Responsible Property Investment 2008 - Henderson Global Investors

henderson

Responsible Property Investment 2008 - Henderson Global Investors

1

Responsible

Property

Investment

2008 Report


2008 report Responsible Property Investment

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Contents

Managing Director’s Statement 2

Responsible Property Investment at Henderson 3

Sustainability Portfolio Analysis 4

Responsible Property Management 6

Responsible Property Development 8

What’s Next? 9

2008 Target Update 10

2009 Targets 11

Advisor’s Statement 11

“Doing Well by Doing Good”

When asked to sum up why Responsible Property

Investment (RPI) is so important to Henderson’s property

business, I often refer to the maxim “doing well by doing

good”. This is because we have reached the inescapable

conclusion that by acting in a way that is beneficial to

the environment and community, we can better protect

or perhaps even enhance the returns to our investors

over the long term.

It therefore gives me great pleasure to introduce our first

annual RPI report and I trust the pages that follow will highlight the considerable progress we have made

over the last year. Indeed, Henderson’s property business now works towards a clearly defined RPI policy

and objectives, within a strategic operational and reporting framework. This will help us to manage and

develop our assets in a way that minimises their adverse social and environmental impacts.

At a detailed level, our approach has been to undertake a comprehensive sustainability audit of every

property in eight of our UK portfolios representing 161 properties with a combined value in excess of

£3.3 billion*. The results of this assessment underpin a sustainability risk management strategy for each

participating fund, which details the specific challenges and opportunities for that fund. Our RPI

philosophy is based on continuous improvement and we will use future editions of this report to inform

you of the progress we are making.

Finally, I would like to leave you with the reassurance that we are not about to rest on our laurels. Our

RPI team is currently looking to increase the number of UK assets participating in the framework. In

addition, we are about to embark on a trial assessment of a sample of our assets in France, extending

the reach of the initiative to our pan-European property portfolio.

In recognition of the importance of transparency and communication with all our stakeholders, I hope

that you find this first annual RPI report illuminating and would welcome any feedback you might have.

Best wishes

James Darkins, Managing Director, Global Property

*As at end December 2008

Cover photo: Belgrave House, Henderson Central London Office Fund


Responsible Property Investment at Henderson

ADDRESSING RISKS AND IDENTIFYING OPPORTUNITIES FOR LONG-TERM VALUE CREATION

We consider the good management of our

environmental and social impacts to be central to our

future success. Our holistic approach enables us to

assess key risks and opportunities in areas that may be

overlooked by short-term real estate investment

strategies and helps us to anticipate changes in

occupier demand, climate, energy supply, the

investment market, legislative and fiscal regimes.

We believe that the sustainability performance of our

property portfolio will impact on operational costs, asset

values, obsolescence and rental growth as well as occupier

wellbeing, community regeneration and climate change

adaptation and mitigation. RPI helps us to better address

these issues through strategic risk management and to

identify opportunities to create value for all our stakeholders.

The Head of Global Property Investment assumes specific

responsibility for RPI issues and is supported by the Head of

Responsible Property Investment, who co-ordinates and

promotes the implementation of our policy throughout

Henderson’s property division. The RPI Steering Committee

meets regularly to monitor progress, while the RPI initiative

is supported by our managing agents, joint venture partners

and sustainability advisors.

To ensure that RPI is integrated into all aspects of our property

investment, development and management activities, we

have established the following governance framework:

We have taken a significant step forward in 2008 and are determined to embed

sustainability into the heart of our property investment processes. We hope that in

implementing our RPI policy and strategy we will be better able to protect and

enhance the value of our assets, while responding positively as a business to the

challenges posed by climate change

Andy Schofield, Head of Responsible Property Investment

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2008 report Responsible Property Investment

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Henderson’s Sustainability Portfolio Analysis

ASSESSING THE SUSTAINABILITY PERFORMANCE AND RISK EXPOSURE OF OUR PORTFOLIO

Our major endeavour in 2008 was to undertake a

detailed survey of all the environmental and socioeconomic

features of the properties in eight of our

funds and assess their exposure to sustainabilityrelated

risks.

