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Cromwell links new loan facility to emissions reduction, gender pay gap targets

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11/06/2024

Real estate investor and fund manager Cromwell Property Group (ASX:CMW) (Cromwell) has completed the conversion of a multi-bank, $1.2 billion lending facility to a sustainability linked loan that includes ambitious targets in reducing emissions and its gender pay gap.

Central to the new loan structure is:

  • Greenhouse gas reductions, in line with Cromwell’s target for net zero scope 3 emissions by 2045, to reinforce Cromwell’s position as an industry leader in reducing scope 3 emissions.
  • Additional targets linked to Cromwell’s target of net zero scope 1 and 2 emissions by 2035.
  • To reduce Cromwell’s gender pay gap to a maximum of 12% by 2028.

Cromwell’s Group Head of ESG, Lara Young, confirmed the new loan was developed with the Commonwealth Bank of Australia (CBA) and multinational financial services company Societe Generale acting as sustainability coordinators.

Ms. Young said that the new sustainability linked loan has created an opportunity to highlight the business’s focus on several critical topics, as part of its broader environmental, sustainability, and governance policy.

“As part of our ESG report release in January, Cromwell announced our full scope 3 emissions inventory for the first time, becoming one of the few Australian commercial property organisations to publish an emissions footprint across 100% of our global network and supply chain,” said Ms. Young.

“Building on that announcement, we have been working with tenants and suppliers across all our upstream and downstream business activities – covering our entire supply chain of tenant activities; funds under management; joint ventures; and embodied carbon sources –  to stretch our net zero approach beyond our operational control.

“The progression we have made in this space has allowed us to set our most ambitious target to date, as part of this new sustainability linked loan – to reduce scope 3 greenhouse gas emissions intensity to equal, or less than, 30.16 (kgCO2e/m2) by 2028.

“This is equal to eliminating more than 4.4 million kilograms of carbon dioxide equivalent (KgCO2e) – or emissions from 784 households – by 2028, against the 2023 baseline.”

Cromwell aims to achieve this goal through a multi-purpose approach, including encouraging tenants to switch to renewable electricity, and providing tenant support through waste stream signage and education – in order to reduce their landfill waste and contamination.

“Importantly, by leveraging sustainability linked debt at the same time as meeting important social milestones, Cromwell Property Group can move significantly closer to meeting our current and future ESG responsibilities, including a Cromwell portfolio Net Zero Scope 1 and 2 target by 2035,” said Ms. Young.

In addition to emissions reductions targets, Cromwell seeks to reduce its gender pay gap to a maximum of 12% by 2028. This target forms part of Cromwell’s broader diversity commitments, which include maintaining pay parity across all roles, and maintaining 40:40:20 gender targets across all leadership levels within the organisation.

The loan is aligned with both the Asia Pacific Loan Market Association (APLMA) Green Loan Principles, as well as the APLMA Sustainability Linked Loan Principles.

CBA General Manager Major Client Group, Jon Coombes, said: “we’re really proud to support Cromwell Property Group on its sustainability journey and commitment to high-quality, energy efficient buildings that will continue to benefit Australians for years to come.”

“The portfolio of assets already met the high standards for a green loan, yet Cromwell’s desire to set even more ambitious environmental targets within the loan structure demonstrates their leadership, and recognises that the journey to net-zero is a continuous one.

“This innovative green sustainability linked loan is a great example of making ambitious commitments towards to a more sustainable future and an example of how sustainable finance products can be used to not only support, but drive sustainable outcomes.”

Tessa Dann, Head of Sustainable Finance for Australia and New Zealand at Societe Generale commented that: “Societe Generale is proud to have supported Cromwell in this innovative transaction, combining green loan and sustainability linked loan requirements. Such transactions are rare in the sustainable finance market, but a natural fit for Cromwell to showcase their ESG ambitions”

“Acting as sustainability coordinator demonstrates Societe Generale’s longstanding commitment to supporting the green transition, in this instance in the commercial real estate sector. We believe this serves as an excellent example to encourage more action on the reduction of scope 3 emissions in particular.”

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Cromwell completes 'Sydney First' electrification upgrade

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12/03/2024

Real estate investor and fund manager Cromwell Property Group (ASX:CMW) (Cromwell) has completed a ‘Sydney first’ facility upgrade of its 1970s-era Rawson Place property in Haymarket.

The 24-storey McKell Building has undergone a 12-month, multi-million-dollar conversion of its outdated commercial gas-fired heating system to an electric heat-recovery reverse cycle heating, ventilation, and air conditioning (HVAC) system.

It is the first time that a multistorey, 25,000sqm commercial building in the Sydney CBD has had an electrification upgrade of this kind.

