Sustainability

Our focus on responsible property investment (RPI) is consistent with our vision of being the leading manager of Australian office property, delivering above benchmark returns through active management.

A summarised version of this content was reported in the 2011 Commonwealth Property Office Fund annual report. To view the responsible property investment excerpt from the annual report, click here, or to view the annual report in its entirety, click here.

To view CFSGAM Property's Responsible Property Invetsment report click here

Highlights

Overview

Policies

Our committments and memberships

Environment

Energy and Emissions
Water
Waste

Social
Governance

Highlights

Our office buildings¹:

are 29% more energy efficient
are 26% more water efficient
have 30% lower emissions intensity

10 assets have improved their NABERS Energy rating
9 assets have improved their NABERS Water rating
3.8 stars weighted average NABERS Energy rating achieved across the portfolio
3.5 stars weighted average NABERS Water rating achieved across the portfolio
1. Improvement based on 2010 calendar year compared to the baseline (2006 calendar year).

Overview

Colonial First State Global Asset Management (CFSGAM) has a team of six Responsible Investment professionals, three of whom are dedicated to direct property. Their role is to support CFSGAM Property in becoming a top tier Australian responsible property investment leader and part of the global leadership group on sustainability and responsible property investment.

The Responsible Property Investment team has five key objectives.

They include:
– Fiduciary duty: Protect and enhance returns
– Value proposition: Investment process includes RPI as part of strategic planning
– Communication: Articulate the value proposition of RPI
– Operational process: Ratings and performance are maintained and improved across assets and the portfolio
– Reporting: Stakeholders are kept abreast of RPI developments and progress

By ensuring the assets in Commonwealth Property Office Fund’s (CPA or the ‘Fund’) portfolio are managed to perform optimally, we can reduce overheads and support the delivery of superior returns whilst maintaining value. Our proactive approach to environmental and social considerations in building design and operation demonstrates our leadership capabilities in the Australian marketplace. Further, through successfully engaging all of our stakeholders, we mitigate the risks to our strategy and by implementing market-leading governance practices, we can provide our investors with assurance that we take our role in responsible property investment seriously.

We incorporate responsible property investment into all stages of ownership and management:

Invest

Each asset we acquire is reviewed through a responsible investment check-list as part of the standard due diligence process.

RPI and environmental, social and governance (ESG) factors are considered in the due diligence process when we look at acquiring new buildings using a standard checklist and approval process. This process investigates the environmental and physical aspects relating to a property (land and buildings), in both its construction and ongoing operation. Social aspects are investigated in relation to how a building is integrated within its local community. Regarding governance, the asset is reviewed for compliance with regulatory controls. These RPI aspects form a part of the entire due diligence investigation, not as a screening process, but rather as part of risk identification and mitigation, which contributes to the price we are willing to pay.

Manage

We set performance targets to improve our assets over time.

The day to day management of a building is closely guided by RPI principles, through our Operational Performance Strategy. This strategy is focused on setting and achieving performance targets for the operation of a building based on an appropriate benchmark for the class and use of each particular building.

Once a benchmark is set, we then actively monitor, manage, analyse and report on the actual achievement of these targets.

To drive continual asset performance we:
– train our operations staff to manage our properties more efficiently
– consider life-cycle analysis in the replacement of plant and equipment
– consider the needs of a building’s occupiers, and
– have a detailed Tenant Engagement Strategy, including a Green Lease Strategy (which includes a tenant fit-out guide and
house rules, governing the operation of the asset) and a green lease schedule.

Enhance

We refurbish or redevelop to a higher environmental standard when undertaking development works.

When undertaking refurbishment or redevelopment works, we aim to improve the environmental standard of our assets. We target a minimum of 5-star Green Star ratings and 5-star NABERS Energy ratings on all new developments.

Create value

We focus on the sustainability of our assets because it is good business practice and improving the efficiency of our assets reduces operational costs. From an owner's perspective, we believe that a more sustainable building will attract higher net rents than might otherwise be paid. As such, responsible property investment is a key factor in maintaining property valuations over time, which is aligned with our fiduciary responsibility and the long-term interests of our unitholders.

During the year, our RPI program resulted in real efficiencies being achieved across the Fund’s portfolio of Australian office assets. Our efforts in market-leading governance were recognised when the Fund was highly commended in the Asia Pacific Real Estate Association (APREA) inaugural best practices award in the Mature Markets (developed countries) category.