We developed and carried out an extensive Sustainability

Portfolio Analysis (SPA), enabling us to identify areas of risk

and opportunity at both a property and fund level. We now

have risk profiles for each fund and detailed property

improvement plans, which will inform our fund strategies

for 2009.

• 161 properties took part, each answering 78

questions contained in the Henderson SPA audit

• 97% of the properties (156 sites) were visited

and assessed during the process

Risk Mapping and Benchmarking

Alongside the SPA process, Henderson took part in Upstream

Sustainability Services’ The Third Dimension for the third

consecutive year. As well as contributing to industry research

into the link between sustainability and investment

performance, this enabled us to compare the sustainability

risk exposure of our funds to that of the 2008 syndicate of

12 major property investors comprising 1500 properties. 45

funds took part in the benchmarking, whereby five out of

eight Henderson funds demonstrated above-average

sustainability performance:

Total Weighted Sustainability Score

80%

70%

60%

50%

40%

30%

20%

10%

0%

Henderson Funds

The Third Dimension Syndicate Funds

SPA - Environment

We believe that it is our responsibility to reduce our carbon

footprint and manage those impacts which contribute to

climate change, as well as ensuring that our property

portfolio is capable of adapting to predicted changes in

weather patterns such as heavier rain, increased flooding,

hotter summers and drought. Financial considerations such

as rising energy costs and landfill tax have also encouraged

us to address utilities consumption and waste management.

Other key climate change and environmental issues

examined through SPA included pollution, biodiversity,

weathering, transport, hazardous waste, passive design,

water use and renewables.

Environmental topics comprised a significant proportion of

our questionnaire and we now have a comprehensive

picture of the activities and features already in place across

our portfolio. SPA has also identified those properties at

highest risk and with greatest potential for improvement, so

we can work together with our property managers to

concentrate our efforts on those key areas.

• 21% of our multi-let properties provide recycling

facilities for the tenants

• 69% of our multi-let properties are undertaking

energy reduction measures

• 45% of the properties analysed encourage cycling

Risk can arise from three broad sources:

• Legislative – risks that arise from liabilities under

current and forthcoming legislation such as the

UK Climate Change Act, Carbon Reduction

Commitment and European Performance of

Buildings Directive, which could lead to increased

obsolescence and greater financial burden.

• Operational – risks that can potentially affect a

building’s ability to operate effectively in the

changing market and climate, using resources

efficiently whilst attracting, retaining and

providing comfort for occupiers.

• Reputational – risks encompassing the

reputational consequences for a landlord or

particular property of a well-publicised

environmental or social incident, which could

affect Henderson’s aim to be a landlord of choice

for occupiers and investors.

SPA has helped us to establish which of our assets need our special attention so that,

with the help of our property managers, our funds can work towards generating

optimal performance combined with a strong sustainability profile

Ainslie McLennan, Director of Property and Fund Manager


SPA - Society

We want to be more conscious of our role in the

communities surrounding our assets and for our occupiers

and visitors to enjoy a safe and productive environment. To

ensure that we fulfil these objectives in the future, the SPA

assessed the position of each asset with regards to a number

of social issues such as accessibility, crime and security,

community engagement, health & safety, public transport

provision, procurement and occupier interaction.

• 70% of our multi-let properties have had a DDA

Audit or Update in the last 5 years

• 91% of our multi-let properties are taking

measures to promote crime reduction on site

• 56% of our multi-let properties request contract

tenders and procure services from local firms

SPA - Economy

Our broad view of sustainability seeks to encompass the

inter-relationship with economies that are local to our assets,

in addition to the indirect impacts through our supply chains.

