Excellence. Responsibility. Innovation. Real Estate Responsible Property Investment Strategy and Policy March 2016 For institutional investors only
Contents Responsible Property Investment Strategy and Policy 1 Hermes responsibility principles 1 Our culture 1 Our responsibilities 1 Real Estate responsible investment principles and vision 2 Responsible Property Investment in Practice 2 Our RPI strategy 3 RPI corporate objectives 3 Governance 3
Responsible Property Investment Strategy and Policy At Hermes Real Estate 1, part of Hermes Investment Management 2, we are an active asset manager working to deliver excellent, long-term, performance responsibly. We aim to lead the debate and contribute to the transformation of the investment industry, to the benefit of our clients, their stakeholders and, ultimately, society at large. Hermes Real Estate offers client focused, property investment solutions through segregated and pooled structures, seeking to maximise risk-adjusted returns over the long term. It has responsibility for property portfolios owned by the British Telecom Pension Scheme, the Hermes Property Unit Trust, and other global third party clients. Its main activities are strategic planning, research, investment, development and management across all primary Real Estate markets including the retail, office, industrial and residential sectors. By integrating responsibility in our investment process we act in the long term interest of our clients while striving to improve the economy, communities and the environment they invest in. Chris Taylor - Chief Executive Officer, Hermes Real Estate Hermes responsibility principles Our culture Since inception in 1983, Hermes has been owned by and acted as the principal investment manager for the BT Pension Scheme the UK s largest corporate pension fund. Our ownership by the scheme and our duty to serve its 320,000 pensioners gives us a strong sense of fiduciary responsibility which is embedded throughout the firm and which informs the decisions we make and the actions we take. It also gives us an unrivalled insight into the long-term needs of savers and helps us develop investment strategies that will enable them to meet their goals. Our responsibilities Behaving responsibly is important to us and not limited to the way we manage money for our clients. We have a strong focus on environmental, social and governance issues and participate fully in industry and sector initiatives to develop best practice. We believe that influencing companies and public policy in this way produces better long-term returns for shareholders and investors. We have a strong corporate social responsibility programme that is focused on helping the communities in which we live and work. We have ISO14001 accreditation and we adhere to the London living wage. We also provide pro-bono support for the independent 300 Club, which was co-founded by our Chief Executive Saker Nusseibeh to challenge investment orthodoxy and improve the contribution of financial services to society. 1 Assets under management: 7.4bn gross asset value (GAV) as at 30 September 2015, unless otherwise specified. 6.8bn NAV 2 On behalf of our clients, we manage 29.5bn and with over 146.6bn assets under stewardship. Note the total AuM figure includes 4.0bn/ of assets managed or under an advisory agreement by Hermes GPE LLP ( HGPE ), a joint venture between Hermes Fund Managers Limited ("HFM") and GPE Partner Limited. HGPE is an independent entity and not part of the Hermes group. 0.2bn of total group AuM figure represents HFM mandates under advice. Source: Hermes as at 30 September 2015 with exception of two portfolios totalling 0.5bn dated as at 31 August 2015. 1
Responsible property investment Real Estate responsible investment principles and vision We are committed to act consistently and clearly as stewards of the assets in which we invest, with the aim to deliver investment excellence. With a strong focus on the income component of total returns and a disciplined approach to risk, we seek to consistently out-perform on a risk adjusted basis to deliver robust and repeatable performance in line with our fiduciary responsibility to our clients. We see environmental, social and governance (ESG) risks as business critical to our funds and are committed to embedding responsible investment principles across our investment practices. Our strategy draws on understanding how occupiers assess real estate and the needs of communities, which enable us to actively manage buildings that anticipate and respond to market demands. We have a clear understanding of the drivers of future performance, including an in-depth understanding of how occupiers assess real estate and of the evolving regulatory framework. We comply with all current legislation and demonstrate preparedness for forthcoming regulatory requirements. Responsible Property Investment in Practice The value in adopting responsible investment practices, such as consideration of the sustainability characteristics of buildings, for example, has become an established market trend in real estate investment. This trend is driven by studies across jurisdictions pointing to growing climate and sustainability regulatory pressure, an increasing understanding of the long-term