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G-P01 Act lawfully and ethically
The investment manager should ensure that the vehicle complies with applicable ESG laws and regulations.
The investment manager should comply with, and act in the spirit of, (i) the applicable laws and regulations relating to ESG issues (such as, SFDR, EU Taxonomy, CSRD, etc. (see list of abbreviations in Appendix 4 under Tools and Examples)) and (ii) the constitutional documents of the vehicle which may, among other things, adopt voluntary frameworks with respect to ESG issues such as GRI, TCFD, SASB, UN SDGs, UN PRI and others. Vehicles should also be prepared for any future legislation that may be undertaken over its life cycle.
The investment manager should have appropriate systems in place to monitor compliance.
The investment manager should develop and formally document its ESG strategy and objectives as a component of its overall goals related to the vehicles it manages, as relevant.
Acting ethically requires the investment manager to ensure that the overall goals of the vehicle consider and include a clear ESG strategy and objectives specific to that vehicle. The vehicle documentation should clearly outline these elements.
Building a practical and robust ESG strategy starts with a broad consideration of the ESG risks and opportunities that are material to the vehicle and its environment, including the society in which it operates over its lifetime, based on an appropriate materiality assessment. Consideration of recognised frameworks can support this process.
Furthermore, there are vehicles that are designed under various “impact investing” scenarios, subject to qualifying criteria that may be adopted. For example, refer to INREV’s definition and framework of Impact Investing.
The investment manager should identify and understand the interests of all major stakeholders with which the vehicle transacts and interacts (see also G07 of the Governance module). Regular consultations with these stakeholders, employees and relevant third parties may be helpful. The outcome should be clear ESG objectives that can be incorporated into the overall vehicle goals.
The consideration of an appropriate ESG strategy is an important element in the development of new vehicles. Depending on its strategy and objectives, an ESG strategy should also be considered and developed for an existing vehicle, to the extent feasible. Relevant considerations when building an ESG strategy are diverse and will vary over the lifetime of the vehicle. The relevance of the individual components needs to be monitored on a regular basis and specific objectives and planned outcomes adjusted accordingly. Factors to be considered as part of this process include but are not limited to those listed in Table 1.
The strategy should outline which ESG factors are relevant to the vehicle, the related vehicle-specific objectives and how these will these topics be monitored during its lifetime. The investment manager should clearly define in the vehicle documentation an outline of this strategic plan by reference to the specifics of the vehicle, including the location and type of assets and the nature of its operations.
Table 1: ESG Factors
| Key factors | Definition & explanation | Typical mitigation / operational actions | Required KPIs1-RG73 | Recommended KPIs1-RG78 |
|---|---|---|---|---|
| Environmental factors | ||||
| Energy Consumption / Renewable Energy | The portfolio’s total energy consumption, including the energy generated and/or sourced by renewable energy sources. | Monitoring energy use, implementing energy management system with new technology use (store energy, minimise artificial lighting), energy efficiency through products or systems using less energy (eg LED lighting), use of more efficient modes of transport etc. | ENV1, ENV2, ENV3, ENV4, ENV5, ENV6, ENV7, ENV8, ENV9, ENV10, ENV11, ENV12, ENV13 | ENV29, ENV30, ENV31, ENV32, ENV33, ENV34, ENV35, ENV36, ENV37, ENV38, ENV39, ENV40, EN41 |
| Greenhouse Gas (GHG) Emissions | Total GHG emissions of the portfolio, providing the details of the scope of the methodology used (eg direct / indirect emissions, embodied / operational carbon, market / location based, carbon off-sets etc.) (see INREV definition). | Changing energy source, through initiatives such as the use of lower-emission sources of energy, use of supportive policy incentives, use of new technologies, shift toward decentralised energy generation, decrease travel footprint. | ENV14, ENV15, ENV16, ENV17, ENV18, ENV19, ENV20, ENV21 | ENV42, ENV43, ENV44, ENV45, ENV46 |
| Climate Change – Transition Risks & Opportunities | Net zero building target, decarbonisation scenario pathway targets (see INREV definition). | Minimise the operational carbon (energy, water & waste), explore on-site renewable energy generation, procure off-site renewable energy (eg renewable energy certificates), minimise embodied carbon associated with capital goods, services, and capital works, neutralise residual carbon emissions by purchasing high quality carbon offsets. | ENV22 | ENV47, ENV48, ENV49, ENV50, ENV51, ENV52, ENV53 |
|
Climate Change – Physical Risks & Opportunities |
