Sustainable finance

1. Introduction

Frasers Property Australia Pty Limited (“FPA” or the “Company”), is the Australian division of Frasers Property Limited (“Frasers Property” or the “Group”). FPA is one of Australia's leading diversified property groups and has over 90 years’ heritage in Australia. Its activities cover the development of residential land, housing and apartments, commercial, retail and industrial properties, investment property ownership and management, and property management.

Frasers Property Limited is a full-fledged international real estate company and one of Singapore’s top property companies with total assets of S$37.6 billion as at 30 September 2019. Frasers Property's assets range from residential, retail, commercial and business parks, to industrial and logistics in Southeast Asia, Australia, Europe and China. Its well-established hospitality business owns and/or operates serviced apartments and hotels in over 70 cities across Asia, Australia, Europe, the Middle East and Africa.

Sustainability drives FPA’s business strategy

A Different Way is FPA’s strategy for sustainable business growth. This strategy defines a whole new way of thinking and working that helps the Company to boldly grow its business in ways beneficial towards its people, customers, and the environment. It also helps the Company deliver better outcomes and achieve its goal of making a real difference in sustainability. Under the strategy, FPA aims to identify relevant present and future issues, and outline the steps required to achieve great results. A Different Way enables FPA to create smarter and more innovative spaces and places. It also means that resources are reused, recycled and restored. It is already leading to lower utilities bills for its clients, access to more affordable choices, and safer, healthier, and more connected environments in which to live, work, and play.

A Different Way focuses on three core pillars, namely Progressive Thinking, People Focused, and Responsible Resources. Each pillar is supported by ambitious goals and targets that pinpoint how FPA plans to make a difference. Key highlights are as follows:

• To achieve net zero carbon by 2028, with a roadmap established in line with science-based targets by the end of 2018; FPA is certified under the Australian Government’s National Carbon Offset Standard as a carbon neutral organization.

• All new developments and properties to achieve a minimum 4 Star Green Star - Design and As Built rating; FPA develops, owns, or manages over 2 million sqm of Green Star buildings and has over 10,000 residential Green Star lots under development.

• The Investment Portfolio of existing commercial, industrial, and retail buildings to achieve an average 4 Star Green Star Performance Portfolio rating from 2018 onwards.

• FPA aims to explore clean energy options including geothermal and solar energy using the latest technology. It has installed 5.6MW of solar photovoltaic (PV) cells on its building rooftops with another 8.1MW in the pipeline.

• Develop the first community-based retail centre to meet the Living Building ChallengeTM, which features zero carbon footprint, zero waste, and net positive water and electricity. The project will be built using non-toxic and recycled materials, and agriculture will be grown on 20% of the project site.

FPA is committed to transparent disclosure of its achievement against its targets. Full details and the progress report can be found on https://www.frasersproperty.com.au/a-different-way.

Sustainability Performance of FPA

FPA endorses and participates in global initiatives such as the Global Real Estate Sustainability Benchmark (GRESB) to align its business with the global sustainability trends, which allow it to proactively identify and implement best business practices.

FPA has been participating in GRESB Real Estate Assessment since 2012 and its continuous efforts in sustainability has led it to achieve the highest 5-Star rating for its 2019 assessment. FPA’s outstanding performance has also led it to become the first within the Asia-Pacific Diversified Office/ Industrial segment and rank among the top six percent globally. The below-listed performance indicators are reported at the portfolio level based on the underlying data are collected at the asset level. Deloitte has provided a limited assurance report on FPA’s performance indicators for the 2019 assessment.

• Energy consumption (MWh)
• GHG emissions (tonnes)
• Water Use (m3)
• % of waste management covered

In addition to the GRESB Real Estate Assessment, GRESB provides a standalone GRESB Developer Assessment to evaluate the ESG performance of organizations that focus on development activities. FPA has participated in this assessment since 2018, and within a short span of two years, achieved a 5 Star rating in its 2019 assessment. The GRESB 5 Star is the highest rating and recognition for being an industry leader in environmental, social and governance (ESG) performance.

GRESB is an investor-driven global ESG benchmark for the real estate sector. Its ESG assessment offers high-quality ESG data and powerful analytical tools to benchmark ESG performance, identify areas for improvement, and engage with investors. In 2019, more than 1,000 property companies, real estate investment trusts (REITs), funds, and developers participated in the Real Estate Assessment, representing USD 4.1 trillion in assets under management (AUM)¹. The assessment covers more than 100,000 assets, out of which more than 66,000 were reported at the asset level, across 64 countries.²

FPA has prepared this Sustainable Finance Framework (the “Framework”), with the intention for the Company and its subsidiaries entering into multiple Sustainable Finance Transactions (“SFTs”). The SFTs may include (i) debt instruments that finance green or sustainable project, including but not limited to, Green Bonds, Sustainability Bonds, Green Loans, Sustainability Loans and (ii) debt instruments where its funding cost is linked to FPA’s sustainability targets, including but not limited to, Sustainability-Linked Bonds and Sustainability-Linked Loans. This Framework is designed to provide an overarching criteria and guidelines how FPA and its subsidiaries will manage the proceeds raised from the SFTs. Frasers Property AHL Limited (“FPAHL”), as a subsidiary wholly owned by the Company, intends to become the first entity to raise a SFT under this Framework.

