CONFIDENTIAL | 1APG REAL ESTATE

WHAT INVESTORS WANT

Dr.ir. Derk Welling

Senior Responsible Investment & Governance Specialist18 December 2018

Sustainable Buildings : Level(s)Bringing Buildings into the Circular Economy

CONFIDENTIAL | 2APG REAL ESTATE

INTRODUCTION TO APG REAL ESTATE

APG Real Estate is

one of the largest Real

Estate investors in the

world, providing access to

a unique deal flow

Institution

Name

Country Capital Committed

to Real Estate ($bn)

Abu Dhabi Investment Authority (ADIA) United Arab Emirates $45.9bn

Stichting Pensioenfonds ABP (APG) The Netherlands $43.2bn

Qatar Investment Authority (QIA) Qatar $41.9bn

Canada Pension Plan Investment Board (CPPIB) Canada $39.7bn

California Public Employees' Retirement System (CalPERS) United States $37.6bn

The APG Real

Estate AuM as at

June 2018

€42.2BN

39 investment

professionals

based in

Amsterdam, New

York and Hong

Kong

€Investments

are made into

listed and

private

vehicles

Day-to-day

management is

performed by

operating

partners

Source: PERE November 2016

CONFIDENTIAL | 3APG REAL ESTATE

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ESG is an integral part of the beliefs and processes of Real Estate

RESPONSIBLE INVESTMENT POLICY

Responsible Investment Policies

Implementation in Real Estate

Improve risk-adjusted

financial return

Demonstrate

social responsibility

Contribute to the integrity

of financial markets

Our investment belief: sustainable

investments will outperform in the long-

term

ESG integral part of all investment cases

Strengthening governance and oversight

at portfolio companies by exercising our

shareholder rights

Measuring and improving the ESG

performance of our portfolio

Founding member of the Global Real

Estate Sustainability Benchmark

(GRESB) initiative

Articulating our expectations for

remuneration at listed Real Estate

companies

Active use of our scale and ownership to achieve concrete results

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The Investor-driven Global ESG Benchmark for the Real Estate Sector

ABOUT GRESB

• Backed by more than 75 institutional investors representing over

USD 18 trillion

In 2018 survey:

• 903 property companies, REITs and Funds participated

• Covers more than 79,000 assets (of which more than 49,000

reported at asset level)

• Across 64 countries

• Representing USD 3.6 trillion in gross asset value

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Results total portfolio

GRESB REPORTERS AND GREEN STARS

81%GRESB Reporters

Sustainable

Development

Investments

Green Stars 73%

37.939.1 39.4

42.0

27.9

31.232.6

33.9

20.923.6

26.8

30.5

0.0

19.020.4

21.7

€ -

€ 5

€ 10

€ 15

€ 20

€ 25

€ 30

€ 35

€ 40

€ 45

2015 2016 2017 2018

Bill

ion

s

Assets under Management GRESB Reporter Green Star SDI

52%

GRESB participation is a condition when we

invest in non-listed real estate

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11.110.6

5.6

3.8

2.7

8.1

11.4

9.0

4.9

2.9

4.4

6.8

11.1

8.0

4.8

3.43.9

8.0

€ -

€ 2

€ 4

€ 6

€ 8

€ 10

€ 12

5 Star4 Star3 Star2 Star1 StarNotreported

Bill

ion

s

2018 2017 2016

Results total portfolio

GRESB RATINGS AND SDI

€ 21.7 € 20.4

€ 19.0

€ -

€ 5

€ 10

€ 15

€ 20

€ 25

SDI

Bill

ion

s

2018 2017 2016

SDI

!

Majority of investments are GRESB 4 or 5 star rated.

CONFIDENTIAL | 7APG REAL ESTATE

Gap is getting smaller and has steadily declined from 11 (2014) to 7 (2018)

Americas Europe Asia PacificGlobal

CONTINUED TO OUTPERFORM GRESB

We have steadily outperformed the benchmark in all

regions, but gap is getting smaller as expected.

58

6568 70

75

47

5560

6368

30

40

50

60

70

80

2014 2015 2016 2017 2018

APG Global GRESB ScoreGRESB Global Average

5864

6774

5459

6470

2015 2016 2017 2018

APG-US

7176 75 79

5660 62

66

2015 2016 2017 2018

APG-NL GRESB Europe

6360

62

70

5459

63

66

2015 2016 2017 2018

APG-HK GRESB Asia

CONFIDENTIAL | 8APG REAL ESTATE

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Building Certifications is a key aspect within GRESBGRESB ASPECT SCORES