physical, regulatory and market risks by institutional investors and rising occupier demand for green buildings. It is now widely recognised that responsible investment practices are changing real estate market conditions We have identified and reported on these trends for a number of years and have responded by progressively integrating Responsible Property Investment throughout our investment and asset management processes. We also continue to work with the industry to develop tools and methods to that effect. We have achieved Responsible Property Investment (RPI) integration across our processes by developing dedicated tools and linking our corporate strategy and strategic investment targets with our portfolio strategies and the management of our buildings. This has been a continuous and evolving process aligned with best practice as proposed by leading institutional investors3. We also have an active programme of internal and sector wide initiatives to develop the tools, benchmarks and knowledge required for an effective integration and comparison of performance at fund and market level. 3 UNEPFI, IIGCC, RICS, PRI: Sustainability metrics: Translation and impacts on property investment and asset management, May 2014, http://www.unepfi.org/fileadmin/documents/unepfi_sustainabilitymetrics_web.pdf & UNEPFI, IGCC, IIGCC, CERES-INCR, PRI, RICS: Sustainable Real Estate Investment. Implementing the 2015 Paris Climate Agreement An action framework», February 2016, http://www.unepfi.org/work-streams/property/sustainablerei/ 2
Our RPI strategy We believe we are responsible for the impacts that our buildings have on the environment and local communities. Therefore our RPI principles are integrated within all our real estate activities including investment, development, property management and, occupier and community engagement. RPI corporate objectives In order to implement our RPI vision and strategy, we have set overarching corporate objectives under the following key areas: Leadership To be at the forefront of thinking and research in the responsible property investment and sustainability arena, in order to ensure we can provide the best strategic advice to our client. Risk management To understand, evaluate and manage the impacts of sustainability on future performance to enable us to manage risks effectively and create real sustainable investment returns for our clients. Strategy To acquire, develop, manage and dispose of property assets, taking into consideration the environmental and socio-economic risks and opportunities which contribute to the properties' potential to deliver long term investment performance. Management Systems To have appropriate systems and procedures in place to ensure that RPI can be effectively implemented. These will be supported by performance evaluation systems designed to incentivise the delivery of long-term investment value by those responsible. Compliance To ensure that we and the property assets we are responsible for comply with all current legislative and regulatory requirements, and demonstrate preparedness for any forthcoming legislation. Good Practice To ensure that our property assets make a positive long-term contribution to the protection of the local and global environment. To develop and manage our property assets with consideration for their impact on local communities and to support local communities in improving their quality of life. To ensure we engage with our supply chain on responsibility principles in their activities. To develop effective relationships with all stakeholder groups and facilitate the sharing of good practice. To ensure that all staff are aware of our RPI policy and objectives. Governance In order to ensure that these objectives can be achieved, we have put in place the following governance procedures: Responsibility A Board Director of Hermes Real Estate has overall responsibility for matters related to RPI. 3
Implementation The Hermes RPI Steering Group is responsible for the continuous evolution of RPI strategy and for overseeing its effective implementation. The Steering Group is chaired by a Board Director and consists of representatives from each of the Hermes Real Estate business. The Steering Group meets (at least) twice a year. Performance Targets Each year we will review our series of management and performance targets to ensure that we can measure our progress and drive continuous improvement. Each investment professional has specific Responsibility Objectives in their annual performance objectives. Engagement An active stakeholder engagement programme is in place to ensure that Hermes' staff and business partners are aware of our Policy and Targets, enabling us to work together to achieve our objectives. An active public policy engagement programme enables us to influence sustainability regulation enables private investment in sustainable and low carbon buildings. Reporting We will publicly report progress on our RPI Policy, Objectives and Targets on an annual basis. See: www.hermes-investment.com/uki/capabilities/real-estate/responsible-property-investment/ & www.hermes-investment.com/uki/wpcontent/uploads/sites/81/2015/08/hermes_rpi_report_2015_interactive.pdf Review The Hermes RPI Policy will be reviewed annually. 4