CFSGAM has a Responsible Property Investment strategy which is endorsed by the Manager and the Board.

Policies

In implementing this strategy we also have:
– a Direct Property Sustainability Policy,
– an Operational Performance Strategy,
– an Environment Policy
– a Risk Policy
– a Procurement Policy, and
– a Resource Recovery Policy.

Our commitments and memberships

Sustainability indices memberships

– Dow Jones Sustainability Index (DJSI) – included since 2003
– Global Real Estate Sustainability Benchmark (GRESB), formerly Environmental Real Estate Index – included since inception
(2010). CPA was recognised as regional and global leader in sustainability for our 2011 submission. To view our announcement click here. To view the 2011 GRESB report please click here.
– FTSE4Good Index – included since inception (2005)
– Australian SAM Sustainability Index (AuSSI) – included since inception (2005)

Carbon disclosure

– Carbon Disclosure Project (CDP) since 2006 – our latest submission can be found here.
– Included in the Carbon Disclosure Leaders Index (CDLI) and recognised as the leading real estate entity as a Carbon
Performance Leader in 2010. To view our announcement click here. For more information on CDP click here.

Mandatory reporting requirements

– National Greenhouse Energy Reporting System (NGERS) emissions from CPA’s assets are consolidated with those of
Commonwealth Bank of Australia (CBA or the 'Bank') for reporting
– Energy Efficiency Opportunities Act (EEOA) 2006 – reporting of CPA’s assets is consolidated with the Bank's submission
– Commercial Building Disclosure (CBD) program
– NSW Government Energy Savings Scheme (ESS)

Voluntary schemes/partnerships

Environment

CPA-Environment
We continue to reduce CPA’s environmental footprint.

We recognise that the risk of climate change may be one of the biggest environmental risks facing investments over the long term. Climate change is high on the global political agenda, and legislative measures have been announced and introduced to mitigate the impacts of climate change associated with buildings. We believe it is important to understand and adapt to the risks that climate change presents and our approach to this can be found in CFSGAM’s Climate Change Position Statement (CCPS).

As a responsible property investor, we recognise the need to manage these risks and also to identify opportunities. To that end, CPA reports on emissions to the Carbon Disclosure Project (CDP), and in 2010 was the only real estate company to be recognised as a Carbon Performance Leader in the Carbon Disclosure Leaders Index. To view our 2011 CDP submission click here.

Our continued focus on environmental performance has resulted in real savings and improved efficiencies across the portfolio, demonstrating an overall better environmental outcome for the Fund. The ongoing implementation of our Operational Performance Strategy has provided management with the ability to integrate sustainable efficiency improvements throughout each asset’s operations. With a focus on the delivery of the Asset Efficiency Program (a sub-metering, monitoring, analysis and reporting tool for utility performance) and the continued refinement of performance through our NABERS Program, including ‘real time’ tracking, we believe that this approach maintains and enhances asset value, mitigates operational and legislative risk, maximises operational potential and provides quality accommodation for tenants.

Operational Performance Strategy

The Operational Performance Strategy (OPS) covers the management and operation of CFSGAM’s property assets by specifying practices to implement environmental, social and governance (ESG) considerations in each building under management.

The OPS serves to embed efficiency improvements throughout our assets’ operations, for the benefit of all stakeholders. This approach seeks to maintain and enhance asset value, mitigate operational and legislative risk, achieve full operational potential and provide quality accommodation for tenants in conjunction with social and financial objectives, to achieve a balanced outcome. The ESG principles underlying the OPS are to:

benchmark the environmental footprint of the Funds and the individual properties managed;
responsibly improve the operational performance and efficiency of all assets over time by setting measurable short and long term targets as appropriate;
explore and implement as appropriate, the adoption of management and design practices, systems and technologies that promote innovative performance solutions;
understand and influence the associated supply chain activities;
influence, direct and educate key stakeholders to act in a sustainable manner;
report and disclose performance in a format that is tailored to suit the information user (transparent, consistent, relevant and inclusive)

NABERS performance and benchmarking

Our focus is to continue to improve NABERS performance ratings of CPA’s assets over time. Our 2012 target average NABERS Energy rating is 4.5 stars, and target average NABERS Water rating is 3.8 stars. This drives our focus on utility and resource efficiency and management effectiveness from our property teams, in making our assets as efficient as practicable and therefore able to provide the best environmental outcomes for our tenants.

