Colin Course Assignment Online

8/2/2019 Colin Course Assignment Online

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An Investigation into Socially Responsible Property

Investment in the United Kingdom

Colin Munro

Course: Sustainable Urban DevelopmentBY604E (30 Credits)

Tutor: Stig Westerdahl

Autumn Semester 2011

Date of Submission: (12/01/12)


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Abstract

This article examines the current standing of Socially Responsible Property Investment within

investment funds in the United Kingdom. A particular emphasis has been placed on analysing the

impact that corporate social responsibility within investment institutions has in the development of

such funds. The paper also seeks to identify key features that may characterise socially responsible

property funds going into the future.

Introduction to Property Investment and Sustainability

Businesses globally are under growing public and legislative pressure to demonstratetheir ethical and sustainability credentials. A popular way for corporate business torepresent their actions and policies on the issue is by way of Corporate SocialResponsibility (CSR) reports. Literature on CSR goes back to the early 1950s whenHoward R Bowen published a book titled Social Responsibilities of theBusinessman (Carroll, 1999). The concept has since evolved largely throughliterature and theories, for instance the triple bottom line (Commission of theEuropean Communities, 2002, Pg 5) which places a strong emphasis on the issue ofsocial, environmental and economic sustainability. As theories such as the triple

bottom line have grown in prominence in recent years the ties between CSR andsustainability concepts have strengthened. The global sustainability agenda hasgained substantial momentum, which has lead to the large-scale implementation ofCSR from theory into practice. Lindgreen and Swaen (2010) argue that the growing

prominence of CSR policy has led to tension between company stakeholders and theexpectations of the wider public, reconciling these two pressures remains a majorchallenge.

The impact of the built environment on global sustainability challenges has been well

documented in recent years and the case for interlinking CSR and corporate real estatestrategies has become stronger. There are various avenues where clear efforts need tobe made within real estate in order to make a positive impact on sustainability issues.For example the emergence of research stating that real estate is responsible for up to50 percent of carbon emissions in the UK has focused on the pressure from the publicand policy makers on this significant issue (Ellison and Sayce, 2007). From a

perspective of commercial property, issues such as sick building syndrome (related to poor air quality) affect both the health of employees and subsequently the productivity of the company occupying the office premises (Burge, 2004). Theseexamples provide only a brief insight to the array of real estate issues that directlyaffect sustainability and CSR policy.

Ownership of real estate also plays a significant factor in the evolution of the builtenvironment in response to CSR concerns. Firstly it is important to consider thedifferent categories of land in the context of the UK. Urban landscapes arecharacterised by residential property, commercial property and urban land availablefor development or previously developed (Dixon, 2009). This study is concerned withthe inter-relationship between property investment and corporate social responsibility,therefore it is appropriate to focus more on commercial property ownership asinvestment institutions predominantly focus their property funds within thecommercial property markets.

Land ownership trends in the UK differ with different land categories, commercial property is characterised by owner-occupiers and landlord ownership by investment


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institutions or property companies (Dixon, 2009). Investors can be characterised bymulti-asset funds of which real estate comprises a sub-section of a larger investment

portfolio, or real estate specific funds. Importantly in the case of multi-asset funds,one should recognise the potential synergies between investing in sustainable propertythat may produce a positive return for their own tenant company (Pivo and

McNamara, 2005). In order to remain specific to the built environment this study willfocus exclusively on real estate funds.

In order to further disentangle the web of participants within the real estate market,the three key players can be identified as; the owners of capital (or investors), themanagers of capital (also referred to as fund managers) and the asset owners (orlandlords) (de Francesco and Levy, 2008, Pg 4). It is important to note at this stagethat there is potential for substantial cross over between these key players, forexample, managers of capital for example will find themselves as landlords when they

purchase a property for a certain portfolio.

The area of interest in this paper emerges when fund/investment managers compile a portfolio specifically targeted at satisfying the demand for investors with a strongdesire to fulfil CSR and sustainable objectives in their investment practice. These

portfolios are widely known as Socially Responsible Investments (SRIs). For property specific funds the practice is titled Socially Responsible, Sustainable orResponsible Property Investment - for the purpose of this study it will be referred toas Socially Responsible Property Investment (SRPI). SRPI is described by Pivo andMcNamara (2004 Pg 129) as:

Maximising the positive effects and minimizing the negative effects of property

ownership, management and development on society and the natural environment in away that is consistent with investor goals and fiduciary responsibilities.