Cromwell’s Head of Property Operations, Tessa Morrison, said the successful completion of the multi-faceted infrastructure upgrade – on time and on budget – was a credit to the project team, which worked alongside mechanical engineering firm, GWA, and mechanical contractor, Velocity Air.

“We are delighted to announce the completion of this project today,” said Ms. Morrison, “the McKell Building electrification upgrade will ‘future-proof’ this asset for years to come through the use of modern, energy saving equipment.”

“The building has held a NABERS 5.5 Star energy rating for the past two years – so, while it is already significantly energy efficient, we have been able to undertake works that will further reduce emissions and drive energy efficiencies. We estimate that we will achieve an initial 5% energy reduction of the total base building electricity consumption through the installation of the heat recovery chiller.”

“Importantly, the completion of this project reinforces Cromwell’s commitment to deliver sustainable outcomes that align with our proposed Net Zero target for operational control buildings by 2035.”

Efficiencies in the new reverse cycle HVAC system will mean that hot air removed as part of the building’s air conditioning process will be recycled back into the system for use elsewhere, including heating the building’s water.

The new reverse cycle system will also be able to be programmed for seasonal efficiency, meaning reduced energy consumption throughout the year.

Ms Morrison said that some unique logistical challenges were encountered during the process; however, a 400-tonne crane was used by the team to help complete the project.

“Three 9.3-tonne air conditioning systems were lifted onto the building’s roof from street level, as well as support beams weighing more than 3.2-tonnes combined, and buffer tanks with a combined weight of more than 1.6-tonnes,” said Ms. Morrison.

“The coordination between Cromwell project team members, contractors, suppliers, and building tenants to achieve this outcome has been incredible.”

Cromwell acquired the McKell Building in June 2013, and the property is solely occupied by a NSW Government tenant.

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Cromwell achieves new highs results in Global Real Estate ESG Assessment

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November 28, 2023

Cromwell achieves new highs results in Global Real Estate ESG Assessment

Real estate investor and fund manager Cromwell Property Group (ASX:CMW) (Cromwell) has delivered record high company benchmarks in the annual Global Real Estate Sustainability Benchmark (GRESB) global rankings.

GRESB is an independent organisation that provides validated ESG performance data and peer benchmarks for investors and managers to improve business intelligence, industry engagement, and strategic decision-making.

The 2023 GRESB ESG Benchmark has become increasingly competitive, growing to cover more than USD$ 8.8 trillion of gross asset value across 2,084 real estate entities. GRESB data is utilised as an investment decision-making tool by over 170 institutional investors with more than US$51 trillion AUM.

Group Head of ESG, Lara Young, said Cromwell Property Group our longstanding participation in the assessment is a good opportunity for the organisation to demonstrate its ongoing commitment to enhance its ESG performance and test itself against the worldwide market.

Participation in GRESB is Cromwell’s opportunity to measure our ESG performance against our peers, and this year’s efforts have not disappointed.
Lara Young – Group Head of ESG, Cromwell Property Group

“Participation in GRESB is Cromwell’s opportunity to measure our ESG performance against our peers, and this year’s efforts have not disappointed.” said Ms. Young.

  • The Singapore-based Cromwell European Real Estate Investment Trust (CEREIT) achieved a record-high overall score of 85 points in the 2023 GRESB Real Estate Assessment, with full marks for social and governance aspects. CEREIT was awarded a four-star rating – up from a three-star rating last year – and achieved a public disclosure score of a perfect 100, placing first out of its five peers.
  • The Cromwell Diversified Property Trust (DPT) maintained its score of 87 points, ranking 28th out of 41 participating listed Australian office portfolios and achieving 95 out of 100 (A Grade) for public disclosure. With Australia’s real estate sector leading the world in sustainability, ranking first in GRESB for the last 12 consecutive years, DPT has consistently performed well against the hyper-competitive local market.
  • Cromwell Polish Retail Fund (CPRF) achieved a five-star rating and a record-high overall score of 90 points, ranking 11th out of 32 European retail non-listed peer funds and 17th out of 87 in the European Retail category.

 

“Not only have we exceeded our previous overall scores, but for all three disclosing portfolios -CEREIT, CPRF, and Cromwell’s investment portfolio, DPT – we have increased our scores across all categories, placing them well above global and industry peer averages,” said Ms. Young.

“These results would not be possible without a huge team effort and collaboration from our investors, tenants, supply chain partners, and the broader Cromwell team, and we would once again like to share our thanks to everyone involved.”

Cromwell will publish its FY23 ESG report in early December 2023.

