We have adopted the following short-term, medium-term and long-term time horizons to assist in our consideration of climate-related risks and opportunities:

Table 6: Short-term, medium-term, and long-term climate change considerations

Climate-related risks and opportunities have been considered with reference to two Network for Greening the Financial System (NGFS) transition scenarios that we believe broadly align with the low, medium, and high emissions scenarios described by the Intergovernmental Panel on Climate Change (IPCC) developed Representative Concentration Pathways (RCP) 2.6, 4.5 and 8.5.

Table 7: NGFS transition scenarios

To account for large variability in climate under each emissions scenario, we used four climate models (downscaled General Circulation Models) to understand the climate-related risks and opportunities across our asset portfolio. These model a range of changes to climate and provide variances for different regions of Australia. For each asset, we considered the results of these models at the asset’s location and classified them into: Hot/Dry, Cool/Dry, Hot/Wet, and Cool/Wet to represent variability in projected temperature change and rainfall change relative to current levels. This allowed us to explore the potential consequences for our assets across a range of outcomes produced by the climate models (reflecting the scientific uncertainty related to the impact of emissions on climate), including potential relative financial effects across our asset portfolio under each climate scenario. 

This has enabled our assessment of climate-related risks and opportunities across various scenarios and climate variances at the asset and Fund level and has provided a view of our exposure across the entire Real Estate portfolio.

³³ Detail sourced form NGF transition scenarios.

³⁴ The 2015 Paris Agreement requires each Party to prepare, communicate and maintain successive nationally determined contributions (NDCs) that it intends to achieve. Parties shall pursue domestic mitigation measures, with the aim of achieving the objectives of such contributions. NDCs are submitted every five years to the UNFCCC secretariat. In order to enhance the ambition over time the Paris Agreement provide that successive NDCs will represent a progression compared to the previous NDC and reflect its highest possible ambition.

Net zero carbon emissions

In June 2020, QIC Real Estate announced a commitment to achieving net zero carbon emissions (scopes 1 and 2) by 2028 for our core managed portfolio of Australian retail assets within QPF and QTCF. In FY21, the same target was expanded to cover QOF, and in FY22 it was extended to QARP and QACPF.³⁵

Our funds are also signatories to the World Green Building Council’s Net Zero Carbon Buildings Commitment, demonstrating our commitment to achieving net zero in operational carbon emissions (scopes 1 and 2), and driving our focus on reducing embodied carbon within our new development and renovation projects. As a signatory, we are committing to achieving net zero carbon in operational emissions (scopes 1 and 2) by 2028 and net zero in embodied carbon within any new developments from 2030 onwards.

Roadmaps have been developed for each of our funds, detailing the various carbon emissions reduction initiatives required at an asset level to achieve net zero carbon emissions (scopes 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 (scopes 1 and 2) across our five funds.

Figure 10: QIC Real Estate portfolio summary - Net zero carbon emissions roadmap

* All long term objectives, short term targets and net zero carbon emissions targets apply to assets that are 100% owned and managed by QIC (making up the following percentages of each Fund's portfolio value at 30 June 2024 - QTCF: 90%, QPF: 88%, QARP: 100%, QACPF: 91%, QOF: 98%). Short term targets to reduce carbon emissions are 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/QTCF: ~70%, QOF: ~60%, QARP: ~64%, QACPF: ~68%) and reduction in electricity consumption through efficiency upgrades (QPF/QTCF: ~25%, QOF: ~35% including efficiencies achieved to date (~26%), QARP: ~21%, QACPF: ~22%). Baselines: (QPF/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). All funds are signatories to the World Green Building Council's Net Zero Carbon Buildings Commitment. 

³⁵ 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 2024 - QTCF: 90%, QPF: 88%, QARP: 100%, QACPF: 91%, QOF: 98%). 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, QOF, QARP and QACPF are signatories to the World Green Building Council's Net Zero Carbon Buildings Commitment.

Fund level roadmaps detailing our strategy to achieve net zero carbon emissions by 2028 can be found here: Fund level net zero carbon emissions roadmaps.

FY24 carbon emissions performance

To track performance towards our 2028 net zero carbon emissions objectives, we set interim, year-on-year carbon emissions reduction targets for each of our funds, which act as a stepping stone to achieving our longer-term carbon ambition. Performance against our FY24 targets is presented in Table 8.

