An Investigation into Socially Responsible Property Investment in the United Kingdom

Colin Munro

Course: Sustainable Urban Development BY604E (30 Credits) Tutor: Stig Westerdahl Autumn Semester 2011 Date of Submission: (12/01/12)

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 demonstrate their ethical and sustainability credentials. A popular way for corporate business to represent their actions and policies on the issue is by way of Corporate Social Responsibility (CSR) reports. Literature on CSR goes back to the early 1950s when Howard R Bowen published a book titled Social Responsibilities of the Businessman (Carroll, 1999). The concept has since evolved largely through literature and theories, for instance the triple bottom line (Commission of the European Communities, 2002, Pg 5) which places a strong emphasis on the issue of social, environmental and economic sustainability. As theories such as the triple bottom line have grown in prominence in recent years the ties between CSR and sustainability concepts have strengthened. The global sustainability agenda has gained substantial momentum, which has lead to the large-scale implementation of CSR from theory into practice. Lindgreen and Swaen (2010) argue that the growing prominence of CSR policy has led to tension between company stakeholders and the expectations of the wider public, reconciling these two pressures remains a major challenge. 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 estate strategies has become stronger. There are various avenues where clear efforts need to be 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 to 50 percent of carbon emissions in the UK has focused on the pressure from the public and 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). These examples provide only a brief insight to the array of real estate issues that directly affect sustainability and CSR policy. Ownership of real estate also plays a significant factor in the evolution of the built environment in response to CSR concerns. Firstly it is important to consider the different categories of land in the context of the UK. Urban landscapes are characterised by residential property, commercial property and urban land available for development or previously developed (Dixon, 2009). This study is concerned with the inter-relationship between property investment and corporate social responsibility, therefore it is appropriate to focus more on commercial property ownership as investment institutions predominantly focus their property funds within the commercial 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 2

institutions or property companies (Dixon, 2009). Investors can be characterised by multi-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 property that 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 will focus 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), the managers of capital (also referred to as fund managers) and the asset owners (or landlords) (de Francesco and Levy, 2008, Pg 4). It is important to note at this stage that there is potential for substantial cross over between these key players, for example, 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 strong desire 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 or Responsible Property Investment - for the purpose of this study it will be referred to as Socially Responsible Property Investment (SRPI). SRPI is described by Pivo and McNamara (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 a way that is consistent with investor goals and fiduciary responsibilities. Sparkes and Cowten (2004) argue that the prominence of SRI funds has grown significantly in recent years both in size and maturity, and as such they have a greater influence in how company executives react in the stronger and more explicit development of CSR policies. The traditional SRI markets remain in retail and institutional equity investment portfolios. SRPI can be viewed as a by-product of a maturing SRI market largely down to its less volatile characteristics when compared to equities, and due to the widely documented impacts of property on sustainability issues (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 and property 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 fund management market. The research predominantly focused on mixed asset fund managers, but also included two property specific fund managers. The report found that 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 in response to this. The role to be played by property investment managers has potential

to be significant in linking sustainability and CSR theory into practice. However certain key elements within this relationship remain unclear, such as the extent to which 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 SRPI dedicated funds on offer by fund managers. Although the practice of SRI and CSR appears to be well established, and the impacts of real estate on CSR agendas is well documented, research in 2007 indicates there is a lack of provision of property funds addressing the pressing issues of sustainability and social responsibility. Aim: The aim of this paper is to investigate major real estate fund managers in the UK and 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 into the 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 of the theoretical background of SRPI. As previously stated, SRPI can be seen as a subsection 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 to introduce the concept of sustainable real estate and aims to provide the reader with an understanding of how property can interact with sustainability issues and how these may effect property investment decisions. Finally SRPI will be introduced to the reader, much of this theory reflects on the interplay between SRI and sustainable real estate, while also introducing some concepts unique to SRPI. SRI, an overview: Much of the relevant literature on current progress on SRIs is published by Eurosif, this is a think tank whos mission it is to develop sustainability through European financial markets, they describe SRI as: a generic term covering any type of investment process that combines investors financial objectives with their concerns about Environmental, Social and Governance (ESG) issues (Eurosif, 2010, Pg 8). The practice of SRI (also known as ethical, sustainable or responsible investment) has grown and matured significantly in recent years, with a total market share 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 an innovative 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 based market in 2008, accounting for a total of 53 percent of all SRI managed (Just Economics, 2011 citing Eurosif, 2008). Rapson et al. (2007) identify screening and engagement as the two key techniques used within the industry for achieving SRI funds. Investors and investment managers can conduct a screening process in which to identify companies that they may want to include or exclude in an investment. Screening can be categorised into positive and negative screening; positive screening involves the investment firm identifying best in class companies that perform strongly in the environmental, social and governance

