ESG Policy

Policy as at:
10/05/2021

OVERVIEW

This Environmental, Social and Governance Policy applies to HOME REIT plc (the “Company”) and all its subsidiary companies (both directly and indirectly held) (together, the “Group”).

The Board of Directors, together with the Investment Advisor (together, “we”) have a responsibility to conduct the Company’s investment business in a socially responsible way and, in managing a social impact fund, we recognise that our investors may have the same values.

We seek to provide shareholders with regular, attractive income, together with capital growth over the medium term in accordance with the Company’s investment policy and objective which this policy does not alter or supersede. This policy documents the Company’s commitment to and process of carrying out investing activity at the lowest possible cost to, or indeed to the benefit of, the environment whilst fulfilling the key objective of providing housing for homeless people.

ENVIRONMENTAL

We recognise that our investment activities directly and indirectly impact the environment.  We are committed to managing those environmental impacts in the most effective and responsible manner and seek continuously to improve our level of environmental performance.

Where consistent with the Board’s fiduciary responsibilities, we will encourage the Company’s tenants to reduce the carbon footprint of assets coming under their control by virtue of their leases and will explore ways in which the Company can support its tenants to meet this objective.

Where appropriate, we engage specialist consultants to evaluate the sustainable characteristics of properties as part of our pre-acquisition due diligence, identifying risks to future financial performance and exploring opportunities to create additional value or to improve environmental performance. We will also endeavour to assess the impact of new acquisitions on the overall environmental performance of the Company.

We will not ordinarily acquire buildings that fall short of our minimum standards unless we are able to demonstrate that affordable improvements can be made. We will not ordinarily acquire buildings, for example, with an Energy Performance Certificate rating of less than D without having an affordable plan in place to improve the rating during the period of the Company’s ownership.

Where making a forward commitment to acquire new developments, we will use our influence to encourage the tenant, developer and its contractors to consider sustainability-related issues in the design, construction and fit-out of buildings. We expect the environmental performance of new developments to exceed the minimum standards laid down by building regulations and planning policy.

We expect all new buildings to have Energy Performance Certificates rated at C or higher and that the design will incorporate enhanced insulation, advanced energy efficiency and a suitable range of water-saving features.

Aside from managing assets in an environmentally responsible manner, we see sustainability as both a threat and as an opportunity. There is a risk that the future value of some properties may be adversely affected by issues of sustainability. We have systems in place to enable us to monitor and then manage these emerging risks as part of our overall approach to risk management.

Conversely, we believe that some assets may experience a positive change in value as a result of the move towards a lower carbon economy and we are always looking for opportunities to create added value through the creation of more sustainable assets when considering asset allocation and stock selection.

Issues

Sustainability is considered under these key headings:

•             Financial performance

•             CO2 emissions

•             Energy

•             Accessibility

•             Physical risks

•             Water

•             Waste

•             Engagement

Some of these issues may have implications for the future financial performance of the Group. Others relate to “best practice” and social responsibility but we would not expect them to have an impact on the Group’s financial performance. Our policy is intended to:

•             Promote environmental protection

•             Promote pollution reduction

•             Promote sustainable development

•             Anticipate future policy impacts

•             Identify risks from the physical impacts of climate change and develop mitigation strategies

•             Promote reduction of waste

Due to the ever-changing nature of sustainability we will continue to improve and update the relevant criteria that are used within the investment process.

While keeping our focus on maximising individual assets’ financial performance, we account of our sustainability objectives by incorporating them into our business planning and reporting. By integrating such issues into the investment appraisal process we aim to minimise downside risks and capitalise on opportunities for enhancing returns wherever possible.

Financial Performance

We assess the likely implications of climate change related government policies on each individual asset and on the overall performance the Group.

We identify properties where there is a risk of losing income from existing tenants through migration to properties with better environmental qualities and quantify the potential impact of lower than average tenant retention rates, longer voids and higher costs on projected income returns.

We ensure that risks from sustainability-related issues are consistent with our defensive strategy for investing and reducing over-exposure to sustainability-related risk, during asset allocation and stock selection decisions and in the day to day management of the portfolio.

We identify the cost of improvements that may be required, either to protect the future quality of an asset or as a result of statutory interventions and ensure that they are properly reflected in individual asset management plans.

We monitor the emerging impact of sustainability-related issues on values and will amend performance projections and offers for future transactions in the light of hard evidence as it emerges.

Energy

Energy is the most significant contributor to CO2 emissions from the built environment and during the building of new forward-funded assets we are committed to promoting reduction of consumption.

