Sustainability

INTERCONTINENTAL’S RESPONSIBLE INVESTMENT AND SUSTAINABILITY POLICY

Intercontinental Real Estate Corporation, together with its affiliated companies (“Intercontinental” or “we”), manage vehicles that invest in, develop, own, and operate commercial real estate properties throughout the United States. Intercontinental property types include office, multifamily, industrial, retail, healthcare, hotel, and senior living. Intercontinental’s history in the real estate industry dates back to 1959, and we have continuously pursued our original goal of using domain experience and knowledge in an attempt to create value for investors.

We are an investment manager with a fiduciary responsibility to help our clients achieve their investment objectives over the long term. Our primary objective is to maximize the financial return of Intercontinental-managed vehicles and their investors. We believe that addressing sustainability in our processes of identifying real estate to invest in, develop, own, and operate for our clients has a bearing on our ability to meet our primary objective of seeking to maximize financial returns.  Although sustainability factors are generally not stand-alone or dispositive reasons for making real estate decisions for our clients, these factors frequently have direct bearing, sometimes substantially so, on ultimate financial results and therefore need to be considered along with other purely financial metrics as we strive to create long-term value.

The following reflects Intercontinental’s policy with respect to consideration of sustainability factors (the “Policy”).

Property Acquisition Criteria

Intercontinental incorporates the consideration of sustainability criteria as one among many factors influencing how we evaluate and acquire new real estate buildings and properties for clients. As part of the property due diligence process, Intercontinental may consider such sustainability factors when we believe they can have a material impact on financial returns. If we determine that certain sustainability aspects of an asset, current or anticipated, are material to its future expected returns, those sustainability aspects will be identified prior to and during the investment decision-making process and, to the extent deemed appropriate, we will seek to engage with applicable stakeholders.

Due Diligence Checklist:  Intercontinental’s acquisitions process makes use of a due diligence checklist in an effort to ensure a consistent and thorough application during the property acquisition phase. This checklist includes a section where certain sustainability criteria may be evaluated with respect to the proposed real estate asset. These criteria vary by sector (i.e., office, industrial, retail, multifamily) and according to whether new development is contemplated. Examples of such sustainability criteria at the acquisition phase could include one or more of the following items:

  • Access to public transportation;
  • Biodiversity and habitat;
  • Building safety;
  • Climate change adaptation;
  • Compliance with environmental regulatory schema;
  • Contaminated land
  • Energy management, efficiency and supply;
  • Environmental risks;
  • Greenhouse gas emissions;
  • Health and well-being;
  • Indoor air quality;
  • Potential for natural hazards;
  • Regulatory compliance
  • Remediation of contaminated land;
  • Socio-economic risks;
  • Tenant creditworthiness;
  • Walkability;
  • Waste management; and
  • Water management, efficiency and supply.

In accordance with our Responsible Investment and Sustainability Policy, the Investment Committee

conducts a materiality analysis for every asset being evaluated for acquisition. This analysis follows

guidelines on incorporating sustainability-related factors from the Sustainability Accounting Standards Board (SASB) Standards for Real Estate, GRESB, and climate-related risk frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD). An evaluation of the asset’s

alignment with a variety of green building certifications is also conducted.

The results of this analysis are used by the Investment Committee to evaluate material sustainability-related risks and opportunities associated with potential acquisitions. We use this information to inform our due diligence process, which is comprised of conducting desk-based research against our due diligence checklist, completing site visits, interviewing building management and personnel, and engaging relevant external stakeholders and third-party consultants on certain sustainability-related issues. The Investment Committee is responsible for ensuring the due diligence process for sustainability matters along with due diligence processes in other business areas at the company, such as due diligence for accounting and legal matters.

