HCP Inc. (NYSE: HCPI) and Simon Property Group Inc. (NYSE: SPG) were recently named to the CDP’s 2013 Climate Global 500 Climate Disclosure Leadership index (CDLI), a measure of how well the largest companies in the FTSE Global Equity index disclose strategies on energy efficiency. To make the global list, companies needed to score in the top 10 percent of responding companies. HCP and Simon also made the top 10 percent of CDP’s CDLI S&P 500 index.
Host Hotels & Resorts Inc. (NYSE: HST) made CDP’s S&P 500 Climate Performance Leadership Index (CPLI), which assesses the level of action reported by a company on climate change mitigation, adaptation and transparency. Companies with a performance grade of “A” made that list.
“To successfully report to the CDP, a real estate company has to have a strong process in place to manage its energy use,” says George Caraghiaur, senior vice president of energy and procurement at Simon.
The recent recognition of REITs in industries comes in part from investor pressure for more transparency in sustainability reporting. By getting recognized on sustainability lists, REITs can lure more sources of capital, says Tom Klaritch, executive vice president for medical office properties with HCP. “Investors are looking more at these surveys and reports, and making decisions as to what companies to invest in based on that,” he says.
CDP, based in London, was formerly known as the Carbon Disclosure Project. Its research was done in conjunction with PwC and research firm Sustainable Insight Capital Management. The disclosure scores assess the completeness and quality of a company’s response to a detailed questionnaire. Companies needed to make the top 10 percent of respondents to make an index. Simon received a score of 98, while HCP received a 97. A score of 97 was needed to make the Global 500 list, and a 96 for the S&P 500 list. Many other S&P 500 REITs had scores of 70 or greater, companies that are viewed as understanding the business issues of climate change: Host Hotels and Plum Creek Timber Co. (NYSE: PCL) scored a 93, Health Care REIT Inc. (NYSE: HCN) scored an 88, and Ventas Inc. (NYSE: VTR) received an 85.
Host Hotels made the performance index by making receiving a performance band of “A.” HCP’s score of “A-“ meant just missing the performance list. Performance scores grade the level of action reported by a company on climate change mitigation, adaptation and transparency.
Over time, REITs are getting better in terms of performance and disclosure. For example, in its second reporting year with the CDP survey, HCP increased its disclosure index score up from 77, and its performance up from a “D” in 2012. The higher disclosure scores for 2013 were in part attributable to having vendors and suppliers more involved, implementing safety policies, putting sustainability information out on tenant websites, and having a competition among life-science tenants that measured their utility consumption over a three-month period, Klaritch notes. “Having stuff like that going on helps your score—and your portfolio too,” he says.
High marks for disclosure might not mean necessarily a company is taking “robust action” to address climate change, but it’s likely well on its way to doing so, says Zoe Tcholak-Antitch, a CDP spokesperson.
“Good disclosure means that the company has a good climate strategy in place, is aware of the risks and opportunities, and has some form of governance,” Tcholak-Antitch says. “You need to be able to disclose who is responsible at which level for this kind of information.”