AEW embraces the importance of Environmental, Social, and Governance (“ESG”) practices in our investment activities, and in how we operate at a firm level. This Active Ownership Policy is intended to cover all of AEW’s real estate equity securities assets under management.
As active owners of listed real estate companies on behalf of our clients, we believe best practices toward ESG issues for a company is an important aspect in creating long-term returns for our clients and in upholding our standards of corporate citizenship set forth in AEW’s Socially Responsible Investment Policy Statement.
Through actively engaging the listed companies we own on behalf of our clients, we believe we can be part of the investment community that positively influences decisions that will benefit the bottom line as well as the community.
We look to engage companies by promoting and advocating for:
We encourage a company to be transparent in terms of responding to GRESB and other data providers in regards to their real estate holdings, practices toward conservation and climate change, as well as governance and social issues. Companies should report on corporate social responsibility (CSR) policy on a regular basis alongside financial performance indicators.
We encourage companies to provide a clear vision of how they plan to set and meet goals around conservation as well as adopting best practices around social and governance issues. Goals should be measurable and stretching.
AEW expects companies to target reductions in energy use, greenhouse gas emissions, water consumption and waste.
The value of real estate is enhanced by the application of proper environmental standards. Using energy more efficiently should boost financial returns and conserve finite resources. A company’s long-term success and growth are also enhanced by effective governance and adherence to meaningful social practices. We believe our role in the investment process is to advocate for companies to share these goals and to meet these standards.
We prefer private interaction over public shareholder resolutions but this is not ruled out. Engagement is carried out under the premise that unsatisfactory or insufficient change by the company will generally be met with divestment. Typically AEW will engage alone with a company but work with collective bodies or other institutional investors, where legally permitted and appropriate are considered. AEW takes into consideration ESG factors as part of any investment in a company.
The AEW Securities investment team of Portfolio Managers and Analysts have regular interactions with company management teams as well as on site property visits. AEW also has interactions with company Boards and dedicated sustainability staff at companies. The team uses the knowledge gained from these meetings, along with GRESB data, Green Street, Bloomberg, and a variety of vendors including Glass Lewis, which includes ESG assessments from Sustainalytics, to create an ESG risk score for a company that is then input into our valuation model. An ESG risk score is an important input into our securities valuation model and directly influences the discount rate and how AEW values a stock. All investment professionals on the AEW Securities investment team take this same approach globally.
As set forth in our Compliance Manual, AEW has a rigorous Proxy Voting protocol that takes into account the assessment of ESG factors.
AEW believes good corporate governance, including those practices that address ESG matters, is essential to the effective management of a company’s financial, litigation and reputation risk, the maximization of its long-term economic performance and sustainability, and its shareholders’ economic interests. AEW will generally support issuer proposals regarding environmental and social issues. AEW may consider collateral objectives, such as those that present a material business risk or opportunities that issuers need to manage as part of a business plan, when such objectives are consistent with the client’s economic interests.
Proposals on environmental and social matters cover a wide range of issues, including environmental and energy practices and their impacts, labor matters, diversity and human rights. These proposals may be voted as recommended by the Proxy Voting Service or may, in the determination of the Portfolio Manager, be reviewed on a case-by-case basis if the Portfolio Manager believes that a particular proposal (i) could have a material impact on an industry or the growth and sustainability of an issuer; (ii) is appropriate for the issuer and the cost to implement would not be excessive; (iii) is appropriate for the issuer in light of various factors such as reputational damage or litigation risk; or; (iv) is otherwise appropriate for the issuer. Proposals linking part of management remuneration to ESG targets will generally be supported.
Overall AEW will consider whether ESG proposals are likely to enhance the value of the client’s investments after taking into account the costs involved, pursuant to its fiduciary duty to its clients. AEW will vote for resolutions aimed at increasing the transparency of information on the main risks and uncertainties linked to climate change.
As an active owner, we monitor our team’s engagement with the companies and the impact we are able to make. We do this both by tracking the number of engagements (over 350 meetings were held in 2019), documenting conversations surrounding ESG as well as the efficacy of our ESG Risk score. We report the results to the AEW ESG Steering Committee, who is responsible for the entire firm's environmental, social and corporate governance policies. The ESG Steering Committee, which includes professionals from across the firm’s various business units and departments, monitors ESG issues related to the investments we manage on behalf of our clients.