Table 8: Fund level FY24 carbon emissions reduction performance against annual targets, reported using location-based approach to scope 2 emissions calculation to enable like for like comparison³⁶

Meeting our net zero carbon commitments ahead of time - QARP

In FY22, we committed to achieving net zero carbon emissions (scopes 1 and 2) by 2028 for QARP. This commitment was formalised when the Fund became a signatory to the World Green Building Council’s Net Zero Carbon Buildings Commitment in April 2023.

QARP has achieved its target ahead of time and commenced operating at net zero carbon emissions (scopes 1 and 2) from 1 April 2024⁴⁰. This is currently undergoing verification via Climate Active certification, which is awarded to businesses and assets that have reached a state of carbon neutrality based on an agreed emissions boundary for a specific certification type.

The early achievement of this target is a significant milestone not just for QARP, but also for QIC Real Estate’s broader ESG journey.

As at 30 June 2024, QARP’s assets included Domain Central (QLD), Craigieburn Junction (VIC) and Bathurst City Centre (NSW). These assets are using the Climate Active Carbon Neutral Standard for Buildings (base building) using a NABERS Energy rating pathway to obtain their net zero carbon emissions certification.  

QARP’s net zero carbon emissions target was met through the implementation of various energy efficiency initiatives alongside the installation of large-scale rooftop solar across the asset portfolio, with residual emissions accounted for via the purchase of offsets which meet the Climate Active standard.

The Climate Active Carbon Neutral Standard for Buildings (base building) certification pathway broadly aligns with the boundaries of the Fund’s existing net zero carbon emissions (scopes 1 and 2) target, and includes a number of additional scope 3 carbon emissions from water supply, wastewater treatment and waste which must be accounted for in QARP’s carbon neutral operating status. A number of our property sector peers use the Climate Active certification pathway to demonstrate their net zero carbon operating status. Since FY21⁴¹, QIC has also used the pathway to certify carbon neutrality for our Australian corporate operations (scopes 1, 2 and 3).

The Climate Active Certification for the assets within QARP is expected to be finalised in Q2 FY25⁴².

³⁶ Noting we commenced reporting scope 2 carbon emissions using a market-based calculation methodology in FY24, and have also presented FY24 scope 2 carbon emissions using a location-based methodology to enable like for like comparison.

³⁷ QARP’s net zero carbon emissions operating status relates to existing assets held in the fund as at 30 June 2024 which are 100% owned and managed, using a Climate Active certification pathway and definition of operational carbon emissions which includes scope 1, scope 2 and some scope 3 (noting certification is not yet complete and is due for finalisation in Q2 FY25).  Note that while the asset level Climate Active certifications for Domain Central, QLD, Craigieburn Junction, VIC and Bathurst City Centre, NSW, once finalised, will apply from 1 July 2023, QARP’s stated date for having achieved net zero carbon emissions is 1 April 2024 onwards to allow for the Fund’s divestment of Hinkler, QLD on 27 March 2024.  Any future asset acquisitions into the Fund will be assessed for their ability to achieve Net zero carbon emissions, noting that at least 12 months of operating data covering a full financial year would be required before certification could be contemplated and achieved. The performance outcomes stated here relate to our FY24 targets, noting that our FY24 performance includes Hinkler until its divestment on 27 March 2024.

³⁸ Target for QOF is 3% reduction on FY22 performance.

³⁹ Excludes assets that are not 100% owned and managed by QIC i.e. joint venture assets.

⁴⁰ QARP’s net zero carbon emissions operating status relates to existing assets held in the fund as at 30 June 2024 which are 100% owned and managed, using a Climate Active certification pathway and definition of operational carbon emissions which includes scope 1, scope 2 and some scope 3 (noting certification is not yet complete and is due for finalisation in Q2 FY25).  Note that while the asset level Climate Active certifications for Domain Central, QLD, Craigieburn Junction, VIC and Bathurst City Centre, NSW, once finalised, will apply from 1 July 2023, QARP’s stated date for having achieved net zero carbon emissions is 1 April 2024 onwards to allow for the Fund’s divestment of Hinkler, QLD on 27 March 2024.  Any future asset acquisitions into the Fund will be assessed for their ability to achieve net zero carbon emissions, noting that at least 12 months of operating data covering a full financial year would be required before certification could be contemplated and achieved.

⁴¹ Certification and definitions in accordance with assessment criteria applied by Climate Active. Emissions boundary covers QIC Limited’s corporate office space (ABN 95 942 373 762) and excludes emissions associated with QIC’s financial investments or international offices and electricity/energy emissions from QIC’s overseas office spaces.