As a business, we are accountable to our investors and

therefore need to ensure that our properties have a robust

environmental and social performance coupled with a stable

income stream. The SPA examined occupier lease terms,

interaction with the local economy, rent and service charges

in order to assess where we need to reinforce this triple

relationship.

Implementing SPA

The SPA provided us with a unique opportunity to engage on

a large scale with our property managers on RPI matters. We

recognise that working together with our partners is the

most effective way to fully address our impacts and achieve

our targets. Expanding this engagement process will be a key

focus for us in 2009.

Taken together, The Third Dimension and the SPA have

furnished Henderson with a sophisticated and granular

understanding of the sustainability profile of our portfolios,

from fund to property level. We intend to use this

information to inform our risk and asset management, to

ensure that our portfolio is future-proofed as far as possible.

The results of the SPA process provide a framework for fund and asset level strategies.

In addition to achieving our sustainability objectives, we expect this to provide

opportunities for active asset management

Clive Castle, Director of Property and Fund Manager

Following its recent refurbishment, 133 Houndsditch in the Henderson Central London Office Fund received one of the

highest sustainability scores in the SPA

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2008 report Responsible Property Investment

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Responsible Property Management

DELIVERING RPI ON THE GROUND WITH OUR PROPERTY MANAGEMENT TEAMS

Engaging our property managers is central to the

success of our RPI programme, particularly around the

three key areas of energy, water and waste

management.

In 2008, we initiated data collection across our property

portfolios. Measurement of sustainability performance

represents one of the key challenges to the property sector,

as evidenced by the growing number of industry-wide

initiatives on sustainability performance measurement and

reporting. We want to ensure that next year we are able to

report to our stakeholders on our performance regarding key

indicators such as carbon emissions and recycling rates. Our

properties now regularly submit their energy and waste data,

enabling us to establish the 2008 baseline against which we

will be reporting annually.

Our vision of a sustainably managed building is not limited to

addressing its environmental impacts; we also have a

number of successful community initiatives in place and we

are looking to assist our funds in sharing this good practice

to increase the number of properties taking part in these

activities.

Energy efficient lighting at the Bullring

The Bullring, an iconic building in the centre of Birmingham,

installed an energy efficient lighting system in summer 2008.

In partnership with Philips Solid State Lighting Solutions, the

Bullring, Weblight and Mitie have undertaken the

replacement of the original cold cathode decorative lighting

scheme with a state-of-the-art LED solution. This approach is

expected to save:

• 85% of the energy needed to illuminate the

centre

• £34,000 in annual running costs

• Some 250 tonnes of CO2 emissions annually

In addition to the impressive energy savings, the new LED

system brings a whole host of creative lighting displays

which shoppers and visitors to the centre can enjoy.

Selecting LEDs has enabled us to enhance the

Bullring’s aesthetics and visual impact as well as

reducing our environmental impact

Tim Walley, General Manager, Bullring

We know it will be a long journey to embed sustainability at the heart of our

property management and to be able to robustly measure the impact of our

initiatives in these areas. However, we are optimistic that our property management

teams and occupiers will help us to implement our strategy over the next year

Jason Boyce, Portfolio Manager

Whitefriars Shopping Centre, a centre of excellence in environmental performance and community work


Waste management at The Brewery

The Brewery’s waste management changed dramatically in

2008. The retail park’s centre management now views waste

as a potential resource and salvages cardboard, plastics, paper,

cans, glass and bottles. Every measure is taken to reduce the

amount of waste going to landfill and the Centre is exploring

‘waste to energy’ options for residual waste. A clothes and

shoe bank has also been introduced in the car park area.

Portfolio Manager, Adam Stone, and the property

management team accept the ‘Green Apple’ award at the

House of Commons

At monthly tenants’ meetings The Brewery management

team works closely with staff and tenants on implementing

the retail park’s Green Business Plan. The response to this

initiative has been overwhelming.