Sparkes and Cowten (2004) argue that the prominence of SRI funds has grownsignificantly in recent years both in size and maturity, and as such they have a greaterinfluence in how company executives react in the stronger and more explicitdevelopment of CSR policies. The traditional SRI markets remain in retail andinstitutional equity investment portfolios. SRPI can be viewed as a by-product of amaturing SRI market largely down to its less volatile characteristics when comparedto equities, and due to the widely documented impacts of property on sustainabilityissues (Rapson et al. 2007). The emergence of SRPI as a form of investment is still

rather tenuous and its development amongst both multi-asset investment funds andproperty specific funds is still in its infancy (Rapson et al. 2007).

The publication Socially Responsible Property Investment by Rapson et al. (2007)represents one of the few recent articles exploring SRPI in the context of the UK fundmanagement market. The research predominantly focused on mixed asset fundmanagers, but also included two property specific fund managers. The report foundthat none of the ten fund managers researched had specifically marketed SRPI funds,although many funds demonstrated socially responsible and sustainable features.

The current picture is one of a distinct disparity between the relative prominence of

sustainable real estate issues, CSR and SRI, and the underdevelopment of SRPI inresponse to this. The role to be played by property investment managers has potential


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to be significant in linking sustainability and CSR theory into practice. Howevercertain key elements within this relationship remain unclear, such as the extent towhich CSR affects investment decision-making, and the subsequent make-up of

property funds.

Problem: There appears to be a lack of knowledge regarding the current level of SRPIdedicated funds on offer by fund managers. Although the practice of SRI and CSRappears to be well established, and the impacts of real estate on CSR agendas is welldocumented, research in 2007 indicates there is a lack of provision of property fundsaddressing the pressing issues of sustainability and social responsibility.

Aim: The aim of this paper is to investigate major real estate fund managers in the UKand monitor their provision of SRPI marketed funds. If the funds have developed,the research will aim to identify any key themes that may characterise them going intothe future, and also the role CSR may play in any developments.

Investigating SRI, Sustainable Real Estate and the Emergence of SRPI

This section of the paper will firstly explore SRI in order to give an understanding ofthe theoretical background of SRPI. As previously stated, SRPI can be seen as asubsection of SRI and many of its traits can be derived back to the more general

practice developed in equities and retail investments. The theory will then move on tointroduce the concept of sustainable real estate and aims to provide the reader with anunderstanding of how property can interact with sustainability issues and how thesemay effect property investment decisions. Finally SRPI will be introduced to thereader, much of this theory reflects on the interplay between SRI and sustainable realestate, while also introducing some concepts unique to SRPI.

SRI, an overview: Much of the relevant literature on current progress on SRIs ispublished by Eurosif, this is a think tank whos mission it is to develop sustainabilitythrough European financial markets, they describe SRI as: a generic term coveringany type of investment process that combines investors financial objectives with theirconcerns about Environmental, Social and Governance (ESG) issues (Eurosif, 2010,Pg 8). The practice of SRI (also known as ethical, sustainable or responsibleinvestment) has grown and matured significantly in recent years, with a total marketshare increase from $2.2 trillion in 2002 up to $7.5 trillion in 2008 (Eurosif, 2010).This represents a total of 12 percent of total global assets under management (Just

Economics, 2011 citing Eurosif, 2008). SRIs are constantly being redefined in aninnovative finance economy, and have also transformed from funds predominantly based in the USA (they were prominent throughout the 1990s and early 2000s)which accounted for 84 percent of the market in 2002, to a majority European basedmarket in 2008, accounting for a total of 53 percent of all SRI managed (JustEconomics, 2011 citing Eurosif, 2008).

Rapson et al. (2007) identify screening and engagement as the two key techniquesused within the industry for achieving SRI funds. Investors and investment managerscan conduct a screening process in which to identify companies that they may want toinclude or exclude in an investment. Screening can be categorised into positive and

negative screening; positive screening involves the investment firm identifying best inclass companies that perform strongly in the environmental, social and governance


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areas; negative screening involves the investor excluding particular industries or poorly performing companies from their portfolios, typically excluding companiesfrom the tobacco or weapons industries. Engagement is a more proactive processwhich involves the fund manager identifying particular ESG issues within a portfolioand subsequently working with and applying pressure on companies to make more

positive changes.