⁴² Note that while the asset level Climate Active certifications for Domain Central, QLD, Craigieburn Junction, VIC and Bathurst City Centre, NSW, once finalised will apply from 1 July 2023, QARP’s stated date for having achieved net zero carbon emissions is 1 April 2024 onwards to allow for the Fund’s divestment of Hinkler, QLD on 27 March 2024.

Onsite solar rollout

Our large-scale onsite solar rollout program⁴³ continued in FY24, with the completion of new rooftop solar systems at Woodgrove (VIC), Eastland (VIC), Pittwater Place (NSW) and Forest Lake (QLD). The energy generated by our onsite solar systems accounted for 19% of QIC Real Estate’s total direct energy use in FY24. System sizes and supply commencement dates can be seen in Table 9.

Table 9: QIC Real Estate solar system sizes and supply commencement dates

⁴³ Refer 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. Further information on QIC’s approach to modern slavery can be seen in QIC’s latest Modern Slavery Statement.

Initiatives completed during the year to reduce energy use across our portfolio are outlined below.

Lighting upgrades

Energy efficient LED lighting and lighting control upgrades were completed at various assets, including Woodgrove (VIC), Watergardens (VIC), Robina Town Centre (QLD) and Westpoint (NSW). The installation of energy efficient lighting and the switch from timers to LUX (light level) controllers reduces lighting operation levels and their associated energy demand. Additionally, the move to a more limited overnight lighting schedule at a number of centres has allowed safe illumination levels to be maintained while providing further energy savings.

Mechanical plant optimisation

Upgrades to vertical transport systems (elevators, escalators, and travelators) were completed utilising the latest VVVT (Variable Voltage Variable Frequency) technology at several assets including Westpoint (NSW), Castle Towers (NSW), Eastland (VIC), Canberra (ACT) and Robina Town Centre (QLD). The introduction of this technology has reduced energy consumption, extended plant and equipment lifecycles, improved diagnostic features to reduce downtime and provided a smoother ride experience for customers.

HVAC system upgrades were delivered at Watergardens (VIC) and Domain Central (QLD), along with ongoing plant upgrades at Canberra Centre (ACT) and Eastland (VIC). Further upgrade projects are planned at Grand Central (QLD) and Eastland (VIC) in FY25.

Data analytics and plant optimisation

QIC Real Estate continues to leverage CIM’s PEAK Platform to enhance operational efficiencies and sustainability outcomes across our retail portfolio. The analytics software is deployed across 20 assets, integrating data from five Building Management System (BMS) vendors, and monitoring nearly 8,000 pieces of equipment. With approximately 1.5 billion data points captured annually and over 1,000 actions resolved at a 95% closure rate, the PEAK Platform continues to drive sustainability, operational efficiency, and cost savings across our portfolio.

As we continue our focus on electrification, the PEAK Platform has enabled comprehensive monitoring of gas meters in major mechanical heating plant rooms. This data will be crucial for benchmarking loads and guiding future electrification projects. In FY24, we have installed gas meters across major plant and equipment at Canberra Centre (ACT) and Eastland (VIC).

QIC Real Estate saw a 4% reduction in total energy consumption in FY24 compared to FY23. This was driven by a 28% reduction in natural gas use year-on-year, as a result of a milder shorter winter (and enhanced by operational boiler efficiency measures) experienced across our Victorian, New South Wales and Canberra-based assets in FY24. The majority of natural gas usage across the portfolio occurs at assets located within these States and Territories.

Electricity consumption in FY24 continues to represent the return to normal operating conditions experienced from FY23 following the significant disruption to operations experienced across the portfolio in previous years because of COVD-19 lockdowns. Electricity demand increased by approximately 5% in FY24 compared to FY23, driven in part by increases in electricity use seen at a number of retail assets for which BMS upgrades are planned in FY25, as well as increased electricity use across the QOF portfolio of office assets as a result of higher occupancy levels in FY24 compared to previous years, which have been slower to recover post COVID-19 than across our retail assets.  These aspects offset the energy efficiency gains achieved from the initiatives outlined in the section above.

Electricity generated from onsite solar PV increased by ~15% in FY24 compared to FY23.

Figure 11: QIC Real Estate portfolio annual energy consumption and intensity, FY19-FY24⁴⁴

⁴⁴ Energy use data covers QIC Real Estate’s retail, office and industrial portfolios. 