areas; negative screening involves the investor excluding particular industries or poorly performing companies from their portfolios, typically excluding companies from the tobacco or weapons industries. Engagement is a more proactive process which involves the fund manager identifying particular ESG issues within a portfolio and subsequently working with and applying pressure on companies to make more positive changes. Eurosif (2010) present a more complex approach to categorising investment strategies, which it separates into core and broad approaches. Core strategies revolve around varied, fairly rigorous screening methods such as norms- or valuesbased exclusions (negative screening), best in class, or thematic (eg. renewable energy) funds and other positive screening conditions. Broad strategies can also include screening however they tend to encompass simple exclusions based on single negative criteria. Engagement and integration form the two main characteristics of broad investment strategies, integration involves ESG risk being integrated into traditional financial analysis. The distribution of core and broad strategies varies greatly throughout Europe, for example Switzerlands SRI funds are 100 percent based on core investment strategies, while in the approximately 97 percent of French funds 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 largely implemented through engagement initiatives and other broad strategies. The United Kingdom also demonstrates a diverse range of investors and professionals offering extensive opportunities in SRI - asset management companies are included in the categorisation of major players in the UK market (Eurosif, 2010). Interestingly during a study into the financial performance of SRIs in the UK, Mill (2006) discovered that socially responsible funds did not out perform regular funds, as opposed to this, a SRI fund would experience a degree of variability in returns for around four years before returning to the previous level of returns. The stabilisation of the investments was attributed to the responsiveness of CSR policies to satisfy SRI criteria. One possible explanation for the UKs prominence in recent years may be attributable to increased leadership from chief executives of investment companies and other top professionals in advocating SRI (Eurosif, 2010). As discussed in the introduction, differentiating between different types of investors helps 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 differing motives of private investors, institutional investors and investment institutions (fund managers) to invest in SRI. The study found that investment institutions are more inclined 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 in achieving sustainability objectives is important in order to appreciate the role real estate may have in pursuance of SRI. There are many parallels between practices SRI and SRPI, however real estate also offers unique opportunities and challenges for investors, which will be explored below.

Critical to an investigation of SRPI is the basic understanding of the criteria, which may differentiate a sustainable property investment compared to an unsustainable investment. Both property specification and the management of the property are determining 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 virtues of sustainable and socially responsible property and has also hindered research on the topic of added value to investment in sustainable properties across Europe (Bernet et al. 2010). Ellison and Sayce (2007) conducted research attempting to establish criteria for assessing the sustainability of commercial property for the purposes of investment. The paper indicates that CSR is currently the main driving force behind sustainable properties in the UK. The Paper produced eight criteria which will form the basis for analysing real estate funds sustainability in this paper they are: Energy efficiency; Climate control; Pollutants; Waste and water; Adaptability; Accessibility; Occupier; and Contextual fit. The criteria are easily interpretable aside from contextual fix, which is described as the appropriateness of the building within its location whereby the property clearly enhances or degrades the area. It should be noted that the critique of the lack of standardised criteria published by Bernet et al. in 2010 would indicate that the criteria suggested by Ellison and Sayce three years previously have not brought about a complete standardisation of criteria. Although they do appear to represent many of the attributed discussed in the majority of sustainable 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 Global Real Estate Sustainability Benchmark (GRESB). This was launched in mid 2011 and was formed by Maastricht University and eleven of the worlds largest asset management companies, it aims to provide a benchmarking tool for investors to register their portfolios against their counterparts and against fixed sustainability criteria (Nils Kok, 2011). It remains to be seen whether or not this benchmarking framework will become the standardised criteria for sustainable property investments. Inevitably when discussing property investment, the question of added value is an important point. There has been substantial research on added value to sustainable real estate in the USA, and in recent years there has been various research articles published with reference to the UK commercial property market. A comprehensive literature 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 been conducted. All of the empirical studies thus far have taken place in the USA, the RICS believe these studies to show that sustainable properties do not demand a notable premium in rent, however buildings with an energy efficiency certificate may draw a small rental increase. This is somewhat contradicted by a recent Cushman and Wakefield (2011) report which claimed that findings in the USA indicate that a rental premium is achievable through more sustainable properties, although they admit that there is no evidence of added value. The Cushman and Wakefield report investigated the impact of sustainability on UK investment institutions decision-making, and found that more than half of UK investors believed that any value differential was currently unquantifiable, but all interviewees believed that one would exist in the future. Interestingly the majority of investors believed that that the differential would