The Company does not directly operate or manage its assets. Therefore, we have no direct control over the way that energy is used by our tenants and have no ability to improve energy efficiency as responsibility for buildings has been devolved to our tenants. Despite this, we will engage with our tenants to encourage the more efficient use of energy and to promote energy efficiency improvements.

Few tenants are obliged to provide details of consumption and large organisations are often unable to identify consumption at individual buildings where they are part of a large operational estate. Where appropriate, we undertake a high-level assessment of energy efficiency and identify ways in which energy efficiency can be improved. Where analysis suggests that energy savings are proportionate to costs, we invite tenants to undertake a more detailed assessment and identify ways in which energy efficiency can be improved.

Accessibility

We recognise that, after the consumption of energy, the most significant source of CO2 emissions is from transport and that assets which are less accessible, based on the criteria set out below, may prove less desirable to occupiers for whom energy cost is a consideration and/or to those that share our values.

We consider the accessibility of all assets as part of our investment due diligence.

There is no common measure of accessibility, but our analysis is based on three factors:

  • Distance from public transport. Over-reliance on private transport generates higher emissions than properties which are well served by public transport. Offices, residential and retail properties which are more than one kilometre from suitable public transport may be considered “inaccessible”.
  • Congestion. Properties which rely on road transport should be within easy reach of the national motorway network and accessible from a major trunk road without being ensnarled in stationary traffic. Properties which are more than a 15-minute drive-time from the nearest motorway or major trunk road may be considered “inaccessible”.
  • Car parking. The adequate provision of car parking can be a major contributor to the value of properties. Under-provision, displacing vehicles into neighbouring streets, will have a negative impact on the quality of the surrounding area. Over-provision may encourage the unnecessary use of private transport. Buildings which differ +/- 20% from local standards may be considered “inaccessible”.

Physical Risks

We recognise that some properties are at risk of flooding and that, in some locations, the risk of flooding may worsen over time as a result of climate change-related issues. In some cases, the risk is not reflected in current market values but that may change.

We identify which assets are at risk from flooding and forecast the extent to which values may be compromised. We can then ensure that the exposure of the Group is consistent with our appetite for risk.

On acquiring new assets, we have regard both to the impact of flood issues on the future performance of each asset and its impact on the overall exposure of the Group to flood-related risks.

Water

We recognise that water is a scarce commodity in some regions and that, over time, scarcity is likely to affect an increasing number of territories. We consider ourselves to be under an obligation to use all natural resources, including water, responsibly.

To this end, we promote the use of water-saving measures in buildings devolved to our tenants. We encourage our tenants to identify water saving measures that can be achieved at little or no cost.

We also have regard to water saving opportunities during the regular repair, refurbishment and replacement of water-related services.

Waste

We support the principle of “re-use, recycle, reduce” and its application to waste.

We encourage our tenants to recycle waste and to reduce waste sent to landfill sites.

Engagement

We recognise that the largest impact we can make on the environment is through influencing the behaviour of others – our developers, our service providers and our tenants.

We ensure all our counterparties are aware of our policy, objectives and targets and that relevant individuals have the knowledge and skills necessary to implement the strategy in their day-to-day roles. We provide appropriate training to our staff.

Through our procurement policies and practices, we encourage our counterparties to minimise the negative impact of their operations on the environment.

We engage with our tenants to encourage the sustainable management of areas under their direct control and in the way that common parts and shared services are used. We encourage tenants to make improvements to energy efficiency and, where appropriate, prepare high level “sustainable design guides” for tenants’ reference in preparing plans for fit outs and periodic refurbishments.  

We identify tenants whose businesses are most influenced by sustainability-related issues and who have the most advanced Environmental Policies and explore ways in which tenants’ aspirations to reduce carbon emissions can be supported and encouraged.

SOCIAL

The Company is dedicated to fighting homelessness through addressing the severe shortage of suitable housing for the homeless and will target investments exclusively in the UK, focussing on the delivery of high-quality homeless accommodation. Each asset will be let to a specialist housing association/registered charity on full repairing and insuring leases and we will not be responsible for any repairing, management or maintenance obligations.

We have identified the major stakeholders in the Company’s business and endeavour to consider the impact of our decisions upon these.

Shareholders: As a public company listed on the London Stock Exchange, the Company is subject to the Listing Rules and the Disclosure Guidance and Transparency Rules. The Listing Rules include a listing principle that a listed company must ensure that it treats all holders of the same class of shares that are in the same position equally in respect of the rights attaching to such shares. We use our best endeavours to abide by the Listing Rules at all times.

