º£½ÇÊÓƵ

Pension Insurance Corporation Plc (PIC)

United Kingdom

º£½ÇÊÓƵ delivered critical insight and advice to Pension Insurance Corporation Plc (PIC) on how it can embed an impactful ESG (environmental, social and governance) strategy. The approach will balance the management and mitigation of risks with the creation of value and opportunity to establish a path to long term growth.

We were initially engaged by PIC to develop an ESG framework to assess future assets investments, at due diligence stage. The process was then adopted and implemented across new build residential, commercial offices, build to rent, senior living and existing buildings acquisitions over a two+ year timeframe.

Investors are increasingly prioritising the ESG impact of the investments within their portfolio, particularly around the relevant ESG metrics required to make sound investment decisions and PIC prides itself on purposeful investment.

º£½ÇÊÓƵ undertook due diligence of the ESG credentials for potential future assets, covering new build residential, commercial offices, Build to Rent, senior living and existing buildings.

Our ESG experts assessed PIC’s Built Environment ESG strategy with existing policies and procedures, as well as optimising and creating a new ESG due diligence framework and rating system.

Our experts worked with multiple teams, including Built Environment, Credit Research, Risk, Asset Class investment teams and acquisition teams at PIC.

Our ESG team rated each asset from a scale of D to A+, providing key ESG opportunities and risk across key ESG themes, feeding recommendations back into investment decisions.

Challenge

º£½ÇÊÓƵ’s role was two-fold. At an organisational level, our team assessed PIC’s ESG strategy with existing policies and procedures, optimising and creating a new ESG due diligence process. In addition, our experts worked with asset class investment teams to implement the ESG asset rating process, to provide simple and understandable outputs in order to make more informed investment decisions.

ESG is central to PICs purpose. º£½ÇÊÓƵ understood PICs diverse and varied stakeholder requirements and responded with a simple but detailed Built Environment ESG checklist for each asset class, which when deployed provides a logical and easy to understand output. This allows key stakeholders to make informed investment decisions based on ESG.

Tanmay Desai, Head of Built Environment, PIC

The first critical step in the ESG assessment process was to create a framework to asses different asset classes, from affordable housing and build-to-rent to student residential and single family homes. º£½ÇÊÓƵ did this through internal PIC stakeholder engagement, review of peer ESG strategies (Investors, Pension funds and Developer) and legislation/policy alignment from across the UK.

Assessing due diligence across a wide range of sites with different requirements within constrained timeframes helped inform PIC to make better decisions, to consider the procurement of assets, and to pinpoint areas for any future focus to reduce risk. Equally, the assessment provided information for developers who wanted to improve their ESG rating, with focused actions.

Our experts collaborated with multiple teams, including built environment, real estate investment and acquisition experts at PIC. Having a very transparent relationship meant our experts almost operated as an in-house team with direct and open lines of communication.

One of the major challenges of PIC’s net-zero transition is the impact of its work in the built environment, compared to other funds/investment types. The value of its built environment portfolio is reliant on its ability to adapt to the changing environmental conditions and ultimately contribute to a low carbon economy.

PIC is committed to helping the property sector transition to be more environmentally conscious as it considers this a forward-looking investment opportunity and the right thing to do for the wider society.

Solution

Through our partnership, º£½ÇÊÓƵ conducted a deep dive into PIC’s real estate asset pipeline and portfolio. A key element of the solutions proposed included assessing PIC’s assets, to benchmark where they stand now and undertake an in-depth and unflinching assessment of the company’s ESG due diligence gaps. Following this exercise our experts built a proprietary ESG toolkit for private market investment due diligence.

This is an in-depth ESG due diligence assessment that our experts use to benchmark all incoming built environment investments against. The ESG toolkit created by the team, benchmarks and rates each asset from a scale of D to A+, identifying key ESG opportunities and risk across core Environmental, Social and Governance themes, feeding recommendations back into investment decisions.

Ratings were created based on a series of KPIs across each theme, scaling performance in line with Building Regulations. KPIs and ratings were created thorough an assessment of peer review and best practices, which informed the categories and explored targets in particular ways.

º£½ÇÊÓƵ also supported PIC with the establishment and application of ESG minimum standards across all built environment investments, which exceed minimum regulatory compliance requirements. Stakeholder engagement was another vital part of the ESG strategy. Our experts needed to open the discussion to all stakeholders so they could identify challenges and issues as part of the assessment process.

It was equally important to challenge the suggested KPIs and work through them, to help understand concerns and potential misinterpretation. This was communicated at board level to gain buy in to the process and to enable the core principles of ESG to be woven into the fabric of design and construction, and explore how best to assess and embed ESG strategy into the design brief from the beginning.

Last year we strengthened our environmental design and construction standards across our real asset portfolio. We partnered with º£½ÇÊÓƵ to bolster our due diligence process and have created an in-depth ESG due diligence assessment that we use to benchmark all incoming built environment investments against.

Pension Insurance Corporation Group Limited’s .

Value

Together with PIC, º£½ÇÊÓƵ’s deep dive into the company’s built environment pipeline and portfolio developed a three-stage assessment framework that establishes ESG Baseline Credentials for PIC’s built environment investments.

PIC is now able to apply this bespoke, market-leading framework to all potential investments and is applying the framework retrospectively to the existing build-to-rent portfolio.

This allowed for comparison of assets, comparing multiple sites in both the same and different asset classes and assessing minimum requirements. For example, if an asset was not achieving a B-rating, º£½ÇÊÓƵ would inform both PIC and the developer on design solutions in order to reduce future risks and provide greater long term asset stability.

The project will also garner improvements in the rating of sites through the ESG assessment process, and support the decision-making on the disposal of assets, future KPIs and the exploration of how assets are performing, as well as future site acquisition.

For example, when assessing flood risk, expert colleagues within º£½ÇÊÓƵ’s Flood Engineering Team were appointed at a strategic consultancy level and explored outcomes showing that flood risk might be an issue and what developers needed to address to mitigate risks at earlier stages.

PIC recognised that within its organisation some upskilling would help benefit all parties, particularly in demystifying net zero carbon targets. º£½ÇÊÓƵ involved colleagues across multiple teams to ensure that the required level of information was delivered through continuing professional development to give technical knowledge and show how net zero ties into ESG assessment.

Regular ESG sessions were hosted to open the door to knowledge sharing across every aspect of the project. These sessions facilitated cross-learning, alongside crucial empowering and the upskilling of teams with the means for continuous improvement and the ability to overcome challenges.

It is vital to understand the client organisation and how they are set up internally, to ensure that the ESG framework responds to their corporate strategy. We have used our expertise in making the built environment sustainable, to advise the client key criteria and KPIs applying our knowledge of what is feasible, achievable and stretching

Nancy Wood, Associate Director, º£½ÇÊÓƵ