Second in a Series of Toolkits on Responsible …UNEP Finance Initiative Metrics for Performance...
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Responsible Property Investing:Metrics for Performance Measurement
Second in a Series of Toolkits on Responsible Property Investing
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RESPONSIBLEP R O P E R T YI N V E S T I N G C E N T E R
RPIC
A Toolkit on Responsible Property Investing
Responsible Property Investing Center
Metrics for Performance Measurement
UNEPFI disclaimerUnited Nations Environment Programme (UNEP) and Partners: This report is the outcome of work
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IIIMetrics for Performance Measurement A Toolkit on Responsible Property Investing
Contentsp.3�������� I�Introduction
p.4�������� II�IdentifyingtheroleRPImetricscanplayinyourorganization
p.7�������� III�Designingasystemofperformancemetrics
p.13������ IV�Buildinganinformationmanagementsystem
p.17������V�Puttingmetricstowork
p.19������VI�Thirdpartystandards
p.21������VII�CollaboratingwithstakeholdersonstandardizingRPImetrics
AcknowledgmentsMarch 2010
This toolkit was written by David Wood, Director of the Initiative for Responsible Investment (IRI) at
Harvard University, with extensive support from Professor Gary Pivo of the University of Arizona,
Synnove Sandberg of the UNEP FI Property Working Group, Andy Szyman of F&C REIT Asset
Management, and Valerie Berezin of the IRI. Many thanks for valuable advice and comments came
from Gilles Bouteloup of Axa Real Estate Investment Managers, Keith Bugden of Hermes Real Estate,
Cate Collins of Lend Lease Real Estate Investment Limited, Lisa Galley of Galley Eco Capital, Rowan
Griffin of Colonial First State Global Asset Management, Christian Gunter of Kennedy Associates Real
Estate Counsel, Masato Ito of the Sumitomo Trust and Banking Company, Limited, Paul McNamara of
PRUPIM, Jean Rogers of Arup, Lynn Thurber of Lasalle Investment Management, and Hong Woon Wey
of Aviva Investors.
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I. Introduction
ResponsiblePropertyInvestingcoversawiderangeofinvestmentpracticesandstyles
thatintegrateenvironmental,social,andgovernanceinformationintoinvestmentdecision-
making�Keytomanagingandmonitoringprogressontheseissuesaresystemsfor
measuringandbenchmarkingbuildingandportfolioperformance�
Thepurposeofthistoolkitistoprovideinterestedinvestorsandpropertyfundandasset
managersguidanceonhow:
• SystemsofmetricsmeanttomeasureRPIperformancecanbedeveloped�
• Informationonthosemetricsacrosspropertyportfolioscanbecollected�
• Theinformationcollectedcanbeintegratedintoportfoliomanagement
Thisisthesecondinaseriesoftoolkitsto
bepublishedbythePropertyWorkingGroup
(PWG)coordinatedbytheUnitedNations
EnvironmentProgrammeFinanceInitiative�
TheToolkitseriesisbeingproducedin
conjunctionwiththeResponsibleProperty
InvestingCenter,tosupportandencourage
thedevelopmentofRPI�
Wehopetocatalyzethedevelopmentof
industry-wideconsensusoncommonRPI
metricsthatfacilitatestheircollectionand
usebyinvestors,evenaswerecognize
eachindividualcompanywillneedtotailora
commonsystemtosuititsownneeds�
Developing Metrics
Step1:Identify the role RPI metrics can play
in your organization
Step2:
Design a system of performance metrics
Step3:
Choose which third-party standards to collect
Step4:
Build an information management system
Step5:
Put RPI metrics to work
Step6:
Collaborate with stakeholders on standardizing RPI metrics
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II. Identifying the role RPI metrics can play in your organization TheUNEPFIPropertyWorkingGroup’sfirstToolkit,“EngagingandCommitting”,laidoutaprocessforidentifyingorganizationalstrategiesandgoalsinRPI�Itfocusedongovernance:howorganizationsmightcommittoanRPIstrategy,andputintoplaceinstitutionalstructurestointegrateRPIpracticesintocorporateculture�Italsoarguedthatthosestrategieswillnecessarilybeorganization-specific,influencedbyamixofcorporateculture,geographicallocation,regulatoryregime,investorinterest,andportfoliomakeup�
Asystemofmetricshelpstranslatethosestrategiesandgoalsintoactionandtangibledeliverables�Metricsarethetoolswhichallowinvestorstomeasureprogressagainstbenchmarksforperformance,andtheysignaltointernalandexternalstakeholdersalikewhichcategoriesofanalysisaninvestorfinditimportanttomeasureandmanage�
ThefirststepincreatingasystemofmetricsistodevelopstrategicclarityonwhyRPImetricswillenhancecorporateperformance�
PractitionerspointtoavarietyofreasonsforcreatingRPImetrics,including:
Enhanced Building Performance: EstablishingRPImetricscanhelpseta
