CSR RISKS AND COMPLIANCE

Introduction
Corio manages its operations from a holding company that is managed by the Management Board and which encompasses the following functions: Investor Relations, Communication & Public Relations, Strategy & Asset Allocation, Treasury, Research, CSR, Finance & Control, Legal & Compliance, Information Management, Tax, Risk Management and Human Resources. The operations are managed primarily by six business units, which are directly linked to the countries in which Corio is active, and are structured according to local conditions and insights. These business units are responsible for operational functions within their individual areas of activity. This concerns the primary processes, development, letting and centre management and support processes. With risk management being a line management responsibility and the fact that most CSR risks can occur in these operational processes, the directly involved operational functions manage these CSR risks on a daily basis. This also includes ensuring compliance with relevant legislation, such as environmental, labour and civil laws. 

The operational and financial reporting cycle include monthly KPI reports and quarterly full business reports, closing the quarter and forecasting for the remainder of the year, that are produced by the business units to inform the holding company. Consultative structures such as frequent Management Board meetings, business unit CEO meetings, separate CFO meetings and expert meetings (for example on CSR), provide overview and enable hands-on management by the Management Board. Group-wide policies and codes such as screening policies, the CSR Reporting Manual, insurance policy, compliance code and the code of conduct contain our CSR business rules and principles and, furthermore, provide guidance for our activities. The CSR Reporting Manual outlines the CSR reporting process and describes the responsibilities of involved functions and employees. The main objective of the manual is to ensure the accurateness and completeness of the CSR reporting and to make sure it is verifiable. 

In the above described reports and consultative structures, business units and staff functions report on their activities, including on the effectiveness of their (CSR) risk management activities. Each year, the business unit management signs a letter of representation that contains financial reporting statements and also statements regarding risk management, corporate social responsibility, integrity and compliance with policies and procedures such as the code of conduct, statutory provisions and compliance with other rules and regulations. The aforementioned processes make the risks and the areas requiring improvement in the internal control systems transparent.  

CSR risks
In the following section we briefly describe the major generic CSR risks we are facing and how we deal with them. Afterwards we describe in tabular form in more detail our environmental and physical risks. This includes a qualitative assessment of the likelihood and potential impact of those risks. We are aware this is not an exhaustive account, and that it is always possible for circumstances to arise in which unidentified risks become apparent, or in which the impact of identified risks is greater than originally estimated.

> Management risks: Corio’s sustainability targets are set centrally and reviewed regularly together with the business units to ensure that they are feasible and realistic but also meet our company objectives. Corio’s decentralised business model allows the business units to execute strategy in accordance with local requirements.

> Regulatory risks are managed by monitoring changes in relevant legislation and tenant and retail sector demands on CSR. Corio strives to run its business in compliance with current (and future) laws and regulations and in a transparent way. We are conscious of the economic benefits of greater environmental efficiency and thus take advantage of any available subsidies and generally seek to reduce operating costs where possible.

> Physical risks: These are taken into account as part of the investment decision and decisions on the insurance coverage. For existing centres, where possible adjustments are made to meet the changing demands of tenants and visitors as a result of climate change. 

> Social risks: Corio is aware of the impact a CSR policy can have on investors, consumers, tenants, employees and other stakeholders and therefore communicates on this in order to manage perceptions and expectations. 

Mitigating factors
Our approach to risk mitigation generically comes down to the following: 

> To make sure our strategy and approach is in line with the market environment and developments, stakeholder dialogue is approached in a structural manner and intensified. This enables us to integrate responses from stakeholders into strategy and management.

> To anticipate future regulation, Corio takes part in several industry associations such as the ICSC, ISA and EPRA and follows developments in legislation closely. For example by means of the industry association ICSC, the real estate sector has entered in dialogue with the European committee regarding sustainability legislation (specifically the EU2020 legislation). Furthermore, from an organisational point of view, the CSR steering committee meets on a regular basis. Risks related to sustainability are discussed and action is taken accordingly to ensure compliance.

> Physical risks arising as a result of climate change, are mitigated through insurance contracts. Centres that are possibly subject to damage as a result of higher rainfalls or earthquakes, depending on their geographical location, are selected for increase of insurance coverage. Furthermore sustainability requirements are fully integrated into acquisition or development decision making processes and assessments.

> With respect to currently uninsurable hazards, Corio engages proactively with the insurance broker to discuss and design adaptation of insurance contracts.

 

Risks related to (changes in) in regulation

Risk / opportunity drivers

 

Potential impact

Likelihood

Magnitude of impact

Carbon taxes

The EU considers buildings to have a significant potential for reducing energy consumption and CO2. Corio owns more than 100 centres throughout Europe and will be affected by regulation and taxes regarding carbon emissions and energy reduction. The current Energy Performance of Buildings Directive is expected to be adapted to new requirements.

Increased capital cost

Very likely

Medium-high

Fuel/energy taxes and regulations

Strict EU and national legislation have been set in order to realise the EU 2020 goals. The EU considers energy intensive sectors such as Corio’s to have the potential for significantly reduced energy consumption. Corio expects regulation and energy taxes to reach the energy reduction goals in 2020. Corio expects a higher target for Energy Performance demands set for buildings in the near future.

Increased capital cost

Likely

Medium-high

Voluntary agreements

National governments that set higher ambitions than surrounding countries. Grenelle de l’ Environnement is a demanding French code applicable to our operations in France, mainly to the building activities. The French government has also announced a carbon tax, however actual implementation of the measure has not been scheduled yet. The Dutch Government has announced a higher ambition when it comes to energy efficiency. Targets will entail a GHG emission reduction of 30% by 2020, compared to the 1990 levels and intensified planning to reach energy reduction of 2% per year. These targets will be implemented through national regulation, affecting the real estate industry and therefore Corio operation in The Netherlands.

Increased operational cost

Very likely

Medium-high

Lack of regulation

In some of the regions we are active, there is a lack of (clear) regulation on climate change

Wider social disadvantages

Very likely

Low-medium

 

Risks related to (change in) physical climate parameters

Risk / opportunity drivers

Description

Potential impact

Likelihood

Magnitude of impact

Change in precipitation pattern

More rain and more heavy rain, more snow storms

Increased operational cost

Likely

Medium-high

Rising sea level

Floods: The Netherlands is a coastal country with a history of flooding incidents.

Inability to do business

More likely than not

High

Change in temperature extremes

Extreme weather, water shortage, temperature fluctuation.

Increased operational cost

Likely

Medium-high

Induced changes in natural resources

Shortages or increase costs of energy and water supply

Reduction/disruption in production capacity

Likely

High

 

Risks driven by changes in other climate-related developments

Risk / opportunity drivers

Description

Potential impact

Likelihood

Magnitude of impact

Reputation

Corio’s reputation as an investor and property manager is key to its competitive advantage. Any lack of proactive strategy and implementation regarding climate change risks could affect reputation. Tenants might be less interested in Corio as a partner for their retail activities.

Reduced demand for goods/services

Unlikely

Medium

Changing consumer behavior

Centres with a low sustainability performance pose the risk of consumer dissatisfaction and thus lower income, lower valuation, lower market worth and higher insurance premiums

Reduced demand for goods/services

About as likely as not

High

Uncertainty in market signals

Changes in availability or cost of energy or materials supply

Increased operational cost

Likely

Medium-high