 

SWOT Analysis: As part of the due diligence process, Intercontinental will typically prepare a “SWOT” (strengths, weaknesses, opportunities and threats) analysis of the proposed real estate asset, which covers a variety of specific details concerning each possible acquisition. Some of those details can be of an environmental nature (e.g., degree of carbon footprint, asbestos presence, risk of flood and wildfire, climate related risks, availability of composting). Some of those details can be of a social nature (e.g., tenant health and well-being, such as building and common space security, indoor air quality, gyms, HVAC and improved efficiency for improved tenant comfort). A SWOT analysis can also include the need for community and philanthropic efforts to create more positive and long-lasting civic and social impact in the communities in which we do business. Once an acquisition has been made, progress and measures toward addressing and achieving issues raised in a SWOT analysis will be reported periodically to the Acquisitions and Asset Management groups and the Sustainability Committee where relevant.

 

Initiatives Applicable to Acquisitions, Ownership and Operations

Intercontinental recognizes that it, together with the real estate properties it owns and operates in its managed funds, can impact the environment. As such, Intercontinental has established and maintains an Environmental Management System (EMS) framework and process in reference to the ISO 14001 standard to manage portfolio and site-specific risks, allowing Intercontinental to roll up asset-level data where possible, and enable implementation of environmental initiatives and projects, and track relevant information on a more regular and automated basis.

Our key environmental goals include:

  • Enhancing and automating, where possible, Intercontinental’s process for collecting sustainability performance information;
  • Identifying and executing new strategies for promoting sustainability projects and programs in existing buildings;
  • Incorporating sustainability best practices across development projects – from design to final construction and commissioning; and
  • Implementing measures to ensure the portfolio is compliant with new environmental regulatory requirements.

As it relates to greenhouse gas (GHG) emissions management, Intercontinental has implemented a program that aims to assist in the benchmarking and tracking of GHG emissions using utility data for energy consumption or management of energy from renewable and non-renewable sources. Intercontinental makes use of available energy data from buildings in its client portfolios, either as allowed contractually or by seeking permission from tenants and tries to understand how it could contribute to potentially reduce GHG emissions through its own actions or by attempting to influence tenant practices.

Climate change, natural disasters, social unrest, and other catastrophic events may pose certain material, climate-related physical and transition risks to Intercontinental real estate holdings. As such, Intercontinental evaluates the portfolio’s exposure and resilience to climate-related risks. Intercontinental’s Acquisitions and Asset Management groups strive to evaluate, where appropriate, potential physical and transition risks to its clients’ real estate holdings and may engage third-party consultants and experts to assist in this process. The Acquisitions and Asset Management groups may create or commission reports and analysis, as needed, as part of their processes to evaluate such risks, manage related insurance coverage, and present this material to Intercontinental’s Investment Committee and/or Executives. The Asset Management group also creates an annual budget for each Intercontinental real estate building that includes line items if needed for insurance premium payments and capital expenditures that may impact sustainability issues and initiatives. Intercontinental works with a third-party service provider and uses software to monitor physical risk events and insurance claims at real estate buildings across its portfolio. Intercontinental also monitors transition risks, such as jurisdiction-specific Building Energy Performance Standards and other relevant real estate-focused sustainability regulations.

Intercontinental also monitors potential social risks to its business and the buildings in its portfolio. For example, the Asset Management group monitors for potential legal obligations associated with affordable housing that may be applicable to apartment buildings that an Intercontinental-managed vehicle may own as part of its portfolio. Intercontinental seeks to work closely with local communities and zoning boards to address community concerns when constructing new buildings and seeking permits where necessary in an effort to improve existing properties.

Where feasible, Intercontinental may consider current third-party green building standards for properties that involve new construction or major renovation developments. These can include the Institute for Real Estate Management (IREM)’s Certified Sustainable Property program and the Leadership in Energy and Environmental Design (LEED) guidelines. Topics considered as part of our development process and strategy include:

  • Sustainable site selection and land use, including assessment of surrounding biodiversity and habitat, location, and transportation;
  • Sustainable site design and development;
  • Resilience to climate change and natural disasters;
  • GHG emissions impact;
  • Energy efficiency and renewable energy options;
  • Water conservation;
  • Construction waste management;
  • Material sourcing;
  • Pollution prevention
  • Occupant health and well-being;
  • Worker safety; and
  • Indoor environmental quality.

