14 August 2017
This guest blog forms part of our responsible investment in practice series where we talk to a number of investment managers about their approach to responsible investment in different asset classes.
John Gellatly and Renos Booth respectively manage Aviva Investors' real estate multi manager and long lease property (Lime) portfolios.
Q: How do you incorporate ESG into your investment approach?
Sustainability issues are identified during the due diligence and purchase process for property assets, and then monitored, and remedied if necessary, throughout the investment period. These include matters such as environmental surveys, Energy Performance Certificates (EPCs) etc.
We aim to identify ESG issues during the initial due diligence process by obtaining reports covering areas such as flood risk; environmental sensitivity; and soil contamination. We go a step further should an environmental issue be identified: we will share such information with the related party and/or the Environment Agency and look to resolve the issue.
We operate an Environmental Management System (EMS) to continuously monitor, manage and reduce the environmental impacts of our existing property assets. This enables us to identify areas in which we can actively improve our environmental performance. We will build in a budget to resolve any issues in a reasonable manner and timescale.
Furthermore, we work closely with the appointed managing agents to help educate our tenants on ways to be more sustainable across their properties.
Q: What is distinctive about your ESG approach?
Aviva Investors Real Estate regards the consideration of ESG issues and their impact on real estate investment as an essential part of its fiduciary duty to clients. Our approach to ESG issues encompasses all of the areas in which we manage our clients’ monies. It is also part of our Strategy and Research team’s agenda. We believe that good ESG practices will deliver enhanced future returns. This philosophy is firmly embedded within our business and decision-making processes, from initial acquisition through to disposal.
As a team we actively promote Responsible Property Investment throughout the real estate industry and participate in a number of industry-leading initiatives. We are active members of many key industry bodies such as the Advisory Board of the Global Real Estate Sustainability Benchmark (GRESB is an investor-driven organisation committed to assessing the ESG performance of real assets globally, looking across a number of key sustainability metrics.) Our representation enables Aviva Investors to have a direct impact on, and remain at the cutting edge of, new industry developments.
Q: How do you expect your ESG approach to evolve over the next few years?
We will continue to lead the way in evolving consideration of ESG within real estate. For example we have become sponsors of the new GRESB real estate debt and infrastructure benchmarks, raising the profile of ESG more widely. We will be encouraging more positive engagement with managing agents as this is imperative to positively affect a building’s performance. This improved engagement will encourage proactive management of ESG risk and opportunities in our directly owned assets as well as funds we invest in. We recognise that ensuring ESG is well regarded and considered by all parties through positive engagement can help to deliver energy savings in a manner that is cost-effective and improves building operations.
Our Responsible Property Investment committee provides oversight and governance of ESG issues, assessing the changes in the market where risk and opportunities are identified with corresponding changes made to the asset management strategy, allowing us to evolve with the market.
Q: What are the social benefits of your investment approach?
An important part of our investment approach is that businesses must make a real contribution to the communities where Aviva operates, acting with integrity, and respecting Aviva’s aims and values. In addition Aviva Investors requires that managing agents sign a Sustainability Charter, which facilitates regular and coordinated engagement on Responsible Property Investment issues that helps drive improvements of ESG performance. In addition to this, we look to engage and develop relationships with our tenants, by including green clauses in all new and reversionary leases and also asking tenants to sign up to our Green Partnership initiative.
Aviva Investors also looks to engage and develop relationships with occupiers by making more comfortable and better managed buildings. This has the effect of improved wellbeing of staff and improved upkeep of community spaces.
Q: How do you engage with the properties/tenants you invest in?
Where we invest with third party managers, we ensure they comply with GRESB and feed-back concerns and work with them to improve. For direct real estate we are always sensitive of EPC and the ability to meet BREEAM (Building Research Establishment Environmental Assessment Method) standards. We work with managing agents and tenants to understand their contribution to ESG performance.
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