Eurosif (2010) present a more complex approach to categorising investmentstrategies, which it separates into core and broad approaches. Core strategiesrevolve around varied, fairly rigorous screening methods such as norms- or values-

based exclusions (negative screening), best in class, or thematic (eg. renewableenergy) funds and other positive screening conditions. Broad strategies can alsoinclude screening however they tend to encompass simple exclusions based on singlenegative criteria. Engagement and integration form the two main characteristics of

broad investment strategies, integration involves ESG risk being integrated intotraditional financial analysis. The distribution of core and broad strategies varies

greatly throughout Europe, for example Switzerlands SRI funds are 100 percentbased on core investment strategies, while in the approximately 97 percent of Frenchfunds follow broad strategies. On the whole European funds comprise 77 percent

broad strategies and 23 percent core (Eurosif, 2010, Pg 12).

The UK is widely recognised as a global leader in SRI funds, which are largelyimplemented through engagement initiatives and other broad strategies. The UnitedKingdom also demonstrates a diverse range of investors and professionals offeringextensive opportunities in SRI - asset management companies are included in thecategorisation of major players in the UK market (Eurosif, 2010). Interestinglyduring a study into the financial performance of SRIs in the UK, Mill (2006)discovered that socially responsible funds did not out perform regular funds, asopposed to this, a SRI fund would experience a degree of variability in returns foraround four years before returning to the previous level of returns. The stabilisation ofthe investments was attributed to the responsiveness of CSR policies to satisfy SRIcriteria. One possible explanation for the UKs prominence in recent years may beattributable to increased leadership from chief executives of investment companiesand other top professionals in advocating SRI (Eurosif, 2010).

As discussed in the introduction, differentiating between different types of investorshelps to provide a better perspective upon why certain firms decide to invest in a

particular way. Jansson and Biel (2011) provide a perspective over the differingmotives of private investors, institutional investors and investment institutions (fundmanagers) to invest in SRI. The study found that investment institutions are moreinclined to invest in SRI based purely on financial performance as opposed to

personal beliefs over social responsibility.

Sustainable Real Estate: Understanding the role that commercial real estate has inachieving sustainability objectives is important in order to appreciate the role realestate may have in pursuance of SRI. There are many parallels between practices SRIand SRPI, however real estate also offers unique opportunities and challenges forinvestors, which will be explored below.


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Critical to an investigation of SRPI is the basic understanding of the criteria, whichmay differentiate a sustainable property investment compared to an unsustainableinvestment. Both property specification and the management of the property aredetermining factors regarding the nature of a property investment. However,currently there is not a standardised criteria for identifying sustainable properties at a

UK wide level. This issue has caused a certain amount of uncertainty over the virtuesof sustainable and socially responsible property and has also hindered research on thetopic of added value to investment in sustainable properties across Europe (Bernet etal. 2010). Ellison and Sayce (2007) conducted research attempting to establishcriteria for assessing the sustainability of commercial property for the purposes ofinvestment. The paper indicates that CSR is currently the main driving force behindsustainable properties in the UK. The Paper produced eight criteria which will formthe basis for analysing real estate funds sustainability in this paper they are: Energyefficiency; Climate control; Pollutants; Waste and water; Adaptability; Accessibility;Occupier; and Contextual fit. The criteria are easily interpretable aside fromcontextual fix, which is described as the appropriateness of the building within its

location whereby the property clearly enhances or degrades the area. It should benoted that the critique of the lack of standardised criteria published by Bernet et al. in2010 would indicate that the criteria suggested by Ellison and Sayce three years

previously have not brought about a complete standardisation of criteria. Althoughthey do appear to represent many of the attributed discussed in the majority ofsustainable real estate literature.

In response to the lingering uncertainty, investor groups and research institutions have been striving to provide adequate criteria for investors, one example is the GlobalReal Estate Sustainability Benchmark (GRESB). This was launched in mid 2011 andwas formed by Maastricht University and eleven of the worlds largest assetmanagement companies, it aims to provide a benchmarking tool for investors toregister their portfolios against their counterparts and against fixed sustainabilitycriteria (Nils Kok, 2011). It remains to be seen whether or not this benchmarkingframework will become the standardised criteria for sustainable property investments.

Inevitably when discussing property investment, the question of added value is animportant point. There has been substantial research on added value to sustainablereal estate in the USA, and in recent years there has been various research articles

published with reference to the UK commercial property market. A comprehensiveliterature review was recently conducted for the RICS by Sayce et al. (2010), which

analysed 128 publications on the topic. The research found that the majority of publications were literature based, and that very little empirical research has beenconducted. All of the empirical studies thus far have taken place in the USA, theRICS believe these studies to show that sustainable properties do not demand anotable premium in rent, however buildings with an energy efficiency certificate maydraw a small rental increase. This is somewhat contradicted by a recent Cushman andWakefield (2011) report which claimed that findings in the USA indicate that a rental

premium is achievable through more sustainable properties, although they admit thatthere is no evidence of added value. The Cushman and Wakefield report investigatedthe impact of sustainability on UK investment institutions decision-making, andfound that more than half of UK investors believed that any value differential was

currently unquantifiable, but all interviewees believed that one would exist in thefuture. Interestingly the majority of investors believed that that the differential would


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be achieved in the depreciation of the value of unsustainable properties as opposed toa premium for sustainable property. This would suggest there would be a greaterincentive to divest in poor quality buildings as opposed to actively targetingsustainable properties.