Our strategy is to maintain or improve existing asset ratings. From an energy perspective, we believe this should be achieved through efficiency gains rather than procuring green power. Our NABERS Energy ratings and target are exclusive of the procurement of green power. Our primary focus is on lower NABERS Energy rated assets, particularly the four assets with a rating below 3.5 stars, where we believe we can get the most efficiency gains. In seeking to achieve this energy strategy, we already have eight assets rated at or above 4.5 stars.

A number of case studies have been developed to illustrate the extent of works that have been undertaken to improve the NABERS Energy performance of particular assets. These include 385 Bourke Street, Melbourne, the Finlay Crisp Centre (Customs House, Nara Centre, and Allara House), Canberra and 56 Pitt Street, Sydney.

Weighted average portfolio ratings

The 2010 actual ratings and 2012 targets exclude the Melbourne assets that were acquired during the year, which are still undergoing their sustainability assessments and implementing their sustainability improvement plans. It should be noted that NABERS ratings are subject to variables, including vacancies which can affect the portfolio targets. Furthermore, the portfolio composition constantly changes, with acquisitions, divestments, refurbishments and vacancies, which all lead to variations in the achievement of ratings on a portfolio-wide basis.

CPA-NABERS-table

Energy and Emissions

Our approach to energy and emissions management has primarily focused on improving the efficiency of our buildings, which means using less energy to get a better outcome.

Our Operational Performance Strategy and associated programs are focused on improving the overall performance of the Fund’s assets.

Progress in 2011

Commitments	Progress
Continue our NABERS benchmarking work to achieve our 2012 targets 10 assets improved their NABERS Energy ratings	10 assets improved their NABERS Energy ratings
Develop a Green Lease Strategy that encourages tenants to improve the energy efficiency of their tenancies Complete	Complete
Continue to investigate opportunities for renewable energy generation where feasible Investigated on three assets	Investigated on three assets
Continue to apply for government funding for energy efficiency projects	Received funding on four assets from Tune-Up-Canberra and the Green Building Fund

During the year, a number of case studies have been developed to demonstrate our ongoing focus on efficiency improvements and technology solutions across a number of properties. These include the use of motion detectors at 11 Waymouth Street, LED lighting upgrades at 175 Pitt Street, Sydney, lift lighting upgrades and the installation of variable speed drives on air handling units at 56 Pitt Street, Sydney, and ice tank decommissioning and carpark lighting controls at 60 Castlereagh Street, Sydney

Energy use performance

Since 2006, our active asset management approach has resulted in the portfolio consuming 24% less energy, and becoming 29% more energy efficient (from 618 MJ/sqm to 439 MJ/sqm). Despite the changing nature of the portfolio, we have achieved cumulative savings of 71,160 GJ of energy, equivalent to the annual energy use of 355,800 average Australian homes.

CPA-Energy-use

Greenhouse gas emissions (Scope 1 and 2)^a performance

Since 2006, the ongoing focus on emissions reduction has resulted in the portfolio generating 25% less emissions. Our emissions footprint has reduced by over 16,800 tonnes and the Fund has improved its emissions intensity by 30% (from 141 kg CO2-e/sqm to 99 kg CO2-e/sqm).
CPA-Emissions

a. Greenhouse gas emissions: Scope 1 and 2 emissions are comprised of emissions associated with Electricity, Natural Gas, and LPG usage only.

Focus

Our focus for the next 12 months is on:
– making further progress on 2012 NABERS Energy weighted portfolio average target and developing a strategy for 2015
– implementing our tenant engagement process via the Green Lease Strategy
– continuing the renewable energy generation project at 385 Bourke Street, Melbourne
– reviewing the Operational Performance Strategy across the entire portfolio
– continuing the delivery of the Asset Efficiency Program, and
– refining of the NABERS Real Time tracking tool.

Water

Improving water management through operational efficiency has been a long-term focus for CPA.
The identification and implementation of water efficiency measures are considered to be standard practice and good housekeeping and it is the delivery of management tools such as the Asset Efficiency Program that allow our property managers to continually improve the water efficiency within our buildings.

