In June 2020, QIC Real Estate announced a commitment to achieving Net Zero Carbon Emissions (Scope 1 and 2) by 2028 for our core managed portfolio of Australian retail assets within the QIC Property Fund (QPF) and QIC Town Centre Fund (QTCF). In FY21, the same target was expanded to cover QIC’s Office Fund (QOF), and in FY22 it was extended to our QIC Active Retail Property (QARP) and QIC Australia Core Plus (QACPF) funds¹.

QPF, QTCF and QOF are signatories to the World Green Building Council’s Net Zero Carbon Buildings Commitment, and we are in the process of requesting QARP and QACPF to become signatories.

Net zero carbon roadmaps have been developed at a fund level detailing the various carbon emissions reduction initiatives required at an asset level for each of the funds to achieve net zero carbon emissions (Scope 1 and 2) by 2028. The roadmaps are aligned with each asset’s 10-year capital plan and annual budget, and are reviewed and updated annually to maintain currency. An aggregated roadmap for the real estate portfolio is presented below, demonstrating the progress we have made to date, as well as planned future initiatives to achieve net zero carbon emissions by 2028 (Scope 1 and 2) across our five funds.

Fund level roadmaps detailing our strategy to achieve Net Zero Carbon Emissions by 2028 can be found via the following links: 

• QIC Property Fund and QIC Town Centre Fund Core Retail Assets
• QIC Office Fund
• QIC Australia Core Plus Fund
• QIC Active Retail Property Fund

¹All long-term objectives, short-term targets and Net Zero Carbon Emissions targets apply to only assets that are 100% owned and managed by QIC (making up the following percentages of each Fund's portfolio value at 30 June 2022 - QTCF: 91%, QPF: 90%, QARP: 100%, QACPF: 98%, QOF: 99%). Short-term targets to reduce carbon emissions are in line with each Fund's Net Zero Carbon Emissions target, which rely on increase in renewable energy consumption through onsite solar roll out and purchase of grid sourced renewable energy (QPF and QTCF: ~70%, QOF: ~60%, QARP: ~64%, QACPF: ~68%) and reduction in electricity consumption through efficiency upgrades (QPF and QTCF: ~25%, QOF: ~35% including efficiencies achieved to date (~26%), QARP: ~21%, QACPF: ~22%). Baselines: (QPF and QTCF: 2018, QOF: 2015, QARP: 2021, QACPF: 2021). Carbon offsets will be purchased for residual emissions from sources with no existing fossil fuel free alternatives. Progress is quantified and receives limited independent assurance annually, in accordance with the Australian Standard on Assurance Engagements (ASAE3000). QPF, QTCF and QOF are signatories to the World Green Building Council's Net Zero Carbon Buildings Commitment. 

Our large scale onsite solar rollout program² continued during FY22, with the completion of a 4.9-Megawatt rooftop system at Hyperdome (QLD) and the commencement of the installation of rooftop systems at Bathurst City Centre (NSW), Nerang Mall (QLD) and The Village Upper Mount Gravatt (QLD). System sizes and supply commencement dates can be seen in the table below. 

²Refer to Our Progress for details on our Modern Slavery approach, including reference to the human rights issue and risks associated with the allegations of the use of forced labour of Uyghur and other ethnic minorities. For further information, read QIC's latest Modern Slavery Statement. 

A number of initiatives were completed during the year to reduce our energy use across the portfolio, which are outlined in more detail below.

Engineering assessments

Engineering consultancies have completed energy efficiency, electrification and carbon emissions reduction opportunity assessments at several of our retail and office assets during FY22. The findings from these assessments have been reviewed against each asset’s 10-year capital plan and, where appropriate, have been fed into each asset’s net zero carbon emissions roadmap.

Lighting upgrades

Energy efficient LED lighting and lighting control upgrades were completed at various assets, including common mall lighting upgrades at Watergardens (VIC), Robina Town Centre (QLD) and Eastland (VIC) during FY22.

Mechanical plant optimisation

The major focus during FY22 has been on developing electrification strategies for our assets in Victoria and the ACT that contain a natural gas-powered heating plant. The natural gas used in this plant is a significant contributor to QIC Real Estate’s current Scope 1 carbon emissions and we are committed to investigating opportunities to electrify this plant as part of our net zero carbon commitment.