This overview of sustainable real estate demonstrates that there are still areas ofuncertainty despite relatively intensive research in recent years. Uncertainty stillexists in the criteria for identifying sustainable property in the UK (Bernet et al.2010), and also with respect to empirical evidence proving a price differential insustainable property as an investment (Sayce et al. 2010). However there are effortsto bring standardisation to definitions, including the paper by Ellison and Sayce(2007) which developed criteria for sustainable buildings, it also gave an interestinginsight in the strong connection between sustainable property and CSR. The mostrecent step towards standardisation has been through GRESB, which has sought to

provide investment criteria through benchmarking and other initiatives. Finally theoverview investigated investors opinions on sustainable property, generally the

outlook was fairly positive although uncertainty seems to play a strong role in thecurrent market. Ultimately it is the decisions made by the investment institutions thatwill lead to the formation of SRPI funds, these are explored in more detail below.

SRPI explained: The United Nations Environment Programmes Finance Initiative(UNEP-FI) has sought to build on the concept of SRPI by initiating a work streamon the topic. The UNEP-FI states that Responsible Property Investment constitutesinvestment in property that considers social and environmental issues as well asstandard financial decisions. The work stream also highlights that the investmentshould look beyond minimum legal requirements and highlights that benchmarkingand systems for measuring sustainability are key for managing and monitoring

progress (UNEPFI, n.d.). In this sense the GRESB can be seen as a positiveintroduction even though has yet to fully establish its-self in the global market.

SRPIs appear to share many of the same characteristics as SRI and subsequentlyimplementation techniques in which to achieve outcomes can be categorised intobroad and core. A screening initiative may involve portfolio managers only

purchasing properties that meet a certain sustainability criteria, engagement mayentail the landlord and tenant negotiating a green lease which places sustainabilityobligations for the management of the property. Rapson et al. (2007) argue thatalthough much of the implementation techniques can be categorised the same as SRI

(screening and engagement), it is here where many of the similarities end. In practiceSRPI is far more complex to manage compared to conventional SRI principles, thepaper highlights the fact that SRIs can be rapidly divested compared to the relativeilliquidity of a property investment. Similarly, the UNEP-FI work stream highlightthe relative complexity of property investment stating that the full lifecycleinvestment in the property should be considered. The key stages in the propertieslifecycle are: development or purchase; refurbishing and improving the property; theoperational management property (must maintain sustainability standards); and finallythe demolition of the property must also be carried out in a conscientious way(UNEP-FI, n.d.). Rapson et al. (2007) also raise a question over the viability of usingscreening to select possible tenants for properties, this process may potentially result

in voids in the property portfolio being perpetuated due to not finding the right type of


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tenant. These issues are just an example of many characteristics that differentiate thechallenges faced by SRI and SRPI.

There is currently limited information on the extent of property that is currentlyinvested in for the purposes for SRPI. Socially responsible real estate investment

accounts for 3.6 percent of all SRI in Sweden, which has historically been one of thecountries at the forefront of SRI in Europe (Eurosif, 2010). However there is noindication of what types of portfolios these investments are in and extensive empiricaldata is equally scarce in the United Kingdom.

To summarise; it is important to consider that current published material recognisesthat there are no specifically marketed SRPI fund on offer by major fund managers inthe UK, this finding is clearly presented by Rapson et al. (2007) and is discussed inthe introduction. A study of existing theories has uncovered potential streams forstandardisation and implementation of SRPI funds through the UNEP-FI work streamand also through the recent introduction of the GRESB benchmarking and rating

initiative. Rapson et al. (2007) also draw useful comparisons between SRI and SRPIinvestment management methods, recognising that screening and engagement are stillcentral techniques for implementation of investment strategies, but that thesetechniques can prove to be more challenging when applied to property as opposed toequities.