The property management team’s achievements at The

Brewery gained recognition through the International Green

Apple Awards, presented in the House of Commons by The

Green Organisation.

The Brewery are helping to preserve and protect

the environment and all our new recycling on site

has made a positive contribution

Ian Forster, General Manager, Esporta

Providing local employment opportunities

The Academy @ St James Shopping Centre in Edinburgh was

officially opened in March 2008. It is working to train young

people and provide retailers within St James Shopping,

Multrees Walk and throughout the city centre with fully

prepared, high calibre candidates for job vacancies. One of

the units in St James was offered rent free as the ‘hub’ of the

Academy and Henderson contributed a further £5,000

towards the fit-out of the unit.

• In the first 12 months, 1,182 young people

enrolled to the Academy @ St James

The Retail Academy at Buchanan Galleries, another initiative

within the Henderson Shopping Centre Fund, is operated by

Glasgow North Regeneration Company and delivers six week

retail skills programmes. These offer intensive training and

work experience to participants, providing a pool of

customer focused, commercially aware staff to employers. In

addition, the Academy has delivered six two-day customer

service programmes for Buchanan Galleries with over 60

employees participating.

• Six full programmes have been delivered at

Buchanan Galleries, with 85% of participants

achieving employment or qualifications as a result

The Academy is an exciting partnership approach to

improving access to employment and training,

increasing the pool of potential recruits with the

skills, experience and abilities to meet specific

recruitment needs

Councillor Tom Buchanan, the City of Edinburgh Council's

economic development leader

Occupier engagement was key to The Brewery's success in introducing extensive recycling and water-saving features across

the retail park

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2008 report Responsible Property Investment

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Responsible Property Development

INTEGRATING SUSTAINABILITY INTO THE HEART OF OUR DEVELOPMENT PROCESS

Henderson’s RPI policy relates to all facets of the

investment process including transactions, management

and development. However, we believe the complexities

and potential impacts of our development and

refurbishment activities warrant a dedicated Responsible

Property Development (RPD) strategy.

Following consultation with our project teams and partners, we

published an RPD Policy enshrining our approach to reducing

environmental impacts and maximising the socio-economic

contributions of our development projects. We have set a

number of stretching targets with regards to energy, flooding,

water, ecology, waste, community, procurement and transport,

which will be applied to all development projects from 2009 to

2011.

We believe that this three-year target period will give us

sufficient time to practically consider and implement the

necessary changes at both strategic and project level. Key

Performance Indicators have been set, several of which have

been translated into contractual requirements to ensure that all

parties in the development project teams collaborate and assist

with achieving our objectives.

RPD Checklist

An important step towards delivering our RPD commitments

was the development of an RPD checklist and guidance note.

The checklist is designed for use both on new developments

and major refurbishments, and incorporates all project phases

from land acquisition through design and planning to fit-out

and post practical completion. The checklist will encourage

the project team to undertake all the necessary steps to fulfil

each RPD target, monitoring progress and highlighting key

areas to be addressed. A guidance note accompanies the

checklist giving recommendations of good practice and linking

to relevant documentation and sources of further information.

RPD in practice

Our major city centre redevelopment of the St James Quarter

in Edinburgh will be carried out in accordance with our RPD

Policy. We have recently completed a two year consultation

process with the City of Edinburgh Council, the community

and local business leaders to receive outline planning consent

for our mixed-use design featuring retail, hotel, restaurants,

leisure facilities and housing. The project offers us a fantastic

opportunity to put our checklist to the test and to translate

our RPD objectives into practice.

This year we have put a lot of thought into our responsible property development

approach, exploring what it really means on the ground and how we can work

together with our partners to overcome the practical challenges of constructing

more sustainable properties and places

We are very pleased to have developed a user-friendly interactive checklist to ensure

that we do this in a consistent and robust way

Colin Palmer, Director of Property, Development Management (Europe)

Sustainability is a priority in the design and construction of the St James Quarter, Edinburgh


What’s Next?