Employees: As a real estate investment trust, the Company does not have any employees as all its functions are carried out by third party service providers. However, the Company has a Board of Directors comprised of non- executive directors who receive fixed fee remuneration. The Company’s Board receive regular market and regulatory updates from its professional advisors such as the Investment Advisor, Broker and Company Secretary and attend seminars where required. Diversity is at the centre of the Company’s recruitment policy and future director recruitment processes will reflect this.

Tenants: The Investment Advisor performs extensive due diligence before a tenant is selected, and during the tenancy agreement we maintain a constructive relationship. We take into account our tenants’ changing needs and we use our expertise to assist them in any way within our ability.

Service Providers: A list of the Company’s key service providers can be found in the Company’s Prospectus. The Company conducts all its business through its key service providers. Before the engagement of a service provider, we ensure that our business outlook as well as our values are similar. The Company performs an annual evaluation of all of its key service providers to ensure inter alia that our values remain aligned.

GOVERNANCE

Our investing activities are overseen by the Investment Advisor, the Company’s Board of Directors and the Company’s AIFM, who work together to ensure proper execution of our investment strategy, consistent application of our policies, compliance with our procedures and compliance with local and regional regulatory requirements.

Compliance

The Company was incorporated and registered in England and Wales as a public company limited by shares. The Company is not authorised or regulated as a collective investment scheme by the FCA, however it is subject to the Listing Rules and the Disclosure Guidance and Transparency Rules. The principal legislation under which the Company operates is the Companies Act 2006. The Directors intend, at all times, to continue to conduct the affairs of the Company to enable to continue to qualify as a REIT for the purposes of Part 12 of the CTA 2010 (and the regulations made thereunder).

The Company seeks to comply with the AIC Code of Corporate Governance (the “AIC Code”) and will report on its compliance with the AIC Code each year in its Annual Report.

Risk Management

Our governance model is designed to manage investment risk and operational risk.

Investment Risk

The Company at all times invests and manages its assets in a way that is consistent with its objective of spreading investment risk and in accordance with its published investment policy and will not at any time conduct any trading activity which is significant in the context of the business of the Company as a whole.

Operational Risk       

The Investment Advisor endeavours to follow best practice recommendations as established by EPRA and assess operational risk on a continuous basis and report regularly to the Company’s Board.

RESPONSIBLE INVESTMENT

The Good Economy

The Investment Advisor has commissioned The Good Economy, a leading social impact advisory firm, specialising in impact measurement, management and reporting to (i) further support the Company in developing its impact assessment methodology and (ii) carry out an independent review of the impact performance of the Company on an annual basis and publish a report detailing such review. 

UN Principles of Responsible Investment

The Investment Advisor is a signatory to the UN-supported Principles of Responsible Investment (“PRI”) which represent a global standard for asset owners, investment advisers and service providers to incorporate environmental, social, and corporate governance policies into investment practice. As a signatory to the PRI, the Investment Advisor is also required to report annually on its responsible investment activities and in accordance with the PRI’s reporting framework. These reporting requirements aim to ensure signatories’ accountability and transparency and facilitate feedback from which signatories can then develop and learn.

Signatories to the PRI recognise that they have a duty to act in the best long-term interests of their investors and, by applying the PRI, aim to align their investors with broader objectives of society. Therefore, where consistent with its fiduciary responsibilities, the Investment Advisor has committed to:

  • Incorporate ESG issues into its investment analysis and decision-making processes.
  • Be an active owner and incorporate ESG issues into ownership policies and practices.
  • Seek appropriate disclosure on ESG issues by any entities in which it invests.
  • Promote acceptance and implementation of the PRI within the investment industry.
  • Work with the PRI Secretariat and other signatories to enhance their effectiveness in implementing the PRI.
  • Report on activities and progress towards implementing the PRI.

UN Sustainable Development Goals

The United Nations Sustainable Development Goals were adopted by all UN Member States in 2015, as part of the 2030 Agenda for Sustainable Development. These goals are designed to act as a blueprint to achieve a better and more sustainable future for all.

As part of its investment objective, the Company is committed to contributing (whether directly or indirectly) to the implementation of the following goals:

  • Goal 1: End poverty in all its forms everywhere
  • Goal 3: Ensure healthy lives and promote well-being for all at all ages
  • Goal 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
  • Goal 10: Reduce inequality within and among countries
  • Goal 11: Make cities and human settlements inclusive, safe, resilient and sustainable
  • Goal 13: Take urgent action to combat climate change and its impacts

OWNERSHIP

The Company’s Investment Advisor is the owner of this policy. It shall be subject to annual review. The Investment Advisor, in consultation with the Board of Directors of the Company, shall have authority to vary this policy whenever necessary or appropriate.