Progress in 2011

Commitments	Progress
Continue our NABERS benchmarking work to achieve our 2012 targets	Improved NABERS Water ratings across nine assets
Undertake water efficiency audits and complete water management plans (WMPs)	Completed all water management plans and water audits for Sydney assets
Explore opportunities to recycle and reuse potable water	Continued to explore opportunities to recycle and reuse potable water

During the year, a number of case studies have been developed to demonstrate our ongoing focus on water efficiency improvements and technology solutions across a number of properties. These include the installation of waterless woks at 385 Bourke Street, Melbourne, improved urinal systems at Freshwater Place, Melbourne, and garden irrigation improvements at 36-46 George Street, Burwood.

Performance

Since 2006, 21% less water has been used across the portfolio, which has cumulatively saved over 102,000 kL of water, equivalent to 40 olympic-sized swimming pools. The Fund has also improved its water efficiency by 26% (from 1.0 kL/sqm to 0.7 kL/sqm).

CPA-Water-use-chart

Focus

Our focus for the next 12 months is on:
– making further progress on 2012 NABERS Water weighted portfolio average target and developing a strategy for 2015
– reviewing the Operational Performance Strategy across the entire portfolio
– continuing the delivery of the Asset Efficiency Program
– continuing to undertake Water Efficiency Audits where required, and
– seeking opportunities to recycle and reuse potable water.

Waste

For CPA, reducing the total amount of waste generated within a building and improving the diversion of that waste from landfill provides a number of benefits. The Fund is able to minimise increasing costs associated with landfill, manage and reduce its Scope 3 emissions, and engage with stakeholders through tenant awareness programs and contractor education.

Our approach to waste and recycling has been strategic and closely aligned to the delivery of the new waste and recycling contract implementation. A large number of stakeholders have been engaged throughout the process and we now have confidence that our new reporting regime and management systems (which commenced in July 2010) can provide us with the accurate, transparent and performance-based outcomes we require as part of our Resource Recovery Strategy.

Progress in 2011

Commitments	Progress
Integrate sustainability principles into KPIs and reporting for waste and cleaning contracts	New waste and cleaning contracts from 1 July 2010 have waste efficiency-related KPIs
Implement additional initiatives	Collectively working with tenants to maximise resource recovery through the three-stream single bin system, separating waste as commingled, paper and general waste

Performance

Since 2006, our waste and recycling program has provided more challenges than expected. As we now see the benefits of a new waste and recycling contract that integrates sustainability principles and places priority on stakeholder partnerships and reporting outcomes, we recognise the quality of our waste and recycling dataset in previous years has been inconsistent and imprecise. Our data are reported on a calendar year basis and, at this stage, we only have reliable waste management data since 1 July 2010.

CPA-Waste-chart

Focus

Our focus for the next 12 months is on:

– ensuring that our new waste and recycling contract is supported with the appropriate systems, tools and programs, and

– achieving a waste diversion target of 65% for the next reporting period.

Strategy for waste in 2012

– Waste Management Plan development and formal review.
– Formal monthly meetings with waste contractor, cleaners and building management.
– Development of performance targets.
– Rigorous monthly reporting program.
– Tenant awareness programs.

Social

Our people

CFSGAM encourages the enhancement of our workplace culture and active employee engagement through the CFSGAM Global Culture Council – which includes a range of employees of varying seniority including the CEO of CFSGAM. Our employees enjoy the benefits of working in CFSGAM, the consolidated asset management division of the Bank, which means they are also covered by the Bank’s human resources policies on:

personal development

diversity and equal opportunity

training and development, including graduate programs

flexible work arrangements

employee services and benefits

monitoring employee engagement and feedback

occupational health and safety, and

encouraging volunteering and charitable giving.

More detailed information on our employees can be found in the People section of the 2011 Annual Report or here.

Tenants and contractors

We take a proactive approach to stakeholder engagement at our properties. We provide a high standard of safety in our buildings through our rigorous risk management and OH&S practices. These apply not only to staff and tenants who regularly use the site but also apply to visitors to our properties and to contractors employed at our properties. In regard to our supply chain, we have implemented a procurement policy which takes into account our broad sustainability objectives and outcomes. This will be further developed in the 2012 financial year.

Our tenant engagement strategy will be reinforced from 1 July 2011 as part of our Green Lease Strategy. We also have a memorandum of understanding for existing tenants who wish to engage in sustainability issues and better environmental outcomes.