REPORTING OUR ACHIEVEMENTS AND EXPANDING OUR RPI PROGRAMME

Following the 2008 Sustainability Portfolio Analysis, we

now have a comprehensive picture of the key areas for

improvement across our funds. SPA has identified

inherent risks that we will address by integrating

sustainability assessment into our asset allocation and

investment decision-making procedures. The SPA fundlevel

and property-specific recommendations will enable

us to direct our efforts towards the necessary initiatives

that we will put in place through engagement with our

managing agents and occupiers in 2009.

Occupier engagement

A key focus for 2009 will be an extensive programme of

occupier engagement. An important finding of the SPA was

that, in order to maximise opportunities for improving

sustainability performance at our properties, it is imperative

that we work together with our managing agents and

occupiers. This will help us to ensure all parties are working

towards the same goals and sharing good practice.

Widening the SPA net

We are expanding the SPA to our non-UK assets with a trial

assessment of a sample of our French properties. We are also

planning to undertake a detailed sustainability analysis of our

newly acquired fund New Star UK Property Unit Trust, to

ensure it is fully incorporated into our RPI programme.

Data gathering and reporting

In 2009 we plan to make our energy, water and waste data

gathering processes more accurate and easier for our

managing agents to undertake. The regular collection of

performance data allows us to identify problems and

anomalies as quickly as possible. It will also enable us to

accurately monitor our performance in comparison to our

2008 baseline and against our 2009 targets. We look

forward to reporting more quantitative measurement data

in next year’s annual report.

Benchmarking

To enable us to track and rank progress against our peers,

we will enter 20 of our properties into Upstream

Sustainability Services’ Operational Performance

Benchmarking. This will help us to make better informed

management choices by identifying areas of over and underperformance

and comparing these against established

benchmarks and sustainability indicators.

I look forward to overseeing the expansion of our programme over the coming year.

Our targeted approach is particularly important given the current economic

circumstances, where it would not be justifiable for us to dedicate time and

resources to an RPI programme that was not explicitly focused on protecting and

enhancing value

Mike Sales, Head of Global Property Investment

Henderson's assets in the Paris region are next in line to take part in the SPA

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2008 report Responsible Property Investment

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2008 Target Update

REPORTING OUR PROGRESS AGAINST HEADLINE OBJECTIVES

We set ourselves a large number of challenging management targets in 2008 and worked together with our

property management teams and sustainability advisors throughout the year towards achieving them. Due to

the extensive scope of the targets, the completion of many of them is still in progress and this has informed our

more streamlined target-setting process for 2009.

Governance and Strategy

Establish an internal governance process to ensure that our strategy is effectively implemented

Set specific objectives, targets and key performance indicators with defined responsibilities, and review our progress

towards these on a regular basis

Develop employee RPI training programmes and incorporate RPI responsibilities into job descriptions

Property Transactions

Integrate sustainability issues into standard risk assessment and due diligence procedures

Integrate RPI considerations into transaction decisions

Portfolio Management

Complete a detailed analysis of the specific sustainability risks associated with the property types and individual

properties that we invest in

Engage with all property managers in order that they can successfully deliver our RPI strategy

Measure the performance of all property managers against our RPI strategy

Engage with all of our tenants regarding the objectives of our RPI strategy

Ensure that tenants have due regard to our RPI strategy when granting approval for proposed improvements

and/or refurbishments

Conduct research into occupier demand preferences for facilities and services

Engage with our investment partners to encourage the implementation of our RPI strategy for those properties where

we do not have direct management control

Measure and reduce energy consumption within landlord controlled areas at our properties

Commence the assessment of the energy performance of our directly managed properties in advance of the

introduction of EPCs

Measure and reduce water consumption within landlord controlled areas at our properties

