Corporate responsibility and sustainability

Risk I

«“Foreign real estate investors are extremely interested in green construction, whether the building is environmentally certified and if the company they’re investing in has an environmental management system. Our perception is that they want a ‘green’ investment to reduce risk and be able to compare with known certification schemes more easily.” (CEO. Gro Boge, DNB REIM. 10 points about the environment. NE news. 18 January 2016).

For an investor, risk is a critical criterion when choosing an investment. Some people have already started to recognise the risk of investing in buildings with low environmental standards. When legal environmental requirements become stricter, tenants increasingly demand environmental qualities and renovations become expensive. A building that meets high environmental requirements will present a lower financial risk. But awareness of this should be shared with all investors, both commercial and public (such as local councils/municipalities).

Risk II

The challenge of democracy is that elected leaders depend on the people’s support to set requirements. This applies on a global, national and local level. A willingness to price CO2 high enough for the carbon market to work and the incentive to develop more renewable energy are perhaps the most critical factors for society as a whole to reach the zero emissions target.

There will always be losers with major social change. The EU and local authorities threaten strict regulations and property developers must adapt so that as many people as possible have time to adjust. The EU directives are clear about what future regulations will be so that those who want to adjust early can be sure they’re moving in the right direction.

The authorities play an important role as facilitators by implementing incentive schemes for those who take the lead. There may be financial incentives and other incentives that will encourage professional property developers to build and operate in an eco-friendly way.

DNB REIM - Real Estate Investment Management will develop an ever higher environmental standard for the commercial properties in the portfolio, in line with new technology and in accordance with the applicable requirements, for the benefit of investors, tenants, employees and society.

We’ll meet all statutory regulatory requirements related to the external environment. We’ll contribute to reducing the impact on the environment and climate by continually promoting new behavioural patterns, products, services and technical solutions that can reduce CO2 emissions. Environment and climate are integrated into our daily operations. All tenants receive added value through increased profitability and reduced environmental impact. Climate risk is managed on an ongoing basis.

2. Integration of environmental risk in DNB REIM - Real Estate Investment Management

Through its investments and management of the real estate portfolio, the company has an impact on the external environment. This applies, for example, in the areas of energy, waste management and emissions in relation to real estate development projects. Climate change can have a negative impact on the real estate portfolio through increased extreme weather by way of storms, flooding and torrential rain. Among other things, this can lead to an increased degree of water penetration in buildings, causing material damage and lost rental income.

DNB REIM’s goal is to develop ever higher environmental standards for the commercial properties in the portfolio, in line with new technology and in accordance with the applicable requirements. We’ll meet all statutory regulatory requirements related to the external environment. We’ll contribute to reducing the impact on the environment and climate by continually promoting new behavioural patterns, products, services and technical solutions that can reduce CO2 emissions. This will also contribute to giving our tenants added value through increased profitability and reduced environment impact. In addition, there is a focus on reducing risk related to climate change.

The environmental strategy includes the following:

• to maintain the ISO 14001 certificate;
• to report on the mutual fund in GRESB. Maintain a score of over 80 and a classification as green;
• to implement new technology that contributes to reduced CO2 emissions;
• to actively document and profile the environmental initiatives;
• to increase internal expertise, especially in relation to the factors that affect CO2 emissions;
• to strive to use the energy support programme to utilise the best available technology;
• to follow the UN Sustainable Development Goals (SDGs) numbers 7, 11 and 12;
• to use BREEAM In Use as an environmental certification tool.

Policy and strategy shall be reflected in all our activities and monitored with specific targets and measured with adequate methods.

Sustainability risk is integrated in investment decisions and risk monitoring of the portfolio to the extent they represent a potential or actual significant risk and/or possibilities for maximising the long-term risk-adjusted return. Materially relevant sustainability risk is incorporated into due diligence and research, choice of asset, portfolio construction and ongoing investment supervision along with other significant risk factors. Sustainability risk is identified and measured using the likelihood of each of them occurring, and, if one should occur, it will be administered and regularly monitored.

3. Management

As managers of a real estate portfolio and alternative investment fund, there is risk related to changes in applicable legislation, such as new and changed requirements in real estate management and project execution. This can lead to increased costs and thus reduce clients’ returns. There is also a risk, for example, of breaching requirements made by the General Data Protection Regulation and money laundering regulations. Any violations of requirements can lead to fines and a diminished reputation.

As part of the DNB group, DNB REIM - Real Estate Investment Management is subject to a comprehensive framework which ensures compliance with the applicable rules and legislation. In addition, special guidelines have been set up for managers, tailored to their business. Frameworks have been set up related to anti-money laundering, terrorist financing, sanctions, anti-corruption and privacy protection and risk assessments are done to clarify the need for additional measures.