Where feasible, existing buildings are also evaluated for eligibility towards ENERGY STAR Certification as part of periodic technical building assessments or other efficiency programs.

Intercontinental believes in transparent reporting and participating in additional voluntary disclosures to show progress, such as through Intercontinental’s annual fund level response to GRESB, a third-party organization that develops and provides sustainability assessment and benchmark scores for real estate investment vehicles. Intercontinental also produces an annual Sustainability Report aligned with SASB and TCFD frameworks that describes progress on sustainability objectives and initiatives. This report is shared with investors and is available upon request.

Governance and Oversight

Intercontinental’s Executives, led by the CEO, oversee the firm’s sustainability efforts through their involvement in Intercontinental’s Sustainability Committee. The Sustainability Committee consists of Intercontinental representatives across departments including Risk, Asset Management, Portfolio Managament, Institutional Relations, Construction, and Human Resources. The role and responsibilities of this Committee include:

  • Identifying sustainability objectives;
  • Formulating and implementing sustainability strategy and initiatives;
  • Monitoring sustainability opportunities and risks, including climate transition risks and stakeholder expectations as it relates to sustainability;
  • Reviewing and process sustainability-related issues, misconduct, penalties, incidents, accidents, and breaches against our Responsible Investment and Sustainability Policy;
  • Communicate process towards critical sustainability goals and long-term strategic objectives including regulatory developments that relevant to the performance of our portfolio assets; and
  • Reporting periodically to Senior Management Committee on important sustainability-related developments and their potential impact on Intercontinental’s business.

The Sustainability Committee’s reports to the Senior Management Committee includes, but is not limited to:

  • A quantitative overview of asset performance;
  • Realized sustainability- and climate-related performance against objectives, and updates regarding long-term strategic objectives;
  • Updates and notifications regarding regulatory changes; and
  • Updates regarding proposed actions to improve the performance of assets.

The Sustainability Committee works with both Intercontinental’s Chief Compliance Officer on issues pertaining to compliance matters and the Diversity Equity and Belonging (DEIB) Council on Intercontinental objectives and initiatives as it relates to DEIB.

Intercontinental’s Sustainability Committee is also responsible for the oversight and implementation of this Policy.

Investment Committee

In alignment with our Responsible Investment and Sustainability Policy, the Investment Committee is responsible for assessing sustainability-related issues as part of our acquisition due diligence process. The Investment Committee brings together talent from Intercontinental’s executive suite and senior managers from our Acquisitions, Risk Management, and Development teams. The Investment Committee convenes whenever a potential acquisition arises to discuss the overall risks and opportunities associated with the purchase of the property. During these meetings, sustainability-related factors, such as the property’s climate-related risk exposure, are evaluated if applicable to the proposed investment.

Stakeholder Engagement

Intercontinental engages with relevant stakeholders on sustainability topics affecting its clients’ portfolio properties through communication and nurturing of ongoing partnerships and relationships. Stakeholder feedback is also considered when evaluating Intercontinental’s sustainability objectives and priorities. Key Intercontinental stakeholders include employees, investors, joint venture partners, property managers, vendors, and tenants. Intercontinental engages with stakeholders through investor communications, annual meetings for investors and key partners, employee surveys, and education and training of employees and critical service providers. Intercontinental monitors and reviews the sustainability practices of its third-party property managers and may train them as needed on using ENERGY STAR Portfolio Manager and other tools to document energy, water, and waste data for Intercontinental portfolio properties.

Principles of Responsible Investment Signatory

As a signatory to the Principles of Responsible Investment (“PRI”), Intercontinental submits an annual PRI Responsible Investment Transparency Report, which discloses additional detail about how we integrate responsible investment into our decision-making process. We believe that our commitment to the six Principles of Responsible Investment may better align Intercontinental with investor expectations and with broader objectives of society, where consistent with our fiduciary responsibilities and our primary investment objective to maximize client returns. The six Principles of Responsible Investment are:

  • Principle 1: We will incorporate sustainability issues into investment analysis and decision-making processes.
  • Principle 2: We will be active owners and incorporate sustainability issues into our ownership policies and practices.
  • Principle 3: We will seek appropriate disclosure on sustainability issues by the entities in which we invest.
  • Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
  • Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
  • Principle 6: We will each report on our activities and progress towards implementing the Principles.