baselineforbuildingperformance,andidentifyopportunitiesformoreefficientoperationsinbothexistingbuildingsandinnewconstruction�
Buildingperformancemetricsaremostfrequentlyassociatedwiththekeyimpactareasofenergyandwateruse,andwastemanagement�Thesemetricsmaybeusedtodesignsystemstomonitorandreduceoperatingcosts,andtomitigateagainstpoliticalandregulatoryriskassociatedwith,forinstance,potentialclimatechangeregulationsaffectingbuildings�Similarly,healthandsafetymetricscanhelpimproveworkforceperformanceandminimizeharmtoemployeesandothers�
Forenergyperformance,HermesRealEstate,aUnitedKingdombasedfundmanager,tracksabsoluteenergyuseandcarbonemissionsacrossitsportfolioandreportsonthemannually�Theseabsolutenumbersarethenfurtheranalyzedonalike-for-likeportfoliobasis,allowingthecompanytobettertrackperformanceimprovementsinbuildings,inadditiontochangesinportfoliocomposition�http://www.hermes.co.uk/rpi_report_09/performance.htm
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Distinguishing RPI Portfolios: Ametricssystemcanproviderigorand
coherenceforthedevelopmentofRPIspecificportfolios�Themetricscanbeusedtoidentifytargetsforacquisition,disposition,anddevelopment;theycanalsobeusedasportfolio-widemeasures�Forinstance:
• Greenfundsneedtomeasuretheimprovedresourceefficiencyorreducedgreenhousegasemissionsincomparisontotheirpeergroup�
• Urbanregenerationfundsneedtodemonstratethattheyhavetargetedtheirinvestmentstounderservedareas,andcreatedeconomicdevelopmentandgoodjobopportunitiesinthoseareas�
• Landconservation,ecosystemsupportservices,orbrownfieldremediationfundsmustdemonstratethenumberofacresoflandtheyhavepreservedorrehabilitated,orthecarbonemissionoffsetsorwetlandsrestorationtheyhaveachieved�
Forworkforcehealthandsafety,LendLease,anAustralianbasedinternationalpropertycompany,tracksbothquantitativedataonissuessuchaslosttimetoinjuriesperhoursworked,reportedincidents,andmajorincidentsbycircumstance(e�g�fallofmaterials,propertydamage,orelectricalshock)andfatalities�Thesedatacanbeanalyzedtoidentifyareasofperformanceimprovementbyregion,typeofincident,typeofbuildingorjob,andsoon�http://www.lendlease.com.au/sustainability/ourPeopleDetail.html?search=metrics#/health-and-safety-detail
TheIglooRegenerationFund,aprivateequityfundfromAvivaInvestorsintheUnitedKingdom,definesitscommitmenttosustainableinvestmentbyidentifyingkeyareasofperformanceacrossissuesofHealth,HappinessandWell-Being,Regeneration,EnvironmentalSustainability,andUrbanDesign�Theperformancemeasurementsassociatedwiththesethemesincludegatheringdataasvariedasthesafetyofstreetdesign,publicspaceprovision,formaldesignationasregenerationdistrict,energyconsumption,anddensityandmixofuses�http://www.igloo.uk.net/media/dContent/mediaCentre/footprint-secure-080926.pdf Similarly,theRoseSmartGrowthFund,aUnitedStates-basedprivateequityfund,identifiesacquisitiontargetsbygatheringdataonproximitytotransit,energyuse,andtheallocationofmixed-incomeunitsandaffordablehousinginagivenbuilding�ThesecriteriaformthebasisfordifferentiatingtheFund’sportfolio�http://rosecompanies.com/what-we-do/investment
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Engagement with Stakeholders: ThevaluepropositionforRPIincludestheadvantagesitbringstobuildingrelationshipswithinvestors,publicofficials,localcommunities,andnon-profitorganizations,amongotherstakeholders�Aclearandrelevantsetofperformancemeasurementsallowsformoretransparentstakeholderengagement�
Forinstance,assetmanagerswhoworkwithassetownersthatfavorfairlaborpracticesneedtodemonstratehowtheymanagetheirhiringprocesses�Affordableandworkforcehousingrelatedinvestorsneedclearandcomparabledataonwhowillrentorbuytheirproducts�Companiesthatpromotetheircommunityrelationsworkwillwanttomeasuretheoutputs,andimpacts,ofcommunityengagement�
Thesearenotmutuallyexclusive:thestrategicreasonsforRPImetricsoftenoverlap�
ThestrategicjustificationforRPImetricsshouldfocusonidentifyingtherelativeexposuretomaterialrisks–regulatory,physical,reputational–andopportunities,fromimprovedenvironmentalandsocialperformancetoenhancedinvestorrelationships�
FewinvestorswillwanttomeasureandmanageperformanceacrosseverypotentialRPImetric�Creating,andinstitutionalizing,newstandardsofperformancerequiresacommitmentofresources,andthegoalsbehindsuchacommitmentshouldbeclearfromtheoutset�
Itisworthreiteratingthefundamentalfunctionthatmetricsserve�Metricsallowinvestorsandfundmanagerstomeasureandbenchmarkperformance,providingsupporttotheirRPIcredentialsthatcanstandscrutinyfromtheirpartnersandstakeholders�Withoutsomesortofevaluationandmeasurement,RPIpotentiallyremainsrhetoricratherthanpractice�
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III. Designing a system of performance metrics
Corporatestrategywilldictatekeyissuesforwhichmetricsarenecessary,andinturndeterminethestrategiesforcollectinggiveninformation�Thenextstepistoconvertthesestrategiesintoaclearmeasurementframework�
Ameaningfulsetofmetricswillexhibitfourkeycharacteristics�Itwillbe:
• Clear–allstakeholdersshouldreadilyunderstandtheinformationtheyrepresent�
• Comparable–thedatacollectedshouldallowformeasuringrelativeperformanceacrossinvestmentsandovertime�
• Usable–asystemofmetricsmustnotputunduestrainonthoseprovidingtheinformationorthoseanalyzingit�
• Accurate–thesystemformeasuringperformanceshouldincludestepstoensurereliabilityandintegrity�
Balancingtheseattributesrequirescarefulattentiontolevelsofdetail,quantification,andtheidiosyncrasiesofspecificbuildings,geographies,andculturalcontexts�
Practitionersconvergeonacommonpieceofadvice:Keepthesystemofmetricsassimpleaspossible�Datacollectionandanalysiswillbecomplicatedenoughevenwithabasic,easilyunderstandablesetofmetrics�
Tobreakdownthesystemintocomponentparts,organizationsmaywishtobreaktheirmetricsoutbyspecificissueareas�
Here,fordemonstrationpurposes,wehavedividedRPImetricsintothreecategories:
• Environmental–energyandresourceefficiency,pollutionmitigation,preservation
• Social–targetedimpactoninternalandexternalstakeholders
• CommunityImpact--contributionstolocalandregionaleconomicdevelopment
Note:whatfollowsisnotacomprehensivereviewofpotentialmetrics,butasetofexamplesthatrepresentarangeofconsiderationsavailabletoinvestorsandfundmanagers�
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Commonresourceusemetricsinclude:
Greenhouse gas emissions:metrictonsofcarbonequivalentspersquaremeter
Energy use:kilowatts/hrconsumedpersquaremeteroffloorspace
Water use:cubicmeterspersquaremeteroffloorspace
Water recycling:cubicmeterspersquaremeterofrecoveredwater
Waste management:tonsofwasteperunitoftime
Recycled Waste:tonsofwastedivertedfromlandfill
Recycled Construction Material:%involumeorweightofRecyclablesusedinConstruction
Environmental MetricsThemostcommonlyusedenvironmentalmetricstodayarethoseforresourceuse:energy,water,andwastemanagementinparticular�Propertymanagerscanusethisinformationtoidentifyareasforimprovementinindividualbuildings�Developerscanusethesemetricstointegratedesignstrategiestoreduceconsumption�Attheportfoliolevel,investorsandfundmanagerscantrackyearoveryearperformanceimprovements,identifybuildingsmostsuitableforretrofitting,andmayaidanalysisofacquisitionordispositionopportunities�
Itisimportanttonotethevariousissuesthataffectthecollectionandinterpretationofdata�Tomeasurecarbonemissions,anincreasinglyimportantgoalformanyinvestors,practitionersmustcollectinformationabouttherelativecompositionoftheenergysourcesusedbyabuilding–whetheralternativeenergysourcessuchaswindorsolarpowerareused,andwhetherenergyissourcedfromcoal,naturalgas,nuclearpower,etc�Theymayalsocollectadditionalinformationaboutthecarbonemissionsassociatedwithoccupanttraveltoandfromaparticularbuilding�
Standardizationofreportingisafundamentalissueforenablinginvestorstomakeapplestoapplescomparisonsofinvestmentrisksandopportunities�Tothatend,theUNEPSustainableBuildingsandClimateInitiative(SBCI)hasdevelopedaCommonCarbonMetric,atoolforthatallowsforcommon,comparablemeasurementsofusetoallstakeholderswhenanalyzingbuildingperformance�Themetricchosenforenergy:kWh/m2/year(kiloWatthourspersquaremeterperyear)and,tomeasureintensityperoccupant:kWh/o/year(KiloWatthoursperoccupantperyear)Themetricchosenforgreenhousegasemissionis:kgCO2e/m2/yearorkgCO2e/o/year(kilogramsofcarbondioxideequivalentpersquaremeterorperoccupantperyear)
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Someinvestorsandfundmanagersexpandtheirenvironmentalmetricstoidentifytheenvironmentalperformanceissuesassociatedwithabuilding’slocationinaneighborhoodcontext,oritsimpactonsurroundingland�Manyofthesemetricsareassociatedwith“smartgrowth”goalsofcompact,mixed-use,lessauto-dependentcommunities�Othersareassociatedwithlandandecosystemconservation�
Similarly,keyinformationaboutpropertytype,numberandactivityofoccupants,geographicalregion,andsoon,arefundamentaltounderstandingthemetricsastheyrelatetoabuilding’srelativeperformance�Clearly,anofficebuildinginSydneywillperformdifferentlythanoneinCopenhagen�Buildingswithmoreoccupantspersquaremetermayusemoreenergythantheircounterparts;differenttypesofbusinessactivitiescarrydifferentenergyintensities;andsoon��Thedesignandageofabuildingwillhelpdeterminewhetheritissuitableforaretrofit�
ThehopeoftheUNEPSBCIisthatthisemergesasaglobalstandardthatenablesmoreefficientregulatoryandinvestmentdecision-making�ThepurposeoftheproposalforaCommonCarbonMetricistosupportgreenhousegas(GHG)emissionsreductionsthroughaccuratemeasurementofenergyefficiencyimprovementsinbuildingoperations�UNEPSBCIalsooffersguidanceoncollectinginformationfromprivateandpublicsourcesforaccuratemeasurement�
http://www.unepsbci.org/newSite/COP15/Common%20Carbon%20Metric%202009(1).pdf
Aspartofitssustainabilitypractice,InvestaPropertyGroup,basedinAustralia,measuresenvironmentalindicatorsincludingcarbondioxideemissionintensity,electricityuseintensity,wateruseintensity,wastegenerated,andwastediverted�Themeasurementsallowthecompanytomeasureperformanceagainsttargets�Thealsoformthebasisofanalysistodetermineenvironmentalperformancebybuildingtype,andtheportfolio-widemeasurementareanalyzedtodeterminetrendsthatresultfromsustainabilitypracticesoracquisitionandsalesactivity�
http://www.investa.com.au/Reports/2008/sustainability/Environment/
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Location-specificmetricsmayinclude:
Transit-orientation:distancetosubway,bus,ortrainstop�
Urban infill:densityasexpressedbyfloor-arearatio
Walkability:proximitytoanarrayofgoodsandservices;infrastructureandneighborhooddesignthatsupportspedestriantraffic
Land conservation:acrespreservedthroughminimalordensedevelopment
Thesecanbeusedtodescribewholeportfoliosorindividualbuildingsandprojects�Yearoveryeardatacandeterminetherateandscaleofconservationgoalsachieved;itcanalsoofferdirectionalinformationonthenatureofaportfolioinrelationtosmartgrowthcharacteristics�
Social MetricsSocialmetricsrefertotargetedsocialissuesorbenefitslinkedtospecificgroupsofstakeholdersassociatedwiththeoperationanddevelopmentofbuildings�Otherthanowners,keystakeholdersincludeemployees,tenantsandcustomers,andcommunitieswhohaveanimmediaterelationshiptoabuildinganditsoperations�
EmployeesFundandpropertymanagerscanuseinformationabouttheiremployeestoimproveoperationalefficiencyandemployeerecruitmentandretention�Investorsmayuseinformationaboutemployeestoidentifywell-managed
companieswithdiverse,well-trainedandcommittedemployees�Publicagenciesmayreviewworkforceinformationforcommitmenttopublicgoalssuchashealthanddiversity�
MetricsforRPIissuesrelatedtoemployeesrangefromhealthandsafetyinformation,tolongevityandqualityofemployment,toemployeeproductivity�
Thesemetricsmayinclude:
Accident rate:numberofaccidentsperemployeeperyear
Health and safety costs:medicalexpensesorworker’scompensationperemployeeperyear
Employee turnover:percentageofemployeeworkforceturnedoverperyear
Job quality:percentageofworkforcewithfull-timejobswithbenefits
Labor standards:percentageofworkforcerepresentedbycollectivebargainingagreements�
Workforce diversity:percentageofemployeeswhoarewomenorminorities
Management diversity:numberofuppermanagement(andboardmembers)whoarewomenorminorities
Tenants, Consumers and CommunitiesTenantandcustomersatisfactionisalong-standingwaytomeasurethebenefitsofmanagementanddevelopmentchoices�InthecontextofRPI,investorshavepointed
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toincreasedtenantsatisfaction,andworkerproductivity,associatedwithincreaseddaylighting,morecomfortableheatingandcoolingsystems,thesignalingeffectofenvironmentallyefficientbuildings,thereputationalbenefitsofcommunityoutreachprograms,andsoon�
Investorsandpublicofficialsmayalsowishtoknowtowhatextentresidentialinvestmentscreateaffordableoptions,orhowinvestmentsserveunderservedcommunities,orcreateopportunitiesfororganizationsthatcreatepublicbenefits�InmanycasesthisinformationisusedtodefinetailoredRPIinvestmentfundsfocusedonissuessuchasurbanregenerationoraffordableandworkforcehousing�
Examplesofsuchmetricsmightinclude:
Tenantsatisfaction:Surveysoftenantsatisfaction,includingtheirsatisfactionwithRPIdimensionsoftheirbuilding�
Affordablehousing:Percentageofunitsforrentorpurchaseaffordabletopeoplewith30-80%ofAreaMedianIncome�
Workforcehousing:Percentageofunitsforrentorpurchaseaffordabletopeoplewith80-120%ofareamediaincome�
Urbanregeneration:PercentageofpropertieslocatedinneighborhoodswithAreaMedianIncomesat80%ofregionalaverage�
Supportfornon-profits:Numberorpercentageofnon-profitorpublicpurposetenants�
Community Impact MetricsCommunityimpactmetricsmeasuregeneralcontributionstoeconomicstabilityandgrowthinagivenarea�Thesemayincludedirectcontributionsthroughtaxesandfees,indirectcreationofemploymentopportunities,orphilanthropicactivitiesundertakenbyacompanyanditsemployeesand/ortenants�
TheMulti-EmployerPropertyTrust(MEPT),aUS-basedrealestateequityfund,tracksjobcreationaspartofitseffortmeasurethesocialandeconomicimpactsofitsinvestmentactivity�Metricsusedincludedjobhourscreated,jobscreated,andlocalandstatetaxrevenuesgenerated�Aspartofthefund’sgreeninvestingstrategy,theMEPThasbeguntracking“greenjobs”createdacrossemploymentsectorsthroughitsadoptionofgreenbuildingconstructionandmanagementpractices�www.mept.com/news
Forsomeofthesemetrics,industrystandardcalculationsprovideacceptedestimatesofeconomicdevelopmentimpactsthatarenoteasilymeasuredwithprecision�
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CommunityImpactmetricsmightinclude:
Taxesandfeespaid:totalamountofannualpayments
Jobscreated(direct):numberofemployeesusedfordevelopment,orongoingopportunitiescreatedbybuildingoperationsandmaintenance
Jobscreated(indirect):numberofjobscreatedinagivenareaassociatedwithinvestmentinpropertydevelopmentormanagement
EmployeeandTenantvolunteering:numberofhoursperyearinphilanthropicactivityencouragedandcoordinatedbyagivencompanyanditspartners�
Foreachsetofmetrics:environmental,social,andeconomic–therewillbetimeswhennarrativeaccountsofactivitymaybepreferabletoquantifiablemetrics�Butthegoalsofusabilityandcomparabilitypointtowardssimple,quantifiablemetricswheneverpossible�
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IV. Building an Information Management System
Thestrategicworkofdefiningprioritiesandestablishingkeymetricscanbedifficult,butpractitionersoftenpointtotheprocessofcollectionofdataasthemostcomplicatedaspectoftheprocess�HereweidentifykeystepsthatpractitionerslinktosuccessfulintegrationofRPImetricsintotheirday-to-daypractice�
Identify who “owns” the process Thisiscrucialtoproperdatacollection�Gatheringdataisacomplexandoftenlongprocess,asearlyeffortsrunintoproblemsofstandardizationandreliability�Aninternalmanagerorchampion,whohasthisworkattachedtotheirmandate,isimportanttoensuringthatausefulsystemisputintoplace�Akeyinitialtaskwillbeoutreachtoconvincecolleagues,partners,andclientsoftheimportanceofcollectingandreportingdata�
The“owner”oftheprocessmaybuildaninternalRPIteam,ormayworkwithexperiencedexternalconsultants,tohelpcreaterelevantinformationmanagementsystems�Akeyelementforsuccesswillinanycaselikelybeastrongcentralmanagerfortheprocess�
Create a Sustainability Scorecard A“sustainabilityscorecard”isasimpleformatthatstandardizestheinformationcollectionprocess,andcanbeeasilyusedbyinternalstakeholderstocommunicatebuildinglevelinformation�Theissuesthescorecardcoverswillofcoursedifferfromorganizationtoorganization,butkeytoitssuccesswillbeasetofcomparabledatathatcanbeaggregatedandanalyzedbytheowneroftheprocess�Thescorecarditselfcanserveasanoutreachtoolthatmakesclearexactlywhatisexpectedfromeachpartyintermsofinformationtheyarerequiredtoprovide�
Engage property managers, developersand other external stakeholdersInternalstakeholdersmayseeRPImetricsasanadditionalburdenontimeandresources,somethingnotpartoftheirdailyroutine�Practitionerspointtotheneedformanager,agent,andtenanteducation,andclearstandardsetting,inordertointegratethecollectionofRPImetricsintotheordinarycourseofbusiness�
Amongthetoolscompanieshavechosentoadoptarewrittenguidesexplainingtheapplicationofmetricssystems,seminars(onlineandinperson),andcasestudiesofmetricsinaction�
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Asset Characteristics: AssetType(commercial,
residential, industrial, etc.) Size Floor-AreaRatio Age OccupancyRate TotalOccupants PropertyManager Ownershipstructure
Energy and Resource Use: EnergyConsumption CarbonEmissions WaterUse WasteGeneration DiversionRate Third-PartyRating
Asset Location Characteristics: ClimateZone(specify) RegenerationZone
(public designation) ProximitytoTransit
(specify transit type) Brownfieldsite UrbanInfillSite Walkscorerating
Sustainability Scorecard Thegoalofa“sustainabilityscorecard”istointegrateRPImetricsintostandardizedbuildingrecordkeeping�Thescorecardhasseveralvirtues,prominentamongthem:clarityintherelationshipsbetweeninvestors,fundmanagers,andpropertymanagersoverthemetricsunderconsideration;andasystematicmethodtoallowforbuildingtobuildingcomparison,controllingforvitalbuildingcharacteristics�
HerewedrawfromaarticlewrittenfortheULIResponsiblePropertyInvestingCouncilofFall2009toofferalimitedsamplescorecardbasedonseveralenvironmentalandurbanregenerationRPImetricsfordemonstrationpurposes�
Asalways,itisworthnotingthatinvestorswillneedtochooseforthemselvesthosemetricsrelevanttotheirlong-terminvestmentperformancebasedontheparticularcharacteristicsoftheirportfoliosandstakeholderrelationships�
LinktoULIFallCouncilArticle:http://www.galleyecocapital.com/wp-content/uploads/2009/11/uli_fallcouncil2009_draft.pdf