Figure 12: QIC Real Estate portfolio annual carbon emissions (location-based Scope 2), FY19 - FY24⁴⁵

⁴⁵ Carbon emissions data covers QIC Real Estate’s retail, office, and industrial portfolios. Scope 3 carbon emissions increased in FY21 due to the commencement of capturing energy use and emissions from major tenants. Market based reporting has commenced in FY24. Any performance graphic reporting “market-based” scope 2 emissions calculation only includes market-based reporting for FY24. Prior years performance is shown using “location-based” reporting for scope 2 carbon emissions calculation. Any performance graphic reporting “Location Based” scope 2 emissions calculation includes location-based reporting for all years shown, including FY24, and allows like-for-like comparison.

Figure 13: QIC Real Estate portfolio annual carbon emissions (market-based Scope 2), FY19-FY24⁴⁶

⁴⁶ Net zero carbon emissions target apply to assets that are 100% owned and managed by QIC (making up the following percentages of each Fund's portfolio value at 30 June 2024 - QTCF: 90%, QPF: 88%, QARP: 100%, QACPF: 91%, QOF: 98%). Short-term targets to reduce carbon emissions are 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/QTCF: ~70%, QOF: ~60%, QARP: ~64%, QACPF: ~68%) and reduction in electricity consumption through efficiency upgrades (QPF/QTCF: ~25%, QOF: ~35% including efficiencies achieved to date (~26%), QARP: ~21%, QACPF: ~22%). Baselines: (QPF/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). All funds are signatories to the World Green Building Council's Net Zero Carbon Buildings Commitment. 

In considering climate-related transition risks and opportunities across our key decision-making processes, we focus on integrating our net zero carbon emissions by 2028 objectives across each of our funds, and the outcomes of any other relevant assessment work, in the following ways.

Active asset management

Within our active asset management processes, our efforts are focused on transitioning the assets within each of our funds to net zero operational carbon emissions, identifying and employing new business opportunities, and continually improving internal data management and reporting processes to ensure we can meet rapidly evolving climate-related reporting obligations.

QIC Real Estate has committed to achieving net zero carbon emissions (scopes 1 and 2) by 2028 across each fund.⁴⁷ Roadmaps to achieve net zero carbon emissions have been developed for each fund based on asset level carbon reduction opportunities, and are updated annually. Carbon emissions reduction initiatives included in the roadmaps are incorporated into asset level capital plans and annual budgets. They inform the delivery of our annual carbon reduction objectives which act as stepping stones to achieving our longer-term net zero goals. We also seek to identify and employ new business opportunities such as the use of supportive policy incentives like the Victorian Energy Upgrades program and the roll-out of electric vehicle charging stations at our retail assets.

During FY24 we marked an important milestone in our ongoing management of climate-related transition risks and opportunities across the Real Estate portfolio, with QARP achieving its net zero carbon emissions objective ahead its 2028 target date⁴⁸.

Development projects

Within our development processes, our focus is on ensuring our development and major renovation projects align with the concept of a low carbon economy. We want our new developments to be highly energy efficient, low in embodied carbon, avoid the use of fossil fuels and maximise onsite renewable energy generation.

Our Sustainable Design Brief guides ESG decision making in our development work and embeds our ESG strategy and long-term ESG objectives into our building design and delivery activities, clearly stating our minimum requirements regarding sustainability performance of new developments and major renovations, and ensuring we maximise the improved investment performance that highly efficient, sustainable buildings can deliver.

Capital transactions

A separate process is used to assess climate-related risks within any capital transactions that we undertake, which leverages knowledge gained from progressing our net zero operational carbon objectives across the existing portfolio through our fund level decarbonisation roadmaps.

A review of climate-related risks is included in an early stage ESG assessment undertaken on prospective asset acquisitions, to help the business understand how a potential property acquisition might either support or hinder our current ESG performance levels and the ongoing delivery of our ESG strategy and long-term objectives. During this assessment, climate-related transition risks are assessed through the lens of the property’s existing energy efficiency and operational carbon emissions, the effort and cost required to maintain our portfolio-level energy and carbon performance, improve energy efficiency and achieve net zero operational carbon emissions in line with our existing 2028 net zero carbon emissions (scopes 1 and 2) target.

If our interest in a potential property acquisition progresses to the technical due diligence stage, we require the assessment of climate-related transition risks and opportunities related to the prospective asset using scenarios that align with our existing assessments - Representative Concentration Pathways (RCPs) of RCP 2.6, RCP 4.5 and RCP 8.5 and time horizons of 2030, 2050 and 2070. This provides us with a more granular view of the effort and cost associated with the potential property acquisition to maintain net zero in operational carbon emissions if already achieved, or reach this by our targeted date of 2028. The results of the assessment are incorporated into the overall evaluation of the investment opportunity.

