with lower rents and take longer to re-lease;

• Non-green assets will depreciate more quickly and carry higher risks than their green counterparts;

• Property owners will find it harder to raise rents in energy-inefficient properties where tenants are already paying higher energy costs. This will also make non-green properties less desirable to other investors;

• Awareness of owners who develop a sensitivity to these issues, including for example the concepts of environmental engineering in their recruitment conditions for asset managers (30% of investors in 2007, 60% in 2009 according to a AXA Real Estate study).

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Positioning a response

Managing sustainability issues will maintain or increase the value of the business

Value creation

Value erosion

Compliance: • Operational risk • Regulatory compliance • Reputational risk • Licence to operate

Leadership: • Extending positive impact • Product/service/operating

model innovation • Market leading

Leverage: • Relationships • Assets • Employees Operational effectiveness:

• Reduce direct impact • Organisational savings • “Eco-efficiency”

Risk management/ value preservation

Managing for value Strategic advantage/ value creation

Increasing maturity of sustainability approach

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PwC

Introduction to Green Value

Green Premium & Depreciation

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PwC

Introduction to Green Value

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RE 26000

𝐺𝑟𝑒𝑒𝑛 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 + 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑅𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 = 𝑮𝒓𝒆𝒆𝒏 𝑽𝒂𝒍𝒖𝒆

Summary of Green Office Value Studies

PwC

Managing Risk

& Sustainable Performance

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Created by PwC Luxembourg © 2013

PwC

RE 26000/Performance Assessment The link between environmental and financial performance

Thanks to a unique combination of engineering and financial skills, PwC has setup a new method to manage the risks and performance of a RE portfolio.

It enables a completely new perspective on the performance of your portfolio, all along the investment lifecycle:

• At acquisition: it incorporates sustainability performance issues in your due diligence process;

• During the holding period: it proposes a monitoring and reporting framework to help you assessing the evolution of the performance of each asset to make the most appropriate decisions;

• When a strategic decision has to be made (refurbishment, disposal…): it assists you in selecting the most profitable options…

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RE 26000/Key objectives:

• Enhance transparency for the investor and stakeholders;

• Provide a framework for monitoring and managing macro and micro- risks of a real estate portfolio;

• KPI’s measurement/Portfolio benchmark;

• Investment strategy definition.

The tool helps the Asset Manager to:

• Assess the risk profile and potential of a RE portfolio;

• Identify and manage green features;

• Reduce impact of depreciation;

• Improve green premium.

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RE 26000

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Consider RE 26000 KPI’s in decision-making

• When allocating assets or managing portfolio composition; • When creating new investment vehicles; • When selecting properties for acquisition; • When managing existing property assets.

RE 26000 KPI’s

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RE 26000

• Age; • Location; • Management; • Technical and physical qualities; • Functional flexibility; • Tenancy structure; • Financial. => ∑ PwC Sust. Perf. index

PwC

On the basis of a review of relevant literature and of our professional experience, we have identified (and weighted with the Analytic Hierarchy Process (AHP) Multicriteria analysis) 7 main attributes determining the value of a real estate asset:

The PwC Sustainability performance index is computed according to the following formula:

Constructing the PwC Sustainability Performance Index (SPI)

PwC Sustainability Performance Index

1. Age 2. Location 3. Management 4. Technical and

physical qualities

5. Functional flexibility

6. Tenants 7. Financials

7

1j

ijji xY

Yi Index score

j Asset attributes

i Asset under consideration

βj Weight of each attribute

xij Score obtained for each attribute resulting from the survey

RE 26000/Performance Assessment

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RE 26000

Index score

PwC

ESG


Integrating ESG Risk Management into Real Estate

• Emphasis on long-term value creation;

• Importance of the creation of sustainable value;

Does not only refers to commercial value but:

“long-term responsible and sustainable RE investments”

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RE 26000

Social concerns

Environmental concerns

Corporate governance

Responsible investment

Disclosure and regulation

Water management

Children’s rights

Climate change

RE perf KPI’s

PwC


Step 2

Step 1

Who ? How ?

Asset Manager 20 questions

brief assessment

Asset Manager / PwC 130 questions

detailed level

Step 3

Result ?

Asset Manager / PwC

AM wishes, PwC

expertise, outcomes

of the tool

Focus study on

relevant assets through

a classification

Evaluate performance

Compare them &

analyse portfolio

Improve the overall

performance of each

asset (improvement of

the potential green

value)

Why ?

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RE 26000

Essential

Work

Required

Already greenBulk of portfolio

How does it work? Methodology

PwC


Step 1:

Selecting the right assets to work on

• A quick pre-assessment of 20 questions carried out by the AM all over the portfolio allows to obtain an overview of the asset’s performance through a quick assessment;

• There are usually 3 types of assets:

- Those which are “already green”, and ready for the upcoming challenges;

- Those which cannot become green assets with reasonable investment;

- Those which could become green if certain refurbishments are undertaken.

Essential

Work

Required

Already green Bulk of portfolio

Our team helps you to • Understand in which category

each of your building lies; • Our review shall focus on

“bulk of portfolio” buildings.

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Step 2:

Assessing the current performance of the selected assets regarding today’s RE environment (1/3)

Based on the information provided by the AM, the PwC experts will complete a comprehensive form on an asset by asset basis allowing to deeply examine the performance of each building in today’s RE environment.


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PwC

Step 2:

Assessing the current performance of the selected assets regarding today’s RE environment (2/3)

This examination is carried out in seven dimensions, each of them determining a SPI score.

The aggregation of the different scores makes the PwC SPI.


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RE 26000

0.02.04.06.08.0

10.0Management

Technicalfeatures

Flexibility

TenancyFinancial

Performance

Age

Location

PwC


Step 3:

Identifying achievable improvements (1/3)

Regarding the initial PwC SPI, areas of improvement can be determined

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ESG in Real Estate

0

2

4

6

8

10Management

TechnicalFeatures

Flexibility

TenancyFinancial

performance

Age

Location

PwC

Step 3:


• Regarding the original PwC SPI, the potential forecast capital expenditures, the AM wishes & the PwC expertise, a target performance score is determined.

- Sample of actions & score impacts.


Age Location Management Technical

features Flexibility Tenancy

Financial

properties

Energetic Audit direct direct

Indirect

Establishment of a Building

Management System direct direct direct

Environmental certification "in

operation" direct direct

Replacement/Improvement of

technical equipment direct direct

Implementation of a green lease direct

Improvement of energy counting and

monitoring direct

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Step 3:



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Other areas of expertise

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PwC

Other Areas of Expertise

• Carbon emission assessment;

• Life Cycle Cost/Life Cycle Assessment;

• Asset certification (design stage, post construction, in use) under various standards:

- BREEAM;

- HQE;

- LEED;

- DGNB;

• On-site renewable energy generation capacity.

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RE 26000

Alexandre Goossens Senior Manager, Real Estate - MRICS +352 49 48 48 - 2043 [email protected]

Laurent Rouach Partner, Sustainability +352 49 48 48 - 4111 [email protected]

This document has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the

information contained in this document without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the

accuracy or completeness of the information contained in this document, and, to the extent permitted by law, PricewaterhouseCoopers, Société coopérative, its

members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or

refraining to act, in reliance on the information contained in this document or for any decision based on it.

© 2014 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers, Société coopérative

Luxembourg, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

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re 26000 · iso 26000: social responsibility, and sustainable management core social responsibility...

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