Measure for Measure
By Christopher M. Wright

CSR provides a new set of disclosure items for green reporting

Some leading-edge corporations have been issuing sustainability reports since the 1990s. Since then, as the trend toward energy efficiency has grown, the number of companies issuing such reports has increased markedly. Yet, only one U.S. REIT, ProLogis, Inc. (NYSE: PLD), has a registered report on corporate social responsibility (CSR).

The CSR calls for companies to voluntarily undertake and disclose initiatives relating not only to the environment, but also to corporate governance, employee and community relations, health and safety, philanthropy, human rights and other aspects of good corporate citizenship above and beyond the requirements of government regulation. The underlying premise is that any company that ignores its responsibilities and stakeholders in these areas will be less able to sustain its business in the long-term.

Even though CSR reporting protocols have been available for some time, some companies are "late to the party," says Melissa Marsden, ProLogis' senior vice president of investor relations and corporate communications. The company has undertaken several environmental initiatives, which are detailed in its 2007 sustainability report, she says. These initiatives emanate from a corporate philosophy of doing well by doing good, but also benefit the bottom line.

"It helps us work with communities, gaining entitlements and getting a leg up with customers who increasingly have their own CSR initiatives," Marsden says. She points out that adding green features to a building helps to extend its longevity and generates higher rents, and the company's initiatives help attract and retain employees.

There's also an investment case to be made: "CSR helps us to attract new investors. Socially responsible investment (SRI) funds have more than $1 trillion in assets under management now," Marsden says.

S. Michael Brooks, CEO of the Real Property Association of Canada (REALpac), says that the capital markets increasingly want to drill down on carbon risk. "How much of your portfolio is the equivalent of a gas guzzler and what are you doing to make it more energy efficient? If analysts don't like the answer, they may discount your company for commodity price and carbon tax risks. Investor concerns alone should drive REITs in North America to adopt sustainability goals and reporting," he says.

Reporting Process

ProLogis was getting several requests for information about its green programs. To avoid survey fatigue, it crafted a comprehensive document that adhered to a widely recognized protocol—the Global Reporting Initiative (GRI)—for distribution to a wide variety of audiences. "We wanted to have one document that summarized our initiatives in all three sustainability areas—economic, environmental and social," Marsden says.

GRI is an independent group and collaborating center of the United Nations Environment Programme. The guidelines are in part specific, such as reporting materials used by weight or volume and total energy consumption in joules, and in part procedural, such as disclosing whether the company has programs to assess community impact and describing how data are collected.

The guidelines constitute a menu of disclosure items, not a set of certification standards. A company picks the items it wants to report and the number selected determines whether the company is reporting at the A, B or C level.

Paul Donnely Big Yellow Group PLC U.K. Corporate Social Responsibility Policy By Tara Anderson Even though U.S. REITs are just joining the party in terms of corporate social responsibility (CSR) reporting, several U.K. REITs have had this system in place for some time. Portfolio sat down with Paul Donnelly, CSR manager of U.K. self storage REIT Big Yellow Group PLC (LSE: BYG.L), to get the scoop on sustainability and social responsibility reporting across the pond. Portfolio: Why has Big Yellow Group adopted a CSR policy? Donnelly: CSR has moved politically to center stage, and Big Yellow Group recognized an opportunity to strike a balance between its social and environmental responsibilities and its commercial objectives. As a developer and retail operator of self storage and other work space buildings, the company believes that CSR policy is an established strategy that takes into account relevant ethical and environmental responsibilities for its customers and employees within the local communities that surround its stores. The policy's overarching social and environmental objectives are linked to the company's commercial objectives on behalf of its shareholders. CSR objectives can improve the economic bottom line of the company's new building portfolio through environmental aspects, such as energy efficiency specifications that have a short payback period and on site renewable energy installations, which have a longer term payback period. On the operational side, other benefits that meet the triple bottom line of social, environmental and economic viability are customer and employee satisfaction with CSR principles, eco-labeled packaging materials and the new green lifestyle market differentiation within our self storage services. Portfolio: Has the CSR policy attracted additional investors? Donnelly: Big Yellow's CSR policy was established and made public in October 2007, and it is still relatively early to make a judgment on whether the CSR policy has encouraged more investors. However, we have met the strict criteria of the FTSE4Good Index Series for ethical institutional investors who invest in companies that demonstrate good standards in corporate responsibility. We have also recently participated in the sixth Carbon Disclosure Project (CDP6), which is supported by institutional investors with a combined $57 trillion of assets. It seeks information on business risks and opportunities presented by climate change and greenhouse gas emissions data. Portfolio: Do you report to the Global Reporting Initiative (GRI) or any other organization? Donnelly: Big Yellow Group's 2008 annual report includes the Big Yellow CSR summary report. It only partly follows the GRI and U.K. DEFRA Reporting Guidelines scope, format and data requirements where they are most significant to the company's activities, products and services. This makes it clearer for the report reader to understand the relationship between what we do and the negative and positive impacts. The report covers the company's policy, management systems and performance on the most significant social and environmental aspect of its operations, impacts, control measures and targets across all developments, stores and services in relation to its main stakeholders. Additionally, qualitative reporting is provided on transportation, waste management, water conservation, land quality and biodiversity. Quantitative key performance indicator data are provided on health and safety, considerate construction, carbon dioxide emissions, carbon foot printing, energy efficiency, renewable energy generation, carbon off-setting and the recycled content of construction materials.

Eyes Open

Before opening the door to changing its reporting standards, a company should look out the peephole and consider what they might be letting in. CSR is a concept that has no boundaries. The bar can always be raised and standards can always be ratcheted up.

For example, in ProLogis' 2007 CSR report, a third-party assurance firm urged the company to make greater disclosure in more areas in the future. CSR proponents also have agendas beyond mere heightened reporting. For instance, a GRI guideline states, "Replacing fossil fuel energy sources with renewable ones is essential."

Companies instituting CSR policies today may find advocacy groups with escalating demands on their doorstep tomorrow. "Even with all our programs, we still get people who come to us and say, 'that's great, but what have you done for me lately?,'?" Marsden says. "Social reporting can make you a lightning rod for people who feel you're not doing enough."

CSR and sustainability reporting is a new reality here to stay. "We don't see it as a fad," Marsden says. "Everyone from investors to employees to communities, there are too many stakeholder groups out there who are coming to expect this from the companies they engage with."

Every REIT will eventually have to parse the issues for itself and decide how far it wants to go in engaging the sustainability agenda. For ProLogis, the choice was clear. "It can be time-consuming but, ultimately, we think it makes us a better business partner and employer and a better investment," Marsden says. "It's a win-win situation."