be achieved in the depreciation of the value of unsustainable properties as opposed to a premium for sustainable property. This would suggest there would be a greater incentive to divest in poor quality buildings as opposed to actively targeting sustainable properties. This overview of sustainable real estate demonstrates that there are still areas of uncertainty despite relatively intensive research in recent years. Uncertainty still exists 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 in sustainable property as an investment (Sayce et al. 2010). However there are efforts to bring standardisation to definitions, including the paper by Ellison and Sayce (2007) which developed criteria for sustainable buildings, it also gave an interesting insight in the strong connection between sustainable property and CSR. The most recent step towards standardisation has been through GRESB, which has sought to provide investment criteria through benchmarking and other initiatives. Finally the overview investigated investors opinions on sustainable property, generally the outlook was fairly positive although uncertainty seems to play a strong role in the current market. Ultimately it is the decisions made by the investment institutions that will 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 stream on the topic. The UNEP-FI states that Responsible Property Investment constitutes investment in property that considers social and environmental issues as well as standard financial decisions. The work stream also highlights that the investment should look beyond minimum legal requirements and highlights that benchmarking and systems for measuring sustainability are key for managing and monitoring progress (UNEPFI, n.d.). In this sense the GRESB can be seen as a positive introduction 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 subsequently implementation techniques in which to achieve outcomes can be categorised into broad and core. A screening initiative may involve portfolio managers only purchasing properties that meet a certain sustainability criteria, engagement may entail the landlord and tenant negotiating a green lease which places sustainability obligations for the management of the property. Rapson et al. (2007) argue that although 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 practice SRPI is far more complex to manage compared to conventional SRI principles, the paper highlights the fact that SRIs can be rapidly divested compared to the relative illiquidity of a property investment. Similarly, the UNEP-FI work stream highlight the relative complexity of property investment stating that the full lifecycle investment in the property should be considered. The key stages in the properties lifecycle are: development or purchase; refurbishing and improving the property; the operational management property (must maintain sustainability standards); and finally the 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 using screening 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

tenant. These issues are just an example of many characteristics that differentiate the challenges faced by SRI and SRPI. There is currently limited information on the extent of property that is currently invested 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 the countries at the forefront of SRI in Europe (Eurosif, 2010). However there is no indication of what types of portfolios these investments are in and extensive empirical data is equally scarce in the United Kingdom. To summarise; it is important to consider that current published material recognises that there are no specifically marketed SRPI fund on offer by major fund managers in the UK, this finding is clearly presented by Rapson et al. (2007) and is discussed in the introduction. A study of existing theories has uncovered potential streams for standardisation and implementation of SRPI funds through the UNEP-FI work stream and also through the recent introduction of the GRESB benchmarking and rating initiative. Rapson et al. (2007) also draw useful comparisons between SRI and SRPI investment management methods, recognising that screening and engagement are still central techniques for implementation of investment strategies, but that these techniques can prove to be more challenging when applied to property as opposed to equities. Methodology For the purposes of this paper secondary research methods will be used to provide the main source of data. Secondary information is data, information or reports that have been compiled by other people and subsequently archived or published. Sources could include government reports, professional organisations reports and data, census information etc. (Stewart and Kamins, 1993). The major advantages associated with secondary information are time and cost. Comparatively secondary data is deemed far cheaper to access, and when an answer is required quickly is the only practical alternative (normally achievable quickly through a computer archive search, as many documents are available online). When time constraints are tight secondary research may be deemed as a more effective method of obtaining high quality, reliable information, it can also be utilised as an effective comparative tool (Naoum, 1998). A total of 10 prominent asset and investment management companies located in the UK 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 commitment to their property related investment activities. It must be accepted that in a relatively free market system many of the investors will hold property investments throughout the 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 companys websites and elsewhere detailing information of their socially responsible property funds. The research will specifically look for data on any SRPI funds available through the investment institutions. It will also seek to gather relevant information on the property specification and management arrangements to determine how the SRPI label is being achieved. Consideration will be given to broader SRPI or SRI polices governing investment practice within the companies. A review of the extent of companies CSR policies will also be undertaken to help analyse the potential