Methodology

For the purposes of this paper secondary research methods will be used to provide themain source of data. Secondary information is data, information or reports that have

been compiled by other people and subsequently archived or published. Sourcescould include government reports, professional organisations reports and data, censusinformation etc. (Stewart and Kamins, 1993). The major advantages associated withsecondary information are time and cost. Comparatively secondary data is deemed farcheaper to access, and when an answer is required quickly is the only practicalalternative (normally achievable quickly through a computer archive search, as manydocuments are available online). When time constraints are tight secondary researchmay be deemed as a more effective method of obtaining high quality, reliableinformation, it can also be utilised as an effective comparative tool (Naoum, 1998).

A total of 10 prominent asset and investment management companies located in theUK will form the basis of the research. The companies property investment holdings

must be in the region of 1 billion or more in order to ensure a suitable commitmentto their property related investment activities. It must be accepted that in a relativelyfree market system many of the investors will hold property investments throughoutthe world, however where possible UK specific funds will be selected, or if this is not

possible a considerable proportion of the property holdings must be within the UK.The study aims to access all published information available on the companyswebsites and elsewhere detailing information of their socially responsible propertyfunds. The research will specifically look for data on any SRPI funds availablethrough the investment institutions. It will also seek to gather relevant information onthe property specification and management arrangements to determine how the SRPIlabel is being achieved. Consideration will be given to broader SRPI or SRI polices

governing investment practice within the companies. A review of the extent ofcompanies CSR policies will also be undertaken to help analyse the potential


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correlation between strong or weak corporate responsibility and wider investmentpractices.

Analysis of UK Property Investment Institutions

The research is summarised in appendix 1, and has been analysed in separate sections

below. The analysis will first investigate the extent to which SRPI branded fundshave developed and will then look into how responsible property investment

principles are applied practically. The research then goes on to look into thecharacteristics of the property funds, this will seek to determine the nature of SRPIfunds or whether certain funds show SRPI characteristics without being brandedaccordingly. Finally the analysis will seek to discover if there is a correlation

between the SRPI and the relative development of SRI and CSR policies within thecompanies studied.

SRPI Branded Funds: Of the ten investment companies there was only one (InvestorG), which claimed specifically to have a SRPI fund. It has been a recognised SRPI

fund since 2006, and claims to be the first such fund recognised by the UNEP-FI.The fund is not explicitly branded SRPI or by any of the alternative aliases howeverthe description of the fund explains that all investments are screened through theirown sustainable footprint methods.

Interestingly, investors A and B offer a selection of funds, which have been awardedGRESB Green Stars. A offers a total of two funds that have been accredited withthe Green Star and B offers three funds accredited with the GRESB award. Thefunds are not branded as SRPI funds as such and instead tend to be labelled withacronyms representing, for example, the pension fund they are investing on behalf of.The GRESB Green Star is accredited to funds demonstrating excellence andleadership according the benchmarks and criteria as decided by the GRESBfoundation.

In summary, a total of six SRPI labelled or certified funds were on offer, and thesefunds were on offer by three of the ten fund managers. It is clear that the majority offund managers still do not offer funds that have been clearly labelled as sustainablefunds, and, where SRPI funds are on offer, the investors choose not to brand them assuch but rather state within the fund descriptor or by way of displaying certification.

SRPI Reporting: It was discovered that a total of five companies had published SRPI

reports on their websites. The reports varied in depth and content, however thereports reflected what would be expected in broader SRI or CSR reports, they make particular reference to SRPI policies, case studies and achievements. Companies A,B, G and H had published comprehensive reports on their initiatives to implementresponsible investing philosophies across all of their funds. Company F had a sectionof its website in which it discusses responsible property investment and that it adheresto requirements specified by the UNEP-FI.

The SRPI reports also provide and insight into the number of companies involved inresponsible property investment that achieve their sustainable investment targets.Upon reviewing the reports it is clear that there is a variation of techniques used by G

and B both applying a screening approach in order to identify properties and projectsthat meet their sustainability criteria. Investor B also employs a range of engagement


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initiatives across their portfolios, as do investors A, F and H. Engagement activitiesinclude negotiating green leases, redeveloping properties across portfolios andsurveying portfolios for energy consumption statistics.

The research suggests that half of the funds examined implement a SRPI policy,

which seeks to overreach all investment decision-making and management.Engagement appears to be the most popular method of implementation with threecompanies using this as their primary method, compared to just one fund that focuseson a screening process. One fund manager appears to make fairly extensive use of

both methods.

Funds demonstrating sustainable characteristics: The quality of data available onfund characteristics and the properties within them varied greatly from company tocompany. Investors D, F and H did not display adequate information of their funds inorder to undertake an assessment of the characteristics of the funds. From theinformation available it could be concluded that investors I, E and J did not offer any

funds that exhibited any clear sustainable or socially responsible attributes.