Ifeachbuildinginaportfolioweremeasuredaccordingtothesecategories,investorscouldbetterdescribetheirwholeportfolio,targetopportunitiesforefficiencyimprovements,andweighacquisitionandsaledecisionsinlightoftheportfolio-widemeasurements�
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Thedevelopmentoftheworkingrelationshipsnecessaryforreliableandtimelyinformationisacomplicated,ongoingprocess�Practitionersfrequentlyrelatehowsystemsmustdevelopovertime,withhonestfeedbackbothfrommanagers,developersandtenantsonthedifficultiesofgatheringinformation,andfromfundmanagersandassetownersontheirspecificneedsandexpectations�Thequalityofinformationshouldimproveasstakeholdersgainexperiencecollectingandtransmittingdata�
Automate data collectionTechnologicalupgradescanfacilitateinformationgathering�Sub-meteringforenergyandwaterusage,forinstance,canofferarichsourceofinformationonresourceconsumptionthatallowsforsignificantoperationalimprovements�Byinstallingsub-meters,managerscanbypasstheneedtoengagedirectlywithtenantstogatherinformation�
Forsomepractitioners,thegoalforcollectingmetricsisanautomatedsystemthatallowsthemtogatherinformationfrommeteringdirectlyintoaninformationmanagementsystem,enhancingboththetimelinessandreliabilityofdata�Moregenerally,automateddataaggregationacrossthespectrumofRPIissues–forinstance,throughanonlinedataentrysystem--canmakemetricsmoreusefultobusinessdecision-making�
Determine Publicly Available SourcesManyRPImetricscanbegatheredthroughpubliclyavailablesources,whetherthroughgovernmentsponsoreddatacollectionorprivateresearchfirmswhogathersuchdata�
Dataoneconomicdevelopment,forinstance,oftenrelatestounderservedgeographicareas�Publiclyavailableinformationonareaincomesorothereconomicindicatorscanbeusedtomeasuretherelationshipofaspecificbuildingtoissuessuchasurbanregenerationorbrownfieldredevelopment�Forinstance,insomejurisdictions,publicagencieslabelneighborhoodsasregenerationzones�
ForacomprehensivelookatonepotentialsetofinformationsourcestomeasureRPIperformanceintheUnitedStatescontext,seeGaryPivo’sarticle“SocialandEnvironmentalMetricsforUSRealEstatePortfolios:SourcesofDataandAggregationMethods,”foundatwww�u�arizona�edu/~gpivo/MetricsPaper_Pivo_June08_v1�0�pdf
Similarly,questionsofsmartgrowth–relativedensityofneighborhoods,proximitytotransit,orwalkability–canoccasionallybegatheredthroughpubliclyavailabledatasources�Forinstance,WalkScore,aUS-basedservicethatranksneigborhoodsontheirwalkability,(www�walkscore�com)offersapubliclyavailableinternet-basedtoolwhichmeasuresproximitytoservicesandpublictransitbybuildingaddressintheUnitedStates,Canada,theUnitedKingdom,Australia,andNewZealand�
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Evaluate Research FirmsAnumberofresponsibleinvestmentresearchfirmsandconsultantsexist�Whiletheirfocushasnotprimarilybeenonpropertyinvestment,theymayofferresourcesbothfordesigninginformationcollection,verifyingtheinformationthathasbeengathered,orevenconductingtheprocessthemselves�Thesefirmsmightcoverresponsibleinvestmentissuesbroadly,orfocusonkeyenvironmentalorsocialissues–suchasmeasuringportfolio-widecarbonemissions,ofparticularinteresttoinvestorsandfundmanagers�
Practitionerswillwanttoweighthemosteffectivemeansforassuringdataquality�Internalreview,externalaudits,thirdpartyevaluation–eachoffersaparticularsetofcostsandbenefitsandmeritscarefulconsideration�Morethananyparticularmethod,practitionersshouldbesuretoincludeconsiderationofdataqualityasafundamentalpartoftheirinformationmanagementsystem�
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V. Putting Metrics to Work
Oncegathered,metricscanbeputtoworkinawidevarietyofways,bothforindividualbuildingsandforwholeportfolios�Akeyissueforpractitionersistodetermineatwhatscalemetricsaremostusefulfortheirstrategicneeds�
TheusesforRPImetricsincludebutarenotlimitedto:
Benchmarking performanceAttheindividualbuildinglevel,practitionerscanusemetricstobenchmarkissuessuchasresourceuse,tenantsatisfaction,oremployeehealthandsafety�Attheportfoliolevel,practitionerscanaggregatedataonissuessuchastotalgreenhousegasemissions,affordablehousingcreatedormaintained,acresofgreenfieldpreserved,orjobscreatedandmaintained�
Setting performance targetsAttheportfoliolevel,investorsmaywishtosetcomprehensivetargetsforimprovement,andusetheirbenchmarkstomeasureprogress�Inrecentyears,forinstance,anumberofinvestorshavesetportfolio-widegreenhousegasemissionreductiontargetsof,forexample,10-30%overanumberofyears�Metricscanalsobeusedtosetminimumstandards–forthepercentageofunionizedlabor,orthediversityoftheworkforce,ortheenergyefficiencyofabuilding,forinclusioninportfolios�
Prupim,aUK-basedglobalrealestateinvestmentmanager,usesmetricsforenergyperformancetosetclearcorporategoalsonperformance�Theorganizationisworkingondevelopingarelatedsetofindicatorsforadditionalcategoriessuchashealthandwell-being,jobsandskills,community,andbiodiversity�http://www.prupim.com/site/media/documents/3414_Our_Future_Targets.pdf Similarly,Hammerson,aEuropeanrealestatefundmanager,setsperformancetargetswithmetricsforclimatechange,energy,andresourceuse,includingannualandrollingtargets�http://media.corporate-ir.net/media_files/irol/13/133289/crreport/Full_report.pdf
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18 Metrics for Performance Measurement
Acquisition, disposition, and improvement guidanceRPImetricscanhelppractitionersdeterminewhetherabuildingissuitableforaportfolio,orwhetheritofferstheopportunityforoperationalefficiencygainsormarketrepositioning�Forinstance,RPImetricsmighthelpidentifyenergyinefficientbuildingsthatcanberetrofittedorbroughtuptothirdpartystandards�Similarly,metricsontransit-orientationcaninformarepositioningofportfoliosawayfromurbansprawl�Tenantdissatisfactionmayurgedispositionofbuildingsthatcannotberepositioned�
Disclosure and transparencyMetricsofferthebaselinedatawhichorganizationcanusetoreporttheirRPIperformancetoemployees,contractors,investors,regulators,communities,andNGOs�Metricsthemselvesdonotalwaysfittheneedsofsuchdisclosure�Rather,theymustbeplacedinbroaderorganizationalandsocialcontextstobemeaningfultoabroadgroupofstakeholders�DisclosurewillbethesubjectofToolkit3inthisseries�
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19Metrics for Performance Measurement A Toolkit on Responsible Property Investing
VI. Third Party Standards
Investorsshouldidentifythosethirdpartystandardsrelevanttotheiractivities,anddecidewhetherthosestandardshelpthemachievetheirinvestmentgoals�
RecentyearshaveseenthedevelopmentofanumberofrobustthirdpartystandardsforratingbuildingsonRPIissues,particularlyonenvironmentalissues,acrosstheglobe�Theseratingssystemsanalyzebuildingsacrossaspecificsetofperformanceissuessuchasenergy,climateemissions,water,waste,indoorairquality,andsustainablelocation�Theyincludethe:
• UnitedStatesGreenBuildingCouncil’sLEEDstandards,whichcoverenvironmentalperformanceofnewandexistingbuildingsofmultiplepropertytypes,withnewerratingsforneighborhoodimpactandenvironmentalperformanceacrosswholeportfolios�www.usgbc.org
• UnitedKingdom’sBREEAMstandards,whichofferenvironmentalperformancemeasurementformultiplepropertytypes,includingresidential,commercial,industrial,andmorespecifictypesincludingecohomes,healthcare,educational,prisons,andalsocanbeusedforwholecommunityenvironmentalratings�www.breeam.org
• CASBEEsysteminJapanincludesenvironmentalassessmentsofmultiplepropertytypesandacrossfourbuildinglifecyclestages–pre-design,newconstruction,
existingbuilding,andrenovation�CASBEEisalsodesignedtotakeintoaccountissuesparticulartoJapanandAsia�http://www.ibec.or.jp/CASBEE/english/overviewE.htm
• GreenBuildingCouncilofAustralia’sGreenStarsystem,whichcurrentlyhastoolstoratemulti-unitresidential,healthcare,retail,office,andeducationalbuildings,withpilotprojectsforotherpropertytypessuchasmixed-use�GreenStarincludesspecificconsiderationofthevariedgeographicinfluencesonbuildingperformanceinAustralia’sdiversecontexts�http://www.gbca.org.au/green-star
Theseareamongthemostprominentexamples,andtheyworkwithsimilarissuestocreatewide-rangingevaluationsofenvironmentalperformance�Thereareother,similarratingssytemsunderdesign,fromthepublic,private,andnon-profitsectors,aswellasregulatoryeffortstoconcretelymeasureenergyuse�Theproliferationofmultipleratingssystemshasledtocallsforamoreuniversalstandard�
Ingeneral,ratingssystemshavefoundmoreuptakefrominvestors,fundmanagers,andotherstakeholdersonnewconstructionthanonexistingbuildings,andportfolioanalysisthroughthirdpartyratingsremainsverydifficult�
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Responsible Property Investing Center
20 Metrics for Performance Measurement
Foracomparisonofanumberoftheworld’sthirdpartybuildingstandards,seetheUNEPFI/SBCI’s(SustainableBuildingandClimateInitiative)FinancialandSustainabilityMetricsReport:aninternationalreviewofsustainablebuildingperformanceindicatorsandmeasurements,foundathttp://www.unepfi.org/fileadmin/documents/metrics_report_01.pdf
Intheory,thesestandardsoffertheadvantageofclarityandcomparability,thoughinpracticethornyissuesofsub-assetclass,geography,buildingpurpose,occupancyrate,etc�remain�
