Corporate Governance

2020_Corporate Governance and Executive Compensation

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Shearman & Sterling LLP Impact Investing in Commercial Real Estate | 39 4 See Sarah Borchersen-Keto, "Prologis Reaping Benefits from its Focus on ESG Initiatives," August 30, 2019, https://www.reit.com/news/articles/ prologisreaping-benefits-its-focus-esg-initiatives (August 30, 2019). 5 https://www.climateaction100.org. 6 NAREIT, REIT Industry ESG Report, June 2020. 7 See Erika Morphy, "BlackRock Adds a Responsible Contractor Policy to its Real Assets Governance," https://www.globest.com/2019/06/14/ blackrock-adds-a-responsible-contractor-policy-to-its-real-assets-governance/ (June 14, 2019). CURRENT INITIATIVES The commercial real estate industry has recognized that promoting ESG is not only a laudable goal in itself, but also one that can enhance the bottom line. Delivering energy-efficient buildings can lower operating costs and appeal to the growing demand by commercial and residential tenants for environmentally friendly space. Promoting sustainability represents an important, but by no means the only, intersection between commercial real estate and impact investing. Community-focused initiatives and opportunities abound. Many large cities suffer from a shortage of affordable housing. Incentive programs are common and reward builders of affordable housing with transferable zoning bonuses, in effect trying to further the convergence between "doing good" and "doing well." Incentives have also been used to facilitate construction or rehabilitation of public improvements, such as subway stations, parks and roadways, creating a "win-win" for the community and the developer. Other initiatives include solar arrays, rooftop farms, EV charging stations, water reuse programs and waste diversion. Prologis, Inc., the public REIT which is a very prominent player in the logistics space, has created a workforce training program, offering courses and curricula to train workers for logistics and warehousing jobs. 4 The training is intended to translate into local job opportunities with the courier and distribution companies, which occupy Prologis projects and who are eager for access to skilled workers. Climate Action 100+ is a consortium of institutional investors using their individual and collective market clout as leverage for climate change. 5 NAREIT, the national representative organization for real estate investment trusts, reports that 58% of NAREIT members incorporate climate change into their core business processes. 6 BlackRock, a significant real estate investor both directly and through investment funds, has adopted a Responsible Contractor Policy for assets and companies in which BlackRock or funds managed by BlackRock have a controlling interest. 7 The guidelines include provisions for a competitive and inclusive bidding process and a position of neutrality on labor union organization. OPPORTUNITY ZONES Federal tax legislation enacted in late 2017 as part of the Tax Cuts and Jobs Act introduced a new tool to promote socially beneficial real estate development. For some taxable investors, investment in opportunity zones represents a means of achieving tax deferral of certain capital gains invested in qualifying projects. But the identification of projects that meet the Internal Revenue Code requirements also presents a broader opportunity — to showcase to all investors, whether or not tax- advantaged, projects with a positive social impact, be it in creating more community space, more extensive and healthy grocery and dining options or promoting local retail businesses. For many investors, opportunity zones offer a shortcut to socially responsible investment by eliminating the need for ESG-conscious investors to conduct their own diligence. Indeed, several initiatives are underway to enable developers and investors to access technology which tracks the positive social impact that can be realized from these projects and attempts to do so based on objective, measurable criteria.

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