Climate adaption and resilience (see INREV definition). | Scenario analysis, physical measures at asset level. | ENV23 | ENV53 |
| Water Consumption | Portfolio’s total water consumption. | Initiatives to minimise water consumption (drip/smart irrigation, automatic water reading, high efficiency) and waste water management (reuse of grey water). | ENV24 | ENV54, ENV55, ENV56, ENV57, ENV58, ENV59 |
| Waste Management | Portfolio’s total waste generation, including issues associated with hazardous and non- hazardous waste, reuse, recycling, composting etc. | Use of recycling, reuse of waste generated during the operational phase of the building as well as considering circular building strategies in construction phase (eg use of renewable, sustainably managed and secondary resources which are low impact and eliminates waste across their life cycle). | ENV25 | ENV60, ENV61, ENV62, ENV63, ENV64, ENV65, ENV66, ENV67, ENV68 |
| Biodiversity | Impact of the portfolio on the variety of plants and animal species, covering issues related to wildlife, endangered species, ecosystem services, habitat management etc. | Initiatives to improve biodiversity (eg, green roofs) and protect green spaces and habitat. | - | ENV69 |
| Building Certificates | A measure of asset quality that may provide benefits for tenants, society and the environment. | - | ENV26 | ENV70, ENV71 |
| Energy Ratings | Indication of energy efficiency and performance of the assets. | - | ENV27, ENV28 | ENV72, ENV73 |
| Social factors | ||||
| Diversity, Equity and Inclusion (DEI) | In relation to the employment practices of the vehicle (or of the manager) and also in relation to engagement with suppliers and occupiers (see INREV definition). | Developing systems and procedures for recruiting and retaining diverse talent, ensuring equal pay for equal work, DEI trainings, supporting external diversity associations/activities etc. | - | SOC1, SOC2, SOC3, SOC4, SOC5, SOC6, SOC7, SOC8 |
| Health, Safety and Wellbeing (HSW) |
HSW initiatives of the vehicle (or of the manager) that involve both prevention of physical and mental harm, and promotion of stakeholders’ health. |
Flexible working hours/working from home arrangements, childcare facilities or contributions, paid maternity/paternity leave, indoor air quality/water quality, access to physical activity, social interaction and connection etc. |
- | SOC9, SOC10, SOC11, SOC12, SOC13, SOC14 |
| Stakeholder Engagement |
The process of involving stakeholders (tenants, community, suppliers etc.) who may be affected by the decisions made or can influence the implementation of the decisions. Engaging with stakeholders helps the manager identify and manage its negative and positive impacts. |
Stakeholder activities including tenant liaison, satisfaction surveys, training courses, green leases, community engagement strategy, processes to communicate grievances/complaints, feedback sessions etc. | - | SOC15, SOC16, SOC17, SOC18, SOC19, SOC20, SOC21 |
| Employee Development | In relation to working conditions for employees as well as in the supply chain. | Training courses, satisfaction surveys etc. | - | SOC22, SOC23, SOC24 |
| Human Rights |
Rights inherent to all human beings, whatever their nationality, sex, ethnic origin, colour, religion, language or any other status. These cover issues such as child labour, forced labour etc. |
Exclusion criteria for activities with third parties, green leases etc. | - | - |
| Social Impact | See INREV definition. | Affordable housing units, community engagement, car/bike parking spaces for residents/occupiers etc. | - | SOC25, SOC26, SOC27, SOC28, SOC29, SOC30, SOC31, SOC32, SOC33, SOC34, SOC35, SOC36 |
| Governance factors2 | ||||
| Act lawfully and ethically | ||||
| Act in the best interest of investors and consider other stakeholders | ||||
| Act with skill, care, and diligence | ||||
| Design and operate an adequate oversight and control framework | ||||
| Be transparent while respecting confidentiality considerations | ||||
| Be accountable | ||||
Notes:
1. See Table 1 of RG73 and Appendix 1 of the INREV sustainability reporting guidelines for the list of INREV ESG KPIs
2. For more details, please refer to INREV Governance module.
The investment manager should ensure that the vehicle’s ESG strategy and objectives include a climate change strategy to assess and manage climate-related risks and opportunities.
The investment manager should ensure climate-related risks and opportunities are included as part of its overall strategy. The investment manager should ensure that its operations are aligned with the long-term objectives of the Paris Agreement with respect to carbon emissions.
The vehicle’s climate strategy should include the definition of a science-based pathway specific to the vehicle, which is aligned with the overall goal of a transition to a low-carbon economy. This pathway should outline a reference base case and time horizon which has been stress-tested to reflect resilience against different climate-related and other scenarios and their potential impact on the financial performance of the vehicle.
Monitoring the vehicle’s performance against these objectives should be an integral part of its operations.