While the scale of these electrification projects means that detailed scoping and planning is continuing, the 10-year capital plans for the relevant assets have been updated to allow for the estimated upgrade costs. Upgrade works are currently planned to commence in FY23 and run through to FY28.

Data analytics and plant optimisation

During FY22, we continued the progressive deployment of CIM's Peak platform across the QIC Real Estate portfolio of assets. This building optimisation system aggregates and analyses multiple sources of granular building performance data, such as submeter and mechanical plant operation data. The engineers at CIM use the actionable insights from this analysis and work collaboratively with our asset operations teams to continually tune building operations systems and maximise energy and water efficiencies. A chiller portfolio benchmarking exercise was recently completed across the core retail assets, providing run-time optimisation insights, as well as operational efficiency profiles that are helping to optimise the chiller upgrade program.

QIC Real Estate saw a ~10% increase in natural gas use in FY22 compared to FY21, mostly driven by a reduction in the days under COVID-19 lockdown in Victoria, where the majority of natural gas usage across the portfolio occurs. Electricity generated from onsite solar PV roughly doubled in FY22 compared to FY21 and this contributed to a ~9% reduction in grid-sourced electricity use in FY22 compared to FY21. 

The variations in natural gas, grid-sourced electricity and renewable energy use cancelled one another out in terms of QIC Real Estate's annual carbon emissions performance, with the increase in natural gas use resulting in a roughly 10% increase in our Scope 1 carbon emissions in FY22 compared to FY21 and the decrease in grid-sourced electricity use resulting in a ~10% reduction in our Scope 2 carbon emissions.

The following table represents QIC Real Estate's Scope 1 and 2 carbon emissions associated with its core managed Australian retail portfolio of assets held in QPF and QTCF, demonstrating our year on year progress toward our 2028 net zero target³. We had targeted a 10% year-on-year reduction in FY22 compared to FY21. As shown in the table below, we exceeded this target and recorded a 14% year-on-year reduction.  

³All long term objectives, short term targets and Net Zero Carbon Emissions target apply to only assets that are 100% owned and managed by QIC (making up the following percentages of each Fund's portfolio value at 30 June 2022 - QTCF: 91%, QPF: 90%). Net zero carbon target (Scope 1 and 2) for QPF and QTCF core retail assets relies on ~70% renewable energy consumption (combined onsite solar roll out and purchase of grid sourced renewable energy) and ~25% reduction in electricity consumption through efficiency upgrades, from a 2018 baseline. Targets relate to assets 100% owned and managed by QIC. Carbon offsets will be purchased for residual emissions from sources with no existing fossil fuel free alternatives (such as refrigerants and diesel used in emergency generators). For all targets, progress is quantified and receives limited independent assurance annually, in accordance with the Australian Standard on Assurance Engagements (ASAE3000).

⁴Reduced operating hours and foot traffic due to COVID-19 related intermittent lockdowns during FY20, FY21 and FY22 has impacted performance, and this should be taken into consideration when comparing year-on-year performance and considering any related carbon emission reductions.

The following table represents QIC Real Estate's Scope 1 and 2 carbon emissions associated with its commercial office portfolio held in QOF, demonstrating our year-on-year progress toward our 2028 net zero target.

⁵All long term objectives, short term targets and Net Zero Carbon Emissions target apply to only assets that are 100% owned and managed by QIC (making up 99% of QOF’s portfolio value at 30 June 2022). Net zero carbon target (Scope 1 and 2) for office assets in QOF relies on ~60% renewable energy consumption (purchase of grid sourced renewable energy) and ~35% reduction in electricity consumption through efficiency upgrades in addition to efficiencies already achieved to date (~26%), from a 2015 baseline. Targets relate to assets 100% owned and managed by QIC. Carbon offsets will be purchased for residual emissions from sources with no existing fossil fuel free alternatives (such as refrigerants and diesel used in emergency generators). For all targets, progress is quantified and receives limited independent assurance annually, in accordance with the Australian Standard on Assurance Engagements (ASAE3000).