Measure and reduce landlord controlled waste production at our properties

Measure and increase waste recycling at our properties

Implement a 'green travel plan' at selected properties

Ensure that all our properties are DDA compliant

Develop employment opportunities within the local community

Take measurable steps to provide safe and secure local environments around our properties

Completed

In progress

Not completed


2009 Targets

ALL TARGETS ARE ANNUAL FOR 2009, EXCEPT WHERE OTHERWISE STATED

Energy: Reduce landlord-controlled CO2 emissions by 5%

against the 2008 baseline, by the end of 2010

Water: Reduce water consumption within landlordcontrolled

areas by 5% against the 2008 baseline, by the

end of 2010

Waste: Reduce the amount of landlord-controlled waste

sent directly to landfill by 15% from the 2008 baseline, by

the end of 2010

Benchmarking our performance: Take part in an industry

recognised benchmark to measure the sustainability

performance of our properties

Implementing SPA: Address the risks and opportunities

identified by our 2008 Sustainability Portfolio Analysis by

implementing the fund-level recommendations and setting

fund-specific targets

Advisor’s statement

Upstream Sustainability Services has been supporting

Henderson Property with its Responsible Property

Investment approach since July 2007.

Our close engagement with the Head of RPI and regular

attendance at meetings with Henderson’s RPI Committee,

fund managers and managing agents has enabled us to

provide a well-informed external view of the progress

Henderson has made to date in achieving their targets and

embedding sustainability into their operations. However, due

to the nature of our involvement in delivering part of the RPI

commitments, including the 2008 SPA process, this

statement should not be read as fully independent assurance

of the information in this report.

Due to the large number of RPI targets that Henderson set

themselves for the first time in 2008, 66% of them have

been assessed as ‘in progress’ at the end of the year, and

work towards two targets has not yet started. However, four

of the five targets that have been fully achieved represent

key milestones in ensuring that Henderson’s RPI aspirations

are realised, both within Henderson and by the external

parties involved in the management of their portfolios.

Communicating with our investors: Communicate our RPI

risk management and performance improvement initiatives

to our investors

Engaging with our occupiers: Carry out an engagement

programme with our key occupiers

Investment: Develop a method to assess the sustainability

features and risks of potential acquisitions

Carbon Reduction Commitment: Establish our liabilities in

respect of the Carbon Reduction Commitment, confirming

metering arrangements, ownership structures and energy

procurement contracts across our portfolio

Our property funds can only represent a more sustainable investment option for clients

if we set clear and quantifiable goals and objectives. The introduction of RPI targets

keeps us focused and ensures we make tangible improvements to our properties

Adam Stone, Portfolio Manager

Systematic data collection should represent a key focus in 2009.

This is instrumental in optimising performance improvements

and monitoring possible liabilities under such legislative

initiatives as the Carbon Reduction Commitment. It will also

enable Henderson to move towards more robust reporting of

performance next year. We would recommend that in the

medium term Henderson considers aligning its reporting

approach with one of the emerging sustainability reporting

frameworks, such as the Connected Reporting Framework.

In conclusion, we believe that Henderson should be praised

for making a considerable step forward in 2008, but there is

still much to be done. During the year ahead the organisation

faces the challenge of undertaking projects that are farreaching

in scope and require a high level of dedication from

both the Henderson property team and their managing

agents. We look forward to observing progress towards the

more focused targets for 2009 and the establishment of a

quantitative reporting framework next year.

Jenny Pidgeon, Senior Consultant

Upstream Sustainability Services, Jones Lang LaSalle

2008 report Responsible Property Investment

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Issued by Henderson Global Investors Limited (authorised and

regulated by the Financial Services Authority, the UK financial

services regulator).

This document may not be reproduced in any form without

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This document has been produced based on Henderson

Global Investors' research and analysis and represents our

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incidentally. Information and facts cited in this report are

correct as at 31st December 2008. Statistics established

through the Sustainability Portfolio Analysis are correct as at

1st September 2008. Part of the information in this report

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