correlation between strong or weak corporate responsibility and wider investment practices. 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 funds have developed and will then look into how responsible property investment principles are applied practically. The research then goes on to look into the characteristics of the property funds, this will seek to determine the nature of SRPI funds or whether certain funds show SRPI characteristics without being branded accordingly. 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 the companies studied. SRPI Branded Funds: Of the ten investment companies there was only one (Investor G), 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 however the description of the fund explains that all investments are screened through their own sustainable footprint methods. Interestingly, investors A and B offer a selection of funds, which have been awarded GRESB Green Stars. A offers a total of two funds that have been accredited with the Green Star and B offers three funds accredited with the GRESB award. The funds are not branded as SRPI funds as such and instead tend to be labelled with acronyms representing, for example, the pension fund they are investing on behalf of. The GRESB Green Star is accredited to funds demonstrating excellence and leadership according the benchmarks and criteria as decided by the GRESB foundation. In summary, a total of six SRPI labelled or certified funds were on offer, and these funds were on offer by three of the ten fund managers. It is clear that the majority of fund managers still do not offer funds that have been clearly labelled as sustainable funds, and, where SRPI funds are on offer, the investors choose not to brand them as such 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 the reports 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 implement responsible investing philosophies across all of their funds. Company F had a section of its website in which it discusses responsible property investment and that it adheres to requirements specified by the UNEP-FI. The SRPI reports also provide and insight into the number of companies involved in responsible 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 projects that meet their sustainability criteria. Investor B also employs a range of engagement

