Responsible Property Investment - UNEP Finance Initiative

RESPONSIBLE PROPERTY INVESTMENT: SIMILAR AIMS, DIFFERENT MANIFESTATIONS An Article by UNEP Finance Initiative’s Property Working Group March 2009 RESPONSIBLE PROPERTY INVESTMENT: SIMILAR AIMS, DIFFERENT MANIFESTATIONS EXECUTIVE SUMMARY This article prepared by UNEP FI’s Property Working Group, presents the essential differences between Responsible Investment (RI) in asset classes and in direct property. This practical note should help investors apprehend why and how Responsible Property Investment (RPI) is uniquely different to other “regular” assets. In particular, it explains that, whilst the same principles can be applied to property as equities with regards to RI, the unique nature of direct property as an investment type means that there are a number of practical differences in how to implement them. RESPONSIBLE PROPERTY INVESTMENT: SIMILAR

AIMS, DIFFERENT MANIFESTATIONS RESPONSIBLE PROPERTY INVESTMENT: SIMILAR AIMS, DIFFERENT MANIFESTATIONS An Article by the UNEP Finance Initiative, Property Working Group March 2009 PREPARED BY: DR. PAUL MCNAMARA HEAD OF RESEARCH, PRUPIM & CO-CHAIR UNEP FI PWG PROJECT COORDINATION: REGINA KESSLER, UNEP FI REPORT DESIGN: BENEDICTE ALSAC, UNEP FI RESPONSIBLE PROPERTY INVESTMENT: SIMILAR AIMS, DIFFERENT MANIFESTATIONS CONTENTS TABLE INTRODUCTION 1 IN WHAT WAYS IS DIRECT PROPERTY DIFFERENT 2 Differential Relationship between Investor and Invested Asset 3 Property as a ‘Binary’ Asset 3 Property as a Concatenation of Time-limited Investment 4 Differential Liquidity and Transaction Cost 4 Property as Legacy Asset 5 RI APPROACHES TO EQUITY INVESTMENT 6 Engagement 7 Screening 7 Best in Class 8 Enhanced Analysis 8 RI APPROACHES FOR DIRECT PROPERTY INVESTORS 10 Engagement in Direct Property Investment 10 Screening in Direct Property Investment 13 General Discussion on Screening in Direct Property 14 Best in Class Approach in Direct Property 16 Enhanced Analysis in Direct Real Estate 17 CONCLUSION 18 RESPONSIBLE PROPERTY INVESTMENT: SIMILAR AIMS, DIFFERENT MANIFESTATIONS 1 INTRODUCTION The aim of the UNEP FI Property Working Group (PWG) is to encourage sustainable practices in property finance. Among its goals, the PWG has a desire to raise awareness of the nature and importance of Responsible Property Investment (RPI), especially amongst the fund and investment management community. In support of this goal, the following brief paper, which focuses exclusively on direct investment in commercial and retail property, seeks to clarify the various approaches that RPI can take and how those approaches relate to the more established forms of Responsible Investment (RI) practices seen in the equities market. By doing so, it is hoped that responsible property professionals can (a) better situate what they do in relation to similar work carried out by responsible equity professionals; and (b) better articulate why, despite having common aims and purposes, they tend to focus more on some approaches and activities rather than others. It is further hoped that the paper will help responsible equity professionals understand more about the nature of property investment and how the characteristics of property as an investment asset largely determine which responsible investment approaches are most appropriate and effective. RESPONSIBLE PROPERTY INVESTMENT: SIMILAR AIMS, DIFFERENT MANIFESTATIONS 2 IN WHAT WAYS IS DIRECT PROPERTY DIFFERENT TO OTHER ASSET CLASSES? Definitions Mansley (2000) defines RI as: “(i)nvestment where social, ethical or environmental (SEE) factors are taken into account in the selection,...

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