Investor C appears to claim to have enhanced energy saving across many propertieswithin its various funds, however the company does not frame the action as a steptowards more sustainable properties or investment practice and instead frames itsenergy saving achievements as an exercise that will reduce costs. Investors A, B andG clearly present their funds with sustainable characteristics through their SRPIreports, they do however demonstrate very different characteristics when comparedalongside each other. Investor Gs fund focuses on urban regeneration projects withinthe UKs twenty largest cities, this differs greatly with the more conventional propertyinvestment approach undertaken by investors A and B. The latter two investors focuson dealing with commercial property investments such as office, retail industrial andmixed-use buildings. Investors A and B instead focus on the individualcharacteristics properties such as energy efficiency, waste management tenantengagement, however they appear to avoid getting involved with large area-wideregeneration projects.

Over-reaching SRI Policies: A large number of the investors that were looked at inthis study also participate in other forms of investment, therefore the research alsoinvestigated whether or not the investors had any SRI policies or reports. Seven ofthe ten companies had clearly illustrated SRI policies on their home pages. C, E and I

do not provide a clear indication of any socially responsible investment policies,which they apply to investments in general. Investors D and F offer a limitedselection of SRI policies and do not go so far as publishing yearly reports or extensiveonline literature. Investors A, B, F and J offer comprehensive SRI literature clearlyidentifiable on their websites, and often accompanied by an annual SRI report.

CSR: All but one of the investors has policies relating to CSR on their company webpage. Investor D fails to provide any relevant CSR information other than stating thatsocial, environmental and ethical issues are an important consideration for theircorporate governance decision making. The nine remaining investors provide avarying array of CSR documents, with C and I only publishing limited information

which is generally focused on areas such as energy saving. Investor E identifiescertain area of their business that demonstrates positive CSR actions in areas such as


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giving to charity and ensuring efficiency across their own offices, but it fails toidentify any example of socially responsible business practice or investment. Theremaining investors A, B, F, G, H, and J all demonstrate fairly comprehensive CSRcharacteristics on their websites.

Analysis of trends: The three companies which offer SRPI funds (A, B and G),demonstrate clear and extensive literature on their SRPI, SRI and CSR objectives and

policies, generally presented in an annual report format. Of the remaining companiesinvestigated, investor C was the only other company that clearly had a portfoliodemonstrating certain characteristics of a SRPI fund, namely with respect to energysaving measures. Investor C provided only a basic CSR report again generallyfocusing on energy savings. Two companies (F and H) had SRPI reports although itcould not be determined if any of their particular funds were uniquely sustainable,however both companies had published SRI reports (all be it Fs was brief), andcomplete CSR reports. The remaining investors did not demonstrate any SRPI fundsor any particular fund with sustainable features. Companies E and I have no SRPI or

SRI information published and both also have limited CSR data available on theirweb pages. Company D only has a very limited section on their website discussingSRI, this does not include any clear strategies for SRPI, SRI or CSR. Finally,company J doesnt have any SRPI funds or policies even though it has publishedinformation on both SRI and CSR.

Discussion

With respect to the branding of SRPI funds, there appears to be a certain amount ofprogression when compared to the findings in Rapson et al. (2007) which states thatthere was not a single fund branded as an SRPI. However, while there is yet to be afund specifically branded as such, a total of five funds from investors A and B have

been accredited with a GRESB Green Star, that has only been available for use since2011. This perhaps represents an alternative option, as opposed branding a fund as anSRPI, companies may instead opt to label or certify funds with accreditation. InvestorG demonstrates an alternative way of forming and marketing their SRPI fund. Firstly,the fund purports to have been the first SRPI fund recognised by UNEP-FI (indicatingan alternative form of recognition from the Green Star), and secondly the fundfocuses on investing in regeneration projects as opposed to purchasing a portfolio ofsustainable buildings or sustainable property management methods. This presents aninteresting contrast in approach to SRPI, as both would appear to meet thedescriptions of SRPI provided by Pivo and McNamara (2004) and the UNEP-FI work

stream, it can therefore be observed that there is no singular representation of an SRPIat present. It is worth noting that the Green Star funds offered by investors A and Bform what appears to be more conventional property funds (a portfolio comprising ofvarious buildings and centres) as opposed to the more unique circumstances ofinvesting in urban regeneration projects.