initiatives across their portfolios, as do investors A, F and H. Engagement activities include negotiating green leases, redeveloping properties across portfolios and surveying 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 three companies using this as their primary method, compared to just one fund that focuses on a screening process. One fund manager appears to make fairly extensive use of both methods. Funds demonstrating sustainable characteristics: The quality of data available on fund characteristics and the properties within them varied greatly from company to company. Investors D, F and H did not display adequate information of their funds in order to undertake an assessment of the characteristics of the funds. From the information 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 properties within its various funds, however the company does not frame the action as a step towards more sustainable properties or investment practice and instead frames its energy saving achievements as an exercise that will reduce costs. Investors A, B and G clearly present their funds with sustainable characteristics through their SRPI reports, they do however demonstrate very different characteristics when compared alongside each other. Investor Gs fund focuses on urban regeneration projects within the UKs twenty largest cities, this differs greatly with the more conventional property investment approach undertaken by investors A and B. The latter two investors focus on dealing with commercial property investments such as office, retail industrial and mixed-use buildings. Investors A and B instead focus on the individual characteristics properties such as energy efficiency, waste management tenant engagement, however they appear to avoid getting involved with large area-wide regeneration projects. Over-reaching SRI Policies: A large number of the investors that were looked at in this study also participate in other forms of investment, therefore the research also investigated whether or not the investors had any SRI policies or reports. Seven of the 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 limited selection of SRI policies and do not go so far as publishing yearly reports or extensive online literature. Investors A, B, F and J offer comprehensive SRI literature clearly identifiable 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 web page. Investor D fails to provide any relevant CSR information other than stating that social, environmental and ethical issues are an important consideration for their corporate governance decision making. The nine remaining investors provide a varying array of CSR documents, with C and I only publishing limited information which is generally focused on areas such as energy saving. Investor E identifies certain 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 to identify any example of socially responsible business practice or investment. The remaining investors A, B, F, G, H, and J all demonstrate fairly comprehensive CSR characteristics 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 companies investigated, investor C was the only other company that clearly had a portfolio demonstrating certain characteristics of a SRPI fund, namely with respect to energy saving measures. Investor C provided only a basic CSR report again generally focusing on energy savings. Two companies (F and H) had SRPI reports although it could 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), and complete CSR reports. The remaining investors did not demonstrate any SRPI funds or 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 their web pages. Company D only has a very limited section on their website discussing SRI, 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 published information on both SRI and CSR. Discussion With respect to the branding of SRPI funds, there appears to be a certain amount of progression when compared to the findings in Rapson et al. (2007) which states that there was not a single fund branded as an SRPI. However, while there is yet to be a fund 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 since 2011. This perhaps represents an alternative option, as opposed branding a fund as an SRPI, companies may instead opt to label or certify funds with accreditation. Investor G 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 (indicating an alternative form of recognition from the Green Star), and secondly the fund focuses on investing in regeneration projects as opposed to purchasing a portfolio of sustainable buildings or sustainable property management methods. This presents an interesting contrast in approach to SRPI, as both would appear to meet the descriptions 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 SRPI at present. It is worth noting that the Green Star funds offered by investors A and B form what appears to be more conventional property funds (a portfolio comprising of various buildings and centres) as opposed to the more unique circumstances of investing in urban regeneration projects. The rather unique case within this report is company C whose fund displayed elements of socially responsible investment. The company marketed the fund as one demonstrating 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 there is 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, another area of progress, which is unreported in current literature, is the emergence of SRPI reporting. The reports outline overreaching SRPI policies and are presented in the same manner as annual CSR reports (or occasionally as a sub-section within CSR reports). 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) that many portfolios demonstrated many sustainability and socially responsible characteristics. The development of SRPI reports could demonstrate the increasing importance of recognising and presenting socially responsible actions in a similar manner as CSR reports. This may account for the relative abundance of funds with SRPI characteristics, but that lack the more formal recognition of a Green Star or from the UNEP-FI. The research results also revealed that of the five investors involved in SRPI reporting, 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 general trend for UK investment companies to follow broad (engagement based) strategies for the implementation of SRI investments (Eurosif, 2010). This is illustrated by the strong correlation between SRPI, SRI and CSR strategies within the companies investigated in this research. Further analysis of the trends reveals a potential contradiction with the findings of Jansson and Biel (2011) who stated that investment institutions are less inclined to invest in sustainable property unless they see a financial or performance benefit for the company, this can be supported by the way in which company C as previously discussed has marketed its portfolio. However, there is an overall sense within this study that there is a strong link between SRPI practice and extensive CSR initiatives within investment institutions. While it is clear that a number of the investment institutions researched for this study had little regard for CSR and may be only interested in making financially motivated decisions, there is a strong indication that certain institutions are willing to base an element of decision making on wider socially responsible criteria. Recent research, such as the extensive literature review by Sayce et al. (2010) indicates that there is currently no empirical evidence indicating that sustainable property demands a premium in the markets, this supports the 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 properties going into the future, the growth in SRPI may also be reflection of this opinion for future proofing funds. The large disparity in levels of CSR and SRPI between competing investment managers may be down to the leadership from certain individuals/leaders within the company, which is one of the key reasons for the growth of SRIs in the UK according to Eurosif (2010). Conclusions It is evident that the GRESB Green Star rating system for funds demonstrating excellence and leadership in SRPI offers a new way in which to accredit and market a sustainable property fund. This represents a clear progression from the previous study undertaken by Rapson et al. (2007), which found that no investors in their study marketed 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 given to monitor the effectiveness of the system. This can be supported by the fact that the longest established SRPI, which demonstrates very different portfolio characteristics to the Green Star funds and has yet to be accredited with the GRESB system. Perhaps further iteration and development of the Green Star system is required in order to incorporate a broader array of portfolios, such as the UNEP-FI recognised regeneration-based fund discussed in this report. This is particularly pertinent when the growth of SRIs has been largely down to the financial systems ability to adapt and 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 into consideration when forming their overall investment strategies. This again supports the view that SRPI has taken a positive step towards becoming a more established feature 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 various means such as property management initiatives or the implementation of green lease agreements between landlord and tenant. An interesting area of further research would be to look into the implementation of SRPI strategies in a greater depth, to measure the success of the various engagement and screening tools. It is clearly evident that there is a correlation between the companies with developed CSR and SRI strategies and their subsequent involvement with SRPI. The three companies that are at the forefront of SRPI all provide extensive CSR reports. Conversely the companies that show little literature regarding CSR tend to have a weaker involvement with SRPI. This leads to the question, what do some companies see in SRPI that others do not? There is currently a lack of empirical evidence to show that there is a price differential in sustainable property, but most importantly that 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 the difference in opinion over the future value of sustainable property, although it is clear the 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 SRPI SRPI Report Predominantly branded UK? (or Fund company based in UK) 6.4 billion AuM Yes 2 Fund with Yes GRESB comprehensive, Green Star primarily achieved through an extensive engagement programme 12 billion AuM Yes 3 funds with Yes GRESB Comprehensive Green Star literature which details both engagement and screening they undertake in their funds 1.1 Billion UK AuM Yes No No Fund with sustainable property characteristics Yes comprehensive across board SRPI policy Over reaching CSR SRI policy

Hermes Real Estate (A)

Yes

Yes

PRUPIM (B)

Yes

Yes

Yes

Grosvenor (C)

Not defined, although some energy saving is evident

No

Basic primarily on environme nt and energy saving No

SWIP (D)

2.5 + Billion

Yes

No

No

Not Clear

Yes but seems very limited

Shroders (E)

9.5 Billion AuM

Yes

No

No

one focusing on mixed use and office Not clear

No Yes but no mention of investment practice Yes - but brief Yes

Aberdeen Asset Management (F)

700 Million UK AuM

No however company is based in the UK.

