Hermes Investment Management (Hermes), the £30.1 billion manager, has released the report Intentionality & Outcomes, which details how responsible property investment (RPI) is still at the forefront of the property industry.
Outlining its approach and calling on other institutional investors to follow suit, Hermes demonstrates how RPI is relevant on three different levels.
Chris Taylor, Head of Private Markets, Hermes Investment Management, said: “We seek to build on long term value and are absolutely committed to delivering not just outstanding financial results, but a positive impact on society and the environment.
“If you can create places where people want to work and live, this increases the chance of attracting global talent and, in turn, global capital while creating a real sense of renewed civic pride embodied by new infrastructure and accessible place-making in the urban infrastructure and public realm we are delivering.”
Who we are: outcomes beyond performance
Hermes is committed to acting as a steward of the assets in which it invests. Its aim is to deliver not just positive financial returns but those that have a positive impact on society and the environment. As a result, Hermes believes that it has a duty to deliver holistic returns and outcomes for its clients that go far beyond the financial and demonstrate responsible investment.
Throughout 2016, Hermes integrated responsibility principles across its investment and asset management processes including investment, development, property management and occupier and community engagement. Hermes’ aim is to continue to work with the real estate industry to develop tools and methods to this effect, and to help shape RPI practices going forward.
Advocacy: improving the pricing of risks
Alongside bringing about outcomes beyond performance, Hermes’ mission is to be the world’s leading provider of long-term holistic returns and to excel at delivering long-term investment performance. Nevertheless, over the years, RPI in the real estate sector has faced growing megatrends, which, in turn, have started to pose a number of risks to the fundamentals of the way in which the sector operates.
Focusing its efforts on issues most material to the real estate sector, Hermes has analysed whether markets are pricing sustainability risks accurately and, during 2016/17, this has included looking at the role of real estate in achieving a transition to a low carbon economy.
In order to help achieve this, Hermes has recognised its role as active contributors in public policy and sector engagement, working alongside the UK, EU and G20 policy makers and regulators to develop sustainable approaches to property investment.
Positive impact investing: applying it to real estate
Although responsible or sustainable real estate investment has grown steadily over the last few years, the positive impact investment approach is considerably less mature with only a handful of real estate funds in the industry using this it.
Nevertheless, following on from the launch of the positive impact finance principals from United Nations Environment Programme Finance Initiative (UNEP FI) and Principles for Responsible Investment (PRI), Hermes has a better understanding of how the principals can be implemented in real estate investments.
Serving to deliver a more positive contribution to one or more of the three pillars of sustainable development (economic, environmental and social), the positive impact principals have become increasingly relevant for Hermes’ investment practices – especially those regarding climate and energy efficiency. Hermes has examined how these principles might work for each step of its investment process, and believes that the positive impact investing framework should be based on three key elements:
1. Intentionality – objectives in terms of real-world impacts, and the targets and indicators the industry uses to do that
2. Monitoring the outcomes
3. Developing trust in the industry through transparency, verification and certification
Recognising this is still a work in progress, Hermes is working with the industry through the UNEP FI positive working impact group, developing common definitions and frameworks, and assessment methodologies and impact measurement indicators. These are all important strands of RPI that that could help further improve Hermes’ current methods.