The Framework is prepared to be in line with the relevant international principles and guidelines listed below (collectively the “Principles”), to ensure that the SFTs from FPA meet the market best practices and demonstrate robust management of its SFTs.

• Green Bond Principles (“GBP”) 2018 and Sustainability Bond Guidelines (“SBG”) 2018 by the International Capital Market Association;
• Green Loan Principles (“GLP”) 2018 and Sustainability Linked Loan Principles (“SLLP”) 2019 by the Loan Market Association, Asia Pacific Loan Market Association and Loan Syndications and Trading Association.

For the avoidance of doubt, the SFTs may be in any currency, tenor, or with other terms and conditions, including covenants, to reflect FPA’s financing strategy.

The first part of the Framework will be used for debt instruments that finance green or sustainable project, including but not limited to, Green Bonds, Sustainability Bonds, Green Loans, Sustainability Loans. Following the Principles, the Framework has below four core elements:

I. Use of Proceeds
II. Process for Project Evaluation and Selection
III. Management of Proceeds
IV. Reporting

I. Use of Proceeds

The net proceeds raised under this Framework will be used exclusively to finance or re-finance the Eligible Green or Sustainable Projects as defined below:

Green Buildings:

• Investment properties: expenses for a portfolio of existing or refurbished buildings, including but not limited to retail, office, and industrial buildings, that has achieved 4 Star rating from the latest available GRESB Real Estate Assessment.
• Development Assets: expenses for a portfolio of new residential, retail, commercial and industrial buildings that has achieved 4 Star rating from the latest available GRESB Developer Assessment.

For the avoidance of doubt, the scope of FPA’s GRESB Real Estate Assessment covers all the assets either wholly and partially owned by the Company.

The Eligible Green or Sustainable Projects shall be selected and evaluated following FPA’s sustainability goals and ESG policies as stated in Section II. Process for Project Evaluation and Selection.

Eligibility Criteria

GRESB evaluates performance against 7 sustainability aspects with approximately 50 sustainability performance indicators relating to energy, GHG emissions, water, waste, and health and safety. This assessment considers both environmental and social aspects of property portfolios. The GRESB Rating is based on the GRESB Score and its quintile position relative to all participants in the GRESB Real Estate Assessment, with annual calibration of the model. A ranking relative to all participants on a global scale is provided. GRESB 5 Star is the highest rating and recognition for being an industry leader.

In addition to its focus on environmental impacts, the GRESB Real Estate Assessment also includes a health and well-being evaluation of a real estate company’s internal approach to promoting health for its employees as well as its external approach to promoting health for tenants and communities through real estate fund management. As creators of the built environment, the real estate industry is well-positioned to address key health determinants in their approach to real estate development and management.

Starting from 2018, GRESB introduced its Resilience Module as an optional supplement to the Real Estate Assessment to evaluate the organization’s capacity to assess and respond to risks and opportunities related to climate, environmental, social, economic, technological and geographical changes. To demonstrate its strong commitment in sustainability and management capabilities, FPA has taken a proactive approach to participate in this voluntary module and achieved the highest ranking among its peer participants in the Asia-Pacific region.

Below are the 2019 ratings for FPA’s two main portfolios:

II. Process for Project Evaluation and Selection

Project evaluation and selection is a key process ensuring that the financed Green or Sustainable Projects meet the eligibility criteria set out in this Framework. The treasury team will be responsible for selecting a portfolio of Eligible Green or Sustainable Projects (“Eligible Green or Sustainable Project Portfolio”) to be financed by the net proceeds from the SFTs in accordance with the Framework. It may consult internal or external experts as relevant to assess eligibility criteria, and the final projects selection will be reviewed and approved by FPA’s senior management (CEO or CFO).

Frasers Property Australia’s sustainability strategy, A Different Way, has been established in 2015 and our targets are reviewed every 2 years to ensure that they deliver value to customers and represent leadership. Once the revised company-wide targets are fully endorsed by FPA’s CEO, they are made public through FPA’s website with twice yearly progress updates. All companywide targets have a dedicated lead and some targets also have dedicated working groups with representatives from various business units. The relevant Sustainability Manager for each business unit is responsible for tracking performance against these targets.

Current targets relevant to project evaluation and selection as Eligible Green or Sustainable Projects are:

• Use relevant third-party certification programs, certify 100% of owned and managed assets, by 30 September 2024 to maintain minimum 4 Star GRESB status for FPA;
• Use relevant third-party certification programs, certify all new projects, from 30 June 2020;
• Establish mandatory Environmental, Social & Governance (ESG) considerations for all investment proposals, by 30 September 2020.