The rather unique case within this report is company C whose fund displayedelements of socially responsible investment. The company marketed the fund as onedemonstrating strong energy efficiency and the subsequent decreased running costs.When looking at the overall trend for this company in appendix 1 it is clear that thereis little effort to promote CSR or SRI and instead a stronger focus on the financial

virtues of having an energy efficient portfolio.


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In addition to the progression in the development of the branding of funds, anotherarea of progress, which is unreported in current literature, is the emergence of SRPIreporting. The reports outline overreaching SRPI policies and are presented in thesame manner as annual CSR reports (or occasionally as a sub-section within CSRreports). With a total of five of the companies studies producing such a report, one

may expect that this may help to contribute to the findings of Rapson et al. (2007) thatmany portfolios demonstrated many sustainability and socially responsiblecharacteristics. The development of SRPI reports could demonstrate the increasingimportance of recognising and presenting socially responsible actions in a similarmanner as CSR reports. This may account for the relative abundance of funds withSRPI characteristics, but that lack the more formal recognition of a Green Star orfrom the UNEP-FI.

The research results also revealed that of the five investors involved in SRPIreporting, four utilised engagement as a means to achieve their investment strategy.Only one company implemented SRPI exclusively through screening methods while

one company adopted both methods. These findings correspond with the generaltrend for UK investment companies to follow broad (engagement based) strategies forthe implementation of SRI investments (Eurosif, 2010). This is illustrated by thestrong correlation between SRPI, SRI and CSR strategies within the companiesinvestigated in this research.

Further analysis of the trends reveals a potential contradiction with the findings ofJansson and Biel (2011) who stated that investment institutions are less inclined toinvest in sustainable property unless they see a financial or performance benefit forthe company, this can be supported by the way in which company C as previouslydiscussed has marketed its portfolio. However, there is an overall sense within thisstudy that there is a strong link between SRPI practice and extensive CSR initiativeswithin investment institutions. While it is clear that a number of the investmentinstitutions researched for this study had little regard for CSR and may be onlyinterested in making financially motivated decisions, there is a strong indication thatcertain institutions are willing to base an element of decision making on widersocially responsible criteria. Recent research, such as the extensive literature review

by Sayce et al. (2010) indicates that there is currently no empirical evidenceindicating that sustainable property demands a premium in the markets, this supportsthe view that investment institutions may also be strongly influenced by CSR policies.Cushman and Wakefield (2011) indicate that the majority of investors believe that

there will be a price differential between sustainable and unsustainable propertiesgoing into the future, the growth in SRPI may also be reflection of this opinion forfuture proofing funds. The large disparity in levels of CSR and SRPI betweencompeting investment managers may be down to the leadership from certainindividuals/leaders within the company, which is one of the key reasons for thegrowth of SRIs in the UK according to Eurosif (2010).

Conclusions

It is evident that the GRESB Green Star rating system for funds demonstratingexcellence and leadership in SRPI offers a new way in which to accredit and market asustainable property fund. This represents a clear progression from the previous study

undertaken by Rapson et al. (2007), which found that no investors in their studymarketed their funds as SRPIs. The Green Star may well become the standard


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method for identifying SRPIs but as it is still a very new product time must be givento monitor the effectiveness of the system. This can be supported by the fact that thelongest established SRPI, which demonstrates very different portfolio characteristicsto the Green Star funds and has yet to be accredited with the GRESB system. Perhapsfurther iteration and development of the Green Star system is required in order to

incorporate a broader array of portfolios, such as the UNEP-FI recognisedregeneration-based fund discussed in this report. This is particularly pertinent whenthe growth of SRIs has been largely down to the financial systems ability to adaptand redefine itself.

The research also revealed that SRPI is slightly more widespread beyond specifically branded funds, this is predominantly through various company reports and policies.Through these we could see that half of the companies investigated took SRPI intoconsideration when forming their overall investment strategies. This again supportsthe view that SRPI has taken a positive step towards becoming a more establishedfeature in many of the leading investment institutions. It was also evident that the

most popular method for implementing these strategies was through engagement(broad) strategies, which is in-line with the wider SRI market in the UK.Engagement, in the realm of property investment, can be achieved through variousmeans such as property management initiatives or the implementation of green leaseagreements between landlord and tenant. An interesting area of further researchwould be to look into the implementation of SRPI strategies in a greater depth, tomeasure the success of the various engagement and screening tools.