As noted above, our Sustainability Committee is responsible for periodically monitoring sustainability related issues, including its obligations as a PRI signatory.

Sustainability Considerations at the Corporate Level

Intercontinental also recognizes the importance of sustainability considerations in its broader operations and has implemented certain practices at the corporate level to further these efforts.

  • All Intercontinental employees include sustainability goals in the process by which they and their managers review performance and establish annual goals. These reviews recognize employees from a non-financial standpoint for progress they’ve made towards their sustainability goals and consider how those achievements may influence their overall compensation.
  • Intercontinental is an equal employment opportunity employer and its Employee Handbook elaborates its values and ethics, together with its goal of creating a respectful and inclusive workplace. Intercontinental implements and provides training on its policies relating to discrimination and harassment, complaint procedures, and no retaliation.
  • Intercontinental commits to a positive employee experience by engaging with employees through regular surveys, communication with each other directly, supporting health and wellbeing initiatives, and seeking to ensure a safe work environment.
  • In 2020, Intercontinental established a DEIB Council, with members from various departments in the company, that aims to further the firm’s goal to establish a diversity and inclusion strategy and related objectives.
  • Intercontinental has established and maintains a Vendor Code of Conduct that works in conjunction with other policies to support fair wages and safe work environments with respect to service providers it retains and aims to follow labor standards that are consistent with those of the International Labour Organization (ILO). These include prohibition of forced or compulsory labor, including child labor and other human rights violations, and support for freedom of association.
  • Intercontinental furthermore works with third-party contractors involved in development projects and seeks to ensure the health and safety of their employees in alignment with guidelines outlined in the AIA’s General Conditions of the Contract for Consideration.
  • Through Intercontinental Charities, established in 2007, Intercontinental aims to create a positive and long-lasting civic and social impact in the communities in which Intercontinental does business. Intercontinental makes donations to not-for-profit organizations that support children’s education and child development, healthcare providers and disease research, inner-city neighborhood charities, and organizations that support environmental causes.
  • Intercontinental strives to maintain a consistent compliance environment, including processes to receive, process, and report complaints. Intercontinental’s governance standards are reflected in the Employee Handbook, Code of Ethics, Compliance Manual, among other governing documents, which address topics such as responsible and ethical behavior, bribery and corruption, cybersecurity, data privacy, fiduciary responsibility, fraud, member rights, and political contributions.

Sustainability Risk Management and Mitigation

For assets under management, Intercontinental works with a third-party service provider to monitor physical risk events and insurance claims at real estate buildings across our portfolio. Our Acquisitions and Asset Management groups utilize a variety of other sources to assess potential physical risks, ensuring that buildings are constructed and maintained to withstand significant stress from events most likely to pose a threat to the respective location. We also obtain and maintain insurance at prudent levels to mitigate economic losses stemming from physical damage.

The Acquisitions and Asset Management groups create or commission expert reports and analyses

to evaluate such risks and manage related insurance coverage. Subsequently, this material is presented to the Investment Committee. Please see the Initiatives Applicable to Acquisitions, Ownership and Operations section of this Policy for more details.

In addition, physical security systems, policies, and procedures are maintained at the individual real estate buildings within our portfolio. These are implemented by the property manager and are designed to protect the tenants and the buildings from physical threats including fire, security breaches, and transmission of infectious disease. When constructing new buildings, we work with architects, engineers, and construction professionals to meet or exceed local building codes that enhance physical resilience in the face of natural disaster events such as earthquakes and floods.

Given the potential impact of medium- or longer-term climate-related physical, transition, and social risks, we may consider developing performance metrics and targets to track progress towards adequately addressing and mitigating these risks, and to take advantage of any value creation opportunities.

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