The investment community

The Manager has regular contact with investors. We aim to maintain the highest standard of disclosure through the Australian Securities Exchange and treat all investors equally. We encourage and respond to feedback from investors through our annual unitholder meetings, analyst briefings, one-on-one meetings with key stakeholders and written correspondence.

As a recognised leader in sustainability, we actively participate in industry discussion to share information with our peers and ensure the industry as a whole works towards best practice. By way of example, the CFSGAM responsible property investment team were invited to a discussion forum at the Citi Australian Investment Conference in 2010 highlighting the achievements of CPA and the importance of RPI in managing the Fund’s underlying portfolio to maximise operational performance.

Further information on investor relations can be found on pages 34 to 35 of the 2011 Annual Report.

Regulators and industry bodies

The responsible property investment team is actively engaged in assisting industry bodies such as the Investor Group for Climate Change (IGCC), the Property Council of Australia (PCA) and the Green Building Council of Australia (GBCA). The team’s involvement is in testing and responding as an industry group to facilitate the implementation of standards regulation and policy, with an emphasis on ESG, as they relate to property.

CFSGAM is an active member of the PCA, with both the Head of Sustainability-Property, and the Sustainability Manager-Property, being members of the National Sustainability Roundtable and Sustainable Development Committees (in NSW and VIC). As such CFSGAM actively promotes and encourages other investment organisations to implement RPI/ESG principles in their ownership models. Through these organisations we have actively lobbied government on proposed policy formation and then on practical aspects for implementation of these policies.

The collective members of these committees, who represent the property sector, have now published an industry guide to disclosure under the National Greenhouse Energy Reporting System (NGERS) act. This guide, which assists all owners in completing their ESG obligations to report on emissions from office buildings under the NGERS act, is available on the PCA website.

In regard to the Commercial Building Disclosure (CBD) program, which came into effect on the 1 November 2010, CFSGAM was active in working with the PCA to ensure a practical approach to implement this legislation. Further we have made some of our properties available to the Federal Government, for them to work through the practicalities of the lighting tool part of the legislation, in order to refine an implementation approach, which is practical in application.

Progress in 2011

Commitments	Progress
Pilot NABERS Indoor Environment tool, and work with the NABERS team to improve the tool and promote its use	NABERS Indoor Environment tool completed and being progressively introduced
Continue the annual tenant satisfaction survey	Improved results from our 2010 tenant survey
Continue implementation of Green Leases and improve tenant communications	Transitioned a green lease schedule to all new leases. The newly developed Green Leasing Strategy drives tenant engagement on sustainability. It will help CPA manage tenant expectations, understand tenant practices in occupation of our buildings and enhances tenant goodwill.
Incorporate sustainability into procurement processes	Sustainability clauses and KPIs introduced into procurement processes

Focus

Our focus for the next 12 months is on:
– continuing NABERS Indoor Environment tool roll-out across our portfolio
– continuing to improve tenant engagement through tenant satisfaction surveys and Green Lease Strategy
– transitioning a green lease schedule to all new leases and engage with existing tenants
– improving supply chain reviews and education, and
– reviewing the procurement policy and associated programs.

Governance

RPI is supported by a foundation of robust governance which is fundamental to protecting the long-term interests of unitholders. The Fund’s long-term vision incorporates ESG factors. Our Board receives half-yearly reports on RPI at a minimum.

Good governance is more than just the responsibility of the Board. We have risk management protocols across all facets of our business that are subject to both internal and external auditing. All employees receive regular training on corruption, bribery, anti-money laundering and counter-terrorism financing. We also have policies capturing (but not limited to) related party transacting, insider trading and continuous disclosure.

During the year, our efforts in market-leading governance were recognised when the Fund was highly commended in the Asia Pacific Real Estate Association (APREA) inaugural best practices award in the Mature Markets (developed countries) category.

CFSGAM has a PRI Steering Committee which sets responsible investment policy and strategy. It comprises 17 senior representatives from across the business and is chaired by the Chief Executive Officer of CFSGAM. Reporting to the PRI Steering Committee are subcommittees and working groups that deal with asset class specific ESG issues, including the property RPI team. These subcommittees ensure that ESG considerations are integrated into the investment strategies of the Fund.

CFSGAM has a team of six responsible investment professionals, three of whom are dedicated to direct property.

Further information on our extensive processes and reporting on corporate governance can be found on pages 52 to 67 of the 2011 Annual Report or in the about us section of this website, for the Bank more information can be found here.