Furthermore, a policy of supplier management has been established, which will ensure that engaged suppliers meet the requirements of prudent banking and that products and services are manufactured and delivered in a socially responsible and sustainable way. Among other things, this means that a risk assessment must be made before entering into agreements with suppliers.

Internal electronic courses have been developed within the aforementioned areas which are compulsory for all employees. This ensures competence internally, thus reducing the risk of violations.

Our tenants

In DNB REIM - Real Estate Investment Management, we’ve drawn up green tenancy agreements to commit ourselves both as landlords and tenants to reduce energy use and to reach standards in the property that reflect our environmental strategy. We’ve established good measurement structures that are logged. At annual tenant meetings, environment and energy are always on the agenda.

Tenant survey 2020

Every year, a tenant and investor survey is carried out. Here we ask every tenant if they’re satisfied with DNB REIM - Real Estate Investment Management. The feedback we receive through the survey is thoroughly reviewed by all teams. Individual actions and joint actions are identified. Results and actions are carefully monitored, including in the DNB REIM management group. The goal is to maintain a high level of satisfaction, which is important for a long-term customer relationship and thereby important for long-term profitability. In the survey, we generally have a focus on total satisfaction. We measure on a scale where a score of 75 is classified as VERY SATISFIED.

For investors the score for total satisfaction is 67 (72), the Norwegian investors score 66 (71), while the foreign investors get 75 (83). Satisfaction has varied considerably from year to year: In 2019, total satisfaction increased by 6 points, while in 2020 it has fallen back by 5 points.

For our office tenants total satisfaction is 69 (74). This is a drop from 2019, but understandable considering the challenging year we’ve been through. We find that only few tenants give a low score, but overall the vast majority are very satisfied.

For many years, tenants in shopping centres have had a very high level of satisfaction. In 2020, we’ve also received good feedback and high scores of total satisfaction. Through the entire COVID-19 period, we’ve focused on having a close dialogue and presence. The following scores were achieved for 2020 for our shopping centres: Trondheim Torg; 82 (85), Galleriet; 69 (74), Vestby Storsenter; 79 (72), Lillestrøm Torv; 74 (69) and Øyrane Torg; 75 (65).

Investors in DNB Scandinavian Property Fund

In the day-to-day management of our investor portfolios, DNB REIM - Real Estate Investment Management has a strong focus on ensuring that investors get a good return in accordance with defined objectives. DNB REIM offers fully integrated management services, including the implementation of issues, capital raises, buying and selling real estate, day-to-day management of every property, risk management, investor monitoring and reporting.

DNB REIM reports quarterly to investors, offers annual investment forums and follow-up meetings with each investor. In addition, an investor survey is carried out that measures the investors’ satisfaction with the mutual fund and our services as managers.

Our employees

The DNB group looks after its employees in accordance with applicable laws and guidelines and offers a number of social benefits. An annual HSE survey for employees is carried out to identify key themes in health, safety and environment.

6. Sustainability risk

A ‘sustainability risk’ means an environmental, social or governance event or circumstance that, if it occurs, could have an actual or potentially significant negative impact on the value of the investment.

Sustainability risk is mainly associated with climate-related events as a result of climate change (so-called physical risks) or to society’s response to climate change (so-called transition risks), which can result in unexpected losses that can affect investments and financial conditions. Social events (e.g. inequality, inclusion, working conditions, investing in human capital, prevention of accidents, changing customer behaviour etc.) or management shortcomings (e.g. repeated significant breaches of international agreements, bribery problems, product quality and safety, sales practices etc.) can also be translated as sustainability risk.

Sustainability risk generally concerns the following matters:

• physical threats (e.g. extreme weather, climate change);
• changes to regulations (e.g. greenhouse gas emission limits, management codes);
• brand and reputation issues (e.g. poor health and safety register, cyber security breaches); and
• management of the supply chain (e.g. increase in fatal accidents, loss damage, working conditions).

Sustainability risk is integrated in investment decisions and risk monitoring of the portfolio to the extent they represent a potential or actual significant risk and/or possibilities for maximising the long-term risk-adjusted yield. Materially relevant sustainability risk is incorporated into due diligence and research, choice of asset, portfolio construction and ongoing investment supervision along with other significant risk factors. Sustainability risk is identified and measured using the likelihood of each of them occurring, and, if one should occur, it will be administered and regularly monitored.

The consequences or occurrence of a sustainability risk can be many and vary depending on the specific risk, region and asset class.