9%9%12%9%25%11%24%Weight

Building Certifications contribute to a better

GRESB score

92

.1

87

.5

80

.2

77

.8

63

.3

54

.1

78

.1 87

.9

81

.8

75

.2

72

.8

58

.2

46

.0

71

.7

83

.6

77

.4

72

.7

70

.0

58

.4

49

.6

66

.6

81

.5

78

.3

78

.2

69

.1

53

.1

44

.0

66

.6

- 10 20 30 40 50 60 70 80 90

100

ManagementPolicy & DisclosureRisk & OpportunitiesMonitoring & EMSPerformanceIndicators

BuildingCertifications

StakeholderEngagement

2018 2017 2016 2015

CONFIDENTIAL | 9APG REAL ESTATE

Building Certification – Existing Buildings OnlyOnly 20% of in total 516.6 million m2 is certified (unweighted scores)

NOT CERTIFIED, 80.24%

LEED, 5.15%

BREEAM, 3.07%

Green Star, 2.62%

DBJ Green Building Certification, 2.41%

BOMA, 1.60%CASBEE, 1.21% Other, 3.70%

NOT CERTIFIED

LEED

BREEAM

Green Star

DBJ Green Building Certification

BOMA

CASBEE

Other

80.24%

5.15%

3.07%

2.62%

2.41%

1.60%

1.21%

3.70%(23 different schemes)

CONFIDENTIAL | 10APG REAL ESTATE

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CLIMATE CHANGE COMES WITH PHYSICAL RISKS AND

TRANSITION RISK

TRANSITION RISK

PH

YS

ICA

L R

ISK

>

6°c

1.5°C - 2°C

• What if regulations change overnight and which assets will

be affected by more stringent legislation?

• What if transition will go exponentially instead of linearly?

• How to measure transition risk?

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REGULATERS TAKE ACTIONTo what extent can we report to regulators on Climate Risk in RE portfolio?

CONFIDENTIAL | 12APG REAL ESTATE

THE CERTIFICATION CIRCUSIndividual asset performance can be measured – patchwork of 200 certification schemes

“Holistic” schemes

Limited scope – “single issue”

CONFIDENTIAL | 13APG REAL ESTATE

BUT …DO THESE SCHEME MEASURE WHAT WE WANT TO KNOW?To what extent do the schemes address Climate Change?

CONFIDENTIAL | 14APG REAL ESTATE

BUT THERE IS HOPE SINCE LEED AND BRE ANNCOUNCED

COLLABORATIONAnnouncement in November 2018

CONFIDENTIAL | 15APG REAL ESTATE

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But technological change will probably take place exponentially (“Mohr’s law”)

WE THINK AND PLAN LINEARLY

PJ

2025 2030 205020402020

Off-site

Procured

Energycomes with transition risk

stranded assets

Took initiative to develop a 2 Degree

metric to measure transition risk

CONFIDENTIAL | 16APG REAL ESTATE

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Unlock certified asset performance data

TOWARDS A GLOBAL ASSET SCORE TO MEASURE “PARIS PROOFNESS”

MATERIALS

ENERGY

PARIS PROOF

WATER

HEALTH & WELLBEING

WASTE

LAND USE & ECOLOGY

TRANSPORT

Global Code for Certified Sustainable Real Assets Data1. Core Technical Standard & Evidence Requirements

2. Core Certification Process Standard

88

67

55

70

53

15

91

87

✓

✓

✓

Paris

Proofness

indicator

inside

Too many certificates! From an investment point of

view it becomes important to assess transition risk

and Paris Proofness of an asset, which should be

reflected in one score.

?

CONFIDENTIAL | 17APG REAL ESTATE

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Harmonised Certification Scores enable aggregated (climate) risk assessments

INTEGRATE CERTIFICATION SCORES IN ANNUAL ACCOUNTS

Balance Sheet Income Statement

Assets Liabilities

Cash-flow Statement

Cash flow from operating activities

Cash flow from investing activities

Cash flow from financing activities

EQUITY

DEBT

INVESTMENT

PROPERTIES

Gross rental income-/- e.g. building expenses

Net Rental Income

-/- Opex

EBITDA

Outstanding

Excellent

Very Good

Good

Pass

Acceptable

Outstanding

Excellent

Very Good

Good

Pass

Acceptable

Outstanding

Excellent

Very Good

Good

Pass

Acceptable

CONFIDENTIAL | 18APG REAL ESTATE

REFERENCE TO GRESB IN LOAN AGREEMENTSBoth in Real Estate as well as in Infrastructure investments

CONFIDENTIAL | 19APG REAL ESTATE

WHAT INVESTORS WANTHarmonized building certification schemes

“When an accounting standard like IFRS is not

perfect, you want to improve the standard,

instead of developing a new standard. It

appears that in real estate we tend to do the

opposite. Even the term Net Zero Carbon

comes with multiple definitions which cannot

be aggregated at a global level. Hence we

encourage harmonization across borders.”

CONFIDENTIAL | 20APG REAL ESTATE

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