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Research and Insights

Home Sustainability
August 18, 2023

ESG and Investment Strategy: a virtuous relationship

Environmental, social and governance (ESG) is a high priority for real estate investors, but there is no agreed industry position on what ESG means in practice for investment strategy. In Cromwell’s latest analysis, Tom Duncan and the team review the ESG landscape and provide strategy-related advice on macro-sector allocations through asset selection and management to occupier profile.

View the full report here.

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Research and Insights

Home Sustainability
June 30, 2021

Engineered timber and the drive for more sustainable buildings

Alex Dunn

 

Climate change continues to shape the values, choices and investment decisions of the real estate industry.

In this article Senior Research Analyst, Alex Dunn, discusses how advances in engineered timber and construction are allowing asset owners to substantially improve the environmental performance of their buildings, while simultaneously, also meeting investors requirements for capital to be deployed in a more sustainable way.

Real estate positioned to reduce carbon emissions

Real estate accounts for approximately 36% of global energy consumption and 40% of total direct and indirect CO2 emissions, according to JLL. Left unchanged, the global trend towards urbanisation and the ever-increasing demand for new building stock will see these numbers continue to rise.

Unsurprisingly, the United Nations Environment Programme (UNEP) estimates that the real estate sector has the greatest opportunity to reduce greenhouse gas emissions compared to other industries, with potential energy savings estimated to be as much as 50% or more by 2050.

Government policies regulating the energy performance of new buildings are a powerful way of reducing emissions and are being introduced by an increasing number of countries. Leading cities are also introducing city-level regulation at a fast rate. Paris has a net zero carbon goal for 2050 and Amsterdam plans on being fully electric by the same time. The European Union has also established the ‘Green Deal’ in order to make the Eurozone climate neutral in 2050.

Legislation is increasingly likely to support sustainable assets with future regulatory and tax changes favouring sustainable investments and disadvantaging assets that cannot demonstrate compliance. It is notable that a survey carried out by Macquarie Infrastructure and Real Assets in 2020 found that 91% of global institutional investors expected to increase their level of investment into ‘sustainable’ real assets over the next five years.

 

Engineered timber buildings are becoming increasingly popular

In many countries, construction is a way to accelerate the economic recovery from the pandemic but it’s also a major source of carbon emissions. One way to bridge this issue is to increase the construction of more sustainable buildings.

Engineered timber buildings tick this box, and a combination of technological innovation, greater sustainability and reduced costs has seen the number of such developments increase globally.

Construction using concrete and steel is highly carbon-intensive, compared to trees which capture and store carbon dioxide as they grow, making timber a far greater climate-friendly building material. Timber construction also uses materials derived solely from managed fast growth plantations meaning construction is sustainable and does not rely on harvesting old-growth forests.

The rapid development in the market has been made possible by the technological breakthroughs of new engineered wood products, such as Glue-laminated Timber (Glulam), Cross-laminated Timber (CLT), and Laminated Veneer Lumber (LVL).

These engineered timber products are all versatile and support innovative flexible design and architecture approaches. It is this flexibility, combined with their increasing popularity and reduced construction time that has made engineered timber competitive with more traditional concrete and steel structures.

In Europe, the market for engineered timber construction has been growing by roughly 8% (€5 billion) a year and is expected to accelerate to €10 billion a year by 2030. These figures concern primarily multi-storey buildings, however, and with the inclusion and addition of wooden frame buildings and/or detached houses, the size of the investible market increases significantly.

The engineered timber market in Europe is concentrated, with the top five markets comprising more than 80% of activity. Germany is the market leader, accounting for 22% of construction, followed by France and UK, both with 16%, the Nordics (Finland, Norway, Sweden) collectively account for another 16% and then Austria with 12%.

Conclusion

The ongoing development of timber-based construction creates an attractive and expanding investment opportunity. Whilst these developments broadly maintain all the well-established features of a real asset in terms of return and risk, they also provide additional sustainability benefits.

Engineered timber buildings are also often perceived as superior by the people living or working in them. There are several studies which reference the health benefits of timber looking at both measured and perceived indoor environment quality. There is also evidence of human health and wellbeing benefits based on wood’s biophilic properties, according to Dasos Capital.

These benefits will help drive greater tenant retention and income resilience, as buildings increasingly need to reflect the ethos of the brands that operate within them. Perhaps more importantly to remain ‘investable’, the buildings must be able to demonstrate their sustainability credentials in order to maintain their value over the investment and asset lifecycle.

Our ongoing commitment to ESG

Cromwell has formalised an ESG Strategy for our global business. This strategy includes targets that are crucial to our future, including decarbonising our business toward net zero and setting new baselines for areas – such as energy consumption, waste management, and carbon in each of our operating regions. We have also developed region specific targets to ensure we are addressing local concerns, such as the development and registration of an Australian Reconciliation Action Plan, with further progress and meaningful reflection occurring constantly.

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