No

Aviva Investors (G)

10 + Billion Large amount in the UK

Yes

Yes, Igloo Regeneration fund established 2002, recognised by UNEP-FI No

Yes - it perhaps doesn't go over and above as specified in UNEP-FI, achieved through engagement Yes - plenty of literature on its igloo urban regeneration fund achieved through screening of projects

Yes - focusing on urban regeneration in the 20 largest cities in the UK

Yes

Yes

Legal and General Investments (H)

10.1 Billion UK

Yes

Rockspring (I)

Circa 3 + Billion in UK 10 Billion

Yes

Yes comprehensive achieve sustainability through engagement No No

Not Clear

Yes

Yes

No

No

Yes, although limited Yes

Standard Life Investments (J)

Yes

No

No

No

Yes

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References: Bernet, Sayce, Vermeulen and Ledl, 2010, Winning in the Long Run? Driving Sustainable Financial Performance on Real Estate The first empirical study exploring the 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 Definitional Construct, Business and Society, Sage online publications. de Francesco and Levy, 2008 The impact of sustainability on the investment environment, Journal of European Real Estate Dixon, Tim, 2009 Urban land and property ownership patterns in the UK: trends and forces for change, Land Use Policy, Published by Elsevier Ltd. Ellison, Louise; Sayce, Sarah, 2007, Assessing Sustainability in the existing commercial property stock, Property Management Journal Jansson, Magnus, and Biel, Anders, 2011, Motives to Engage in Sustainable Investment: A Comparison Between Institutional and Private Investors, Sustainable Development, Published by Wiley Online Library Lindgreen and Swaen, 2010, Corporate Social Responsibility, International Journal of Management Reviews, Published by Blackwell Publishing, Oxford r_277 1.7 Mill, Greig, 2006, The Financial Performance of a Socially Responsible Investment Over Time and a Possible Link with Corporate Social Responsibility, Journal of Business Ethics, Published by Springer Online Naoum, Shamil 1998, Dissertation Research and Writing for Construction Students, Butterwork-Heinnemann Pivo and McNamara, 2005, Responsible Property Investing, International Real Estate Review, Volume 8 Rapson, Daniel; Shiers, David; Roberts, Claire; Keeping, Miles, 2007, Socially Responsible Property Investment (SRPI) Journal of Property Investment & Finance Sayce, Sundberg and Clements (2010) Is sustainability reflected In commercial property prices: a review of existing evidence, RICS Research Sparkes and Cowten, 2004, The Maturing Of Socially Responsible Investment: A Review Of The Developing Link With Corporate Social Responsibility, Journal of Business Ethics, Kluwer Academic Publishers, the Netherlands.

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Stewart, David and Kamins, Michael, 1993, Secondary research, Information sources and methods, Second edition, SAGE Publications, London Web Sourced References: Commission of the European Communities, 2002 COM(2002) 347 final communication from the commission concerning Corporate Social Responsibility: A business contribution to Sustainable Development. Brussels http://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 investment decisions?, 2DegreesNetwork, Posted by: Stephen Kennett, on Monday 20th June 2011, http://www.2degreesnetwork.com/working-groups/builtenvironment/resources/sustainability-it-really-influencing-investment-decisions/ [Accessed: 13th November 2011] Eurosif, 2010, European SRI Study, www.eurosif.org/research/eurosif-sri-study [Accessed: 27th November 2011] Just Economics, 2011, Investing for sustainable development? A review of investment principles trends and impacts. International Institute for Environment and Development. London. Citing EuroSif, 2008, European SRI Study 2008, www.eurosif.org/research/eurosif-sri-study [Accessed: 28th November 2011] Nils Kok, 2011, March 2011, Global Real Estate Sustainability Benchmark (GRESB) launched today!, http://www.nilskok.com/2011/03/index.html [Accessed 7th December 2011] UNEPFI,n.d.(=NoDate).UNEPFinanceInitiative,WorkStreams,Property, ResponsiblePropertyInvestment, http://www.unepfi.org/work_streams/property/rpi/index.html [Accessed:4th December2011]

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