Above listed strong commitments indicates that all projects from FPA could be considered as Eligible Green or Sustainable Projects that could be financed with STF proceeds. FPA will transparently communicate the progress on the above targets with its investors. In an unlikely event that FPA does not maintain minimum 4 Star GRESB status during the life any SFT, FPA will develop a separate green or sustainable project list to ensure FPA have sufficient green or sustainable assets matching the total SFT outstanding amount.

III. Management of Proceeds

FPA intends to allocate the net proceeds from the SFTs to an Eligible Green or Sustainable Project, selected in accordance with the use of proceeds criteria and evaluation and selection process presented above. As long as the SFTs are outstanding, the treasury team will manage the project register through its rigorous internal system, and periodically monitor the balance of the proceeds. FPA will strive to maintain a level of allocation for the Eligible Green or Sustainable Project Portfolio which matches or exceeds the balance of net proceeds from its outstanding SFTs.

Any unallocated amount will be held in cash or FPA will invest it cash equivalents according to the treasury department’s general liquidity guidelines.

IV. Reporting

FPA commits to transparent reporting on its sustainability efforts and the allocation of SFTs. For Green or Sustainability Bonds, from the first anniversary of any bond issuance under this Framework until full allocation of the proceeds, FPA will ensure that information on proceed allocation is available on the Company’s website, https://www.frasersproperty.com.au/a-different-way. FPA may also share, where applicable and feasible, information on environmental impacts of its portfolio. For Green or Sustainability loans, FPA will also make the information readily available to its lenders a report upon request (provided that FPA is deemed to have provided the information if such information is available in their website).

FPA may share the below information:

a) Allocation Reporting

• The total amount of proceeds allocated to the Eligible Green or Sustainable Project Portfolio
• The balance of unallocated amount, if any

b) Impact Reporting

Where relevant and feasible, FPA may provide the following environmental indicators of its portfolios:

• Updated rating of GRESB Real Estate Assessment and Developer Assessment
• Number [or percentage] of buildings with Green Building Certificates
• Energy Consumption (MWh) for the investment properties
• GHG emission (tonnes) for the investment properties

This second part of the Framework is prepared to provide guidelines for Sustainability-Linked Bonds and Loans. Following the Principles, the Framework is presented with following four core components:

I. Relationship to Borrower’s Overall Corporate Social Responsibility (CSR) Strategy
II. Target Setting - Measuring the Sustainability of the Borrower
III. Reporting
IV. Review

For the avoidance of doubt, proceeds from the Sustainability-Linked Bonds and Loans are not exclusively for Eligible Green or Sustainable Projects and can be used to finance general corporate purpose.

I. Relationship to Borrower’s Overall Corporate Social Responsibility (CSR) Strategy

As shared in the Section 1, FPA has established A Different Way as a core sustainability strategy since 2015 to ensure they deliver value to customers and represent leadership. This strategy defines a whole new way of thinking and working that helps the Company to boldly grow its business in ways beneficial towards its people, customers, and the environment. It also helps the Company deliver better outcomes and achieve its goal of making a real difference in sustainability agenda.

II. Target Setting - Measuring the Sustainability of the Borrower

For Sustainability-Linked Bonds and Loans, FPA may use below sustainability metrics for its margin or coupon redetermination over the life of the instruments.

• overall rating by GRESB on its portfolio, to be assessed on the annual basis
• number [or percentage] of buildings with pre-defined green building certificates
• energy consumption (MWh) for the investment properties
• GHG emission (tonnes) for the investment properties
• water consumption (m3) for the investment properties
• or any other environmental or social metrics that FPA deems material to its business.

When entering into a new transaction, FPA and arranging banks will agree below items at inception:

• a set of sustainability metrics
• the respective base lines
• performance targets to be measured annually
• timeline for measuring and reporting
• commercial terms and potential incentives once the targets are achieved.

FPA aims to ensure the selected metrics and targets are set to be meaningful and ambitious, in line with its sustainability leadership.

III. Annual Reporting

At the inception of each transaction, FPA and arranging banks will agree on reporting time, frequency, and format of reporting on its sustainability progress.

For Sustainability-Linked Bonds, information related to FPA’s sustainability performance against the set targets will be available in the progress report published on the Company’s website, https://www.frasersproperty.com.au/a-different-way.

For Sustainability-Linked Loans, FPA will provide relevant information to its lenders as stipulated in the loan documentation (provided that FPA is deemed to have provided the information if such information is available in their website).

IV. Review

FPA aims to ensure accurate representation of performance towards selected targets and intends to conduct external reviews as necessary.

FPA has engaged Deloitte to provide a third-party assurance service on this Sustainable Finance Framework.

Version 1.0, 10 February 2020

¹ https://gresb.com/2019-real-estate-results/
² https://gresb.com/2019-real-estate-results/