KennedyAssociatesRealEstateCounsel,aUS-basedinvestmentadvisor,reportsonthebuildingsinitsportfoliothathavebeencertified,pre-certified,andarependingcertification(andthelevelofcertificationforeach)fromtheUSGreenBuildingCouncil’sLEEDsystem�ThecompanyalsousestheEnergyStarbenchmarkingsystemonitsexistingbuildingportfoliotobenchmarkenergyperformance�Finally,KennedyisengagedwiththeUSGBC’spilotprogramforLEED-EBOM(ExistingBuildingOfficeandMaintenance),whichseekstosetstandardsforexistingbuildingenvironmentalperformance,andofferportfoliomanagerstheabilitytostreamlinecertificationacrosslargeportfolios,acommondifficultywiththirdpartystandardsforexistingbuildings�http://kennedyusa.com/PDFs/RPI%20Report%202009.pdf
Thirdpartystandardscanserveasrulesofthumb,andsavetimeandresources�Thisisespeciallytrueattheportfoliolevel:Practitionerscaneasilyidentifyhowmanybuildingswithinaportfoliohaveachievedacertainrating�Thestandardsmayalsoserveasusefultemplatesforthosepractitionerswhoaredevelopingtheirownsystemofmetrics�Formanystakeholders,thirdpartystandardshavebecomedefactometametrics,andtheyareincreasinglyrecognizedintherealestatemarketplace�Investorsmaywishtoadapttheirownmetricssystemstofacilitateevaluationbythirdpartystandards�
Practitionersmustcarefullyconsidertwoissueswhenevaluatingthirdpartystandards:• Arethestandardsrecognized andconsideredrelevantby importantstakeholders?• Doesthecostofachievingacertain ratingoutweighitsbenefitsasa signaltostakeholders?Theanswerstothesequestionsarelikelytochangeovertime,asmarketdynamics,consumerpreferences,andpublicpolicyconsiderationschange�TheemergenceofindustrystandardRPImetrics,andratings,isanimportanttopicforinvestorsbothtostudy,andonwhichtocollaborate�
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UNEP Finance Initiative
Metrics for Performance Measurement 21
VII. Collaborating with stakeholders on standardizing RPI metricsResponsiblePropertyInvestingisanemergingdiscipline,andthefieldistakingshapethroughcollaborativeactionamongindustrypeersandrelatedstakeholders�Collaborativeactiontodefineindustrystandardsformetrics,andtosharebestpracticesontheircollectionanduse,havethepotentialtoplayavitalroleindefininganddisseminatingRPIinpractice�
Theissueofmetricsinparticularisonewherecollaborativeaction,intheformofcreatingindustrynormsformetricsandtheirreporting,couldhavewidelybeneficialconsequencesforintegratingRPIintoinvestmentpractice�
Anumberofforumsexistforsuchcollaboration�The UNEP FI Property Working GroupandtheResponsible Property Investing Center,thesponsorsofthistoolkit,offerinvestorsandstakeholderstheopportunitytoshareexperiencesandsetnormsforthefield�TheUrban Land InstitutehascreatedaResponsiblePropertyInvestingCouncilfordevelopersandinvestors�Moreandmore,industrytradeorganizations,responsibleinvestmentnetworks,andotheradvocacyorganizations,aremakingRPIapartoftheirwork,andcanprovideforumsfortheexchangeofinformationandbestpractices�OnRPImetrics,theGlobal Reporting InitiativehasestablishedaWorkingGrouponsector-specificreportingguidelinesfortheconstructionandpropertysector�
Third-partstandardsettingbodiesalsoorganizestakeholderstocontributetothegenerationandmodificationofstandards,andthepresenceofinvestorscanplayavaluableroleinreviewingstandardsforusefulnessandpracticability�
United Nations Environment Programme Finance Initiative (UNEP FI)TheUnitedNationsEnvironmentProgrammeFinanceInitiative(UNEPFI)isaglobalpartnershipbetweentheUnitedNationsEnvironmentProgrammeandtheprivatefinancialsector�UNEPFIworkscloselywiththemorethan180financialinstitutionsthataresignatoriestotheUNEPFIStatements,andarangeofpartnerorganizations,todevelopandpromotelinksbetweentheenvironment,sustainabilityandfinancialperformance�Throughregionalactivities,acomprehensiveworkprogramme,trainingactivitiesandresearch,UNEPFIcarriesoutitsmissiontoidentify,promote,andrealizetheadoptionofbestenvironmentalandsustainabilitypracticeatalllevelsoffinancialinstitutionoperations�
RPICTheResponsiblePropertyInvestingCenter,ajointprojectoftheUniversityofArizonaandtheInitiativeforResponsibleInvestmentatHarvardUniversity,fillsavoidintherealestatelandscapebybringingtogetherleadingrealestatepractitioners,fromdevelopersandlenderstofundmanagers,assetownersandinstitutionalinvestors,inordertocoordinateanddisseminatetheirbestpractices,conductcrucialresearch,andtocreatenetworksofinvestmentopportunitiesthattakeadvantageofthechanginglandscapeofpropertyinvestment�Formoreinformationseewww�responsibleproperty�net�
www.unep.org
United Nations Environment ProgrammmeP.O. Box 30552 Nairobi, Kenya
Tel: ++254-(0)20-62 1234Fax: ++254-(0)20-62 3927
Email: [email protected]
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For more information, contact:
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