⁶Reduced operating hours and foot traffic due to COVID-19 related intermittent lockdowns during FY20, FY21 and FY22 has impacted performance, and this should be taken into consideration when comparing year-on-year performance and considering any related carbon emission reductions.

QIC Real Estate portfolio annual carbon emissions, FY19 - FY22

Note: Carbon emissions data covers QIC Real Estate’s retail, office and industrial portfolios. Scope 3 carbon emissions increased in FY21 due to commencement of capturing energy use and emissions from major tenants.

In 2019, QIC Town Centre (QTCF) issued a A$300m Climate Bond Initiative (CBI) certified green bond, a world-first for the retail property sector and an important milestone for QTCF, endorsing QIC Real Estate's progress and ongoing focus on sustainability.

The Green Bond asset pool included three high-quality Australian retail assets (Robina Town Centre - QLD, Grand Central - QLD, and Eastland - VIC) which have undergone staged redevelopment programs and are part of a portfolio-wide energy efficiency program of works which continue to deliver further energy improvements. 

You can download our 2021 calendar year Green Bond update report here. 

The QTCF 2021 calendar year Green Bond update report has received limited assurance from Sustainalytics. Their annual review letter can be viewed here. 

Climate change is an increasingly important focus for QIC. The risks and opportunities posed by observed and projected changes in the climate have the potential to impact the asset classes and companies that QIC invests in, including our real estate portfolio. Climate risk is embedded as one of six focus areas of QIC's Responsible Investment Framework and climate change is a key focus area of QIC Real Estate's ESG strategy. Understanding the risks and opportunities presented by climate change allows us to make more informed decisions across the asset classes we invest in.

Since 2018, QIC has responded to the Taskforce on Climate-related Financial Disclosure recommendations in our QIC Sustainability Report. To view this report and additional information on QIC’s approach to understanding and addressing climate risk, see the latest QIC Sustainability Report.

During FY20 and FY21, QIC undertook a piece of work to better understand and manage climate risk across its real assets and which included the co-development of a ‘Climate Change Resilience Study’ with an academic partner to understand the potential physical impacts of climate change on our assets. This assessment of physical climate risk was undertaken across our retail portfolio during FY20 and was rolled out across the office portfolio during FY21. The summarised findings from this piece of work are presented below:

In FY22 QIC Real Estate built on the assessment of climate impacts completed in FY20/21, and engaged an actuarial and insurance consultant with specific expertise in physical climate risk to assess and quantify the financial impacts of climate change at an asset and portfolio level using a methodology that was specific to our business model, can be adapted for application across our asset portfolio, and uses a consistent framework to ensure results can be rolled up into a broader QIC view. 

The consultant assessed the relationship between climate drivers (acute and chronic risks) and the Net Operating Income (NOI) for each asset, modelling the impacts until 2050 under two climate scenarios (RCP 4.5 and RCP 8.5⁷). The analysis found that past climate events have affected the income and expenses shown in the following diagram. 

Climate change is expected to affect the climate drivers, and therefore impact on each asset's NOI and asset value. However, this impact is limited in the foreseeable future due to:

• Under the scenarios considered, climate drivers are not expected to change substantially over the next 10 years
• The sensitivity of the income and expenses to changes in the climate drivers (relativities) is currently relatively small
• Income and expense items affected by the climate drivers make up a small proportion of the overall NOI.

The analysis showed the impact of climate change on NOI and asset values by climate scenario, fund and individual asset, and identified the climate drivers contributing to the change. Overall, the biggest sensitivity of the asset values to chronic climate drivers is to future levels of rainfall, while storms and cyclones are the acute climate drivers with the largest financial impact. This work is enabling us to prioritise adaptation measures across the portfolio for implementation that build resilience against those climate drivers identified as having the greatest financial impact in terms of income and expenses.

⁷ Representative Concentration Pathways used in the Fifth IPCC Assessment as a basis for the climate predictions and projections presented in WGI AR5 Chapters 11 to 14.

⁸Management controlled rental affected by chronic climate drivers included car parking income but did not include storage income. 

⁹The impact of blackouts on QIC Real Estate assets was not modelled in this iteration of the modelling.