It is clearly evident that there is a correlation between the companies with developedCSR and SRI strategies and their subsequent involvement with SRPI. The threecompanies that are at the forefront of SRPI all provide extensive CSR reports.Conversely the companies that show little literature regarding CSR tend to have aweaker involvement with SRPI. This leads to the question, what do some companiessee in SRPI that others do not? There is currently a lack of empirical evidence toshow that there is a price differential in sustainable property, but most importantlythat a majority of investors believe that there will be a differential in future.Therefore the contrast in growth of SRPI in certain companies may also reflect thedifference in opinion over the future value of sustainable property, although it is clearthe importance of the role of CSR and good leadership cannot be discounted.


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Appendix 1 Review of Investment Fund Managers Property Funds

Fund Manager Value of Property

Assets Under

Management

Funds

Predominantly

UK? (or

company basedin UK)

SRPI

branded

Fund

SRPI Report Fund with

sustainable

property

characteristics

Over reaching

SRI policy

CSR

Hermes Real Estate

(A)

6.4 billion AuM Yes 2 Fund withGRESB

Green Star

Yes -comprehensive,

primarily achievedthrough an

extensiveengagement

programme

Yes comprehensiveacross board SRPI

policy

Yes Yes

PRUPIM (B) 12 billion AuM Yes 3 funds with

GRESBGreen Star

Yes -

Comprehensiveliterature which

details both

engagement andscreening they

undertake in theirfunds

Yes Yes Yes

Grosvenor (C) 1.1 Billion UK AuM Yes No No Not defined,

although some

energy saving isevident

No Basic

primarily

onenvironme

nt andenergy

saving

SWIP (D) 2.5 + Billion Yes No No Not Clear Yes but seems

very limited

No

Shroders (E) 9.5 Billion AuM Yes No No one focusing onmixed use and

office

No Yes but nomention of

investment

practice

Aberdeen Asset

Management (F)

700 Million UKAuM

No howevercompany is

based in the

UK.

No Yes - it perhapsdoesn't go over andabove as specified

in UNEP-FI,

achieved throughengagement

Not clear Yes - but brief Yes

Aviva Investors (G) 10 + Billion Large

amount in the UK

Yes Yes, Igloo

Regenerationfund

established2002,

recognised by

UNEP-FI

Yes - plenty of

literature on itsigloo urban

regeneration fund -achieved through

screening of

projects

Yes - focusing on

urban regenerationin the 20 largest

cities in the UK

Yes Yes

Legal and General

Investments (H)

10.1 Billion UK Yes No Yes -

comprehensive -

achievesustainability

through engagement

Not Clear Yes Yes

Rockspring (I) Circa 3 + Billion inUK

Yes No No No No Yes,although

limited

Standard Life

Investments (J)

10 Billion Yes No No No Yes Yes


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References:

Bernet, Sayce, Vermeulen and Ledl, 2010, Winning in the Long Run? DrivingSustainable Financial Performance on Real Estate The first empirical study exploringthe measurable impact of sustainability characteristics on the financial performance of

retail and office properties in Europe A research framework presented to the RICS,London.

Burge, S. P, 2004, Sick Building Syndrome Occup Environ Med 61:185190. doi:10.1136/ oem.2003.008813, published by group.bmj.com

Carroll, Archie; 1999, Corporate Social Responsibility: Evolution of a DefinitionalConstruct, Business and Society, Sage online publications.

de Francesco and Levy, 2008 The impact of sustainability on the investmentenvironment, Journal of European Real Estate

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Mill, Greig, 2006, The Financial Performance of a Socially Responsible InvestmentOver Time and a Possible Link with Corporate Social Responsibility, Journal ofBusiness Ethics, Published by Springer Online

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Business Ethics, Kluwer Academic Publishers, the Netherlands.


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Web Sourced References:

Commission of the European Communities, 2002 COM(2002) 347finalcommunication from the commission concerning Corporate Social

Responsibility: A business contribution to Sustainable Development. Brusselshttp://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2002:0347:FIN:en:PDF[Accessed 23/11/11]

Cushman and Wakefield, 2011, Sustainability is it really influencing investmentdecisions?, 2DegreesNetwork, Posted by: Stephen Kennett, on Monday 20 th June2011, http://www.2degreesnetwork.com/working-groups/built-environment/resources/sustainability-it-really-influencing-investment-decisions/

[Accessed: 13th

November 2011]

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principles trends and impacts. International Institute for Environment andDevelopment. London. Citing EuroSif, 2008,European SRI Study 2008,www.eurosif.org/research/eurosif-sri-study [Accessed: 28th November 2011]

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(GRESB) launched today!, http://www.nilskok.com/2011/03/index.html [Accessed7th December 2011]

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December2011]

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