Potential asset divestments are assessed against how it may impact our current ESG performance levels and ongoing ability to achieve our ESG strategy, related long-term objectives, and net zero carbon emissions targets. Additionally, information on current energy performance of an asset is provided to prospective buyers as part of the sale process.

⁴⁸ QARP’s Net zero carbon emissions operating status relates to existing assets held in the fund as at 30 June 2024 which are 100% owned and managed, using a Climate Active certification pathway and definition of operational carbon emissions with includes scope 1, scope 2 and some scope 3 (noting certification is not yet complete and is due for finalization in Q2 FY25).  Note that while the asset level Climate Active certifications for Domain Central, QLD, Craigieburn Junction, VIC and Bathurst City Centre, NSW, once finalised, will apply from 1 July 2023, QARP’s stated date for having achieved Net zero carbon emissions is 1 April 2024 onwards to allow for the Fund’s divestment of Hinkler, QLD on 27 March 2024.  Any future asset acquisitions into the Fund will be assessed for their ability to achieve Net zero carbon emissions, noting that at least 12 months of operating data covering a full financial year would be required before certification could be contemplated and achieved.

The following tables present the material climate-related transition risks and opportunities, relevant time horizon, potential financial impacts identified through assessment of climate-related risks and opportunities, and our responses to manage these. The risks and opportunities are outlined in Table 10 and our corresponding management responses relate to both the real estate portfolio and fund level (QPF, QTCF, QACPF, QARP and QOF).

Table 10: Climate-related transition risks and opportunities for QIC Real Estate

⁴⁹ QARP’s Net zero carbon emissions operating status relates to existing assets held in the fund as at 30 June 2024 which are 100% owned and managed, using a Climate Active certification pathway and definition of operational carbon emissions with includes Scope 1, Scope 2 and some Scope 3 (noting certification is not yet complete and is due for finalization in Q2 FY25).  Note that while the asset level Climate Active certifications for Domain Central, QLD, Craigieburn Junction, VIC and Bathurst City Centre, NSW, once finalised, will apply from 1 July 2023, QARP’s stated date for having achieved Net zero carbon emissions is 1 April 2024 onwards to allow for the Fund’s divestment of Hinkler, QLD on 27 March 2024.  Any future asset acquisitions into the Fund will be assessed for their ability to achieve Net zero carbon emissions, noting that at least 12 months of operating data covering a full financial year would be required before certification could be contemplated and achieved.

QIC Real Estate’s approach to managing climate-related risk has been developed in response to the outputs of our work to assess the financial impacts of physical climate risk on each of our assets and funds. Our assessment of the financial impacts of physical climate risk has involved consideration of both acute and chronic risks across scenarios that broadly align with the low, medium, and high emissions scenarios described by IPCC-developed RCP 2.6, RCP 4.5 and RCP 8.5.

Assessing physical climate risk

In 2021, we undertook an assessment to provide an overview of physical climate risk exposure across our managed asset portfolio, including the possible impacts of a set of consistent climate variables across each asset.

This year, we built on our 2021 assessment, and continued our work with an actuarial and insurance consultant with specific expertise in physical climate risk to evaluate and quantify the financial impacts of climate change at an asset, fund and portfolio level. This work used a methodology that is specific to our Real Estate and fund level business models, adaptable across our diverse asset portfolio and uses a consistent framework to ensure the results can be rolled up into a fund and real estate portfolio view.

In trying to understand the possible financial impacts of physical climate risks and opportunities across our portfolio, we undertook an assessment of the relationship between climate events (known as ‘climate drivers’, including both acute and chronic risks) and the Net Operating Income (NOI) for each asset. This included modelling the potential impacts (both positive and negative) up to 2070 under three climate scenarios (RCP 2.6, RCP 4.5 and RCP 8.5) and four climate models (classified as: Hot/Dry, Cool/Dry, Hot/Wet, and Cool/Wet), across several relevant asset level income and expense items, as shown in Figure 14.

Figure 14: Impact of climate drivers on net operating income for QIC Real Estate^50,51

⁵⁰ Management controlled rental affected by chronic climate drivers included car parking income, but did not include storage income. 
⁵¹ The impact of blackouts on assets was not modelled in this iteration of the modelling.

Figure 15: Formula for calculating the change in net operating income and asset value as a result of climate drivers

This assessment has enabled us to identify the expected relative impact of climate change (positive or negative) across relevant asset level income and expense items, and therefore net operating income (NOI), over each time horizon at a fund level and across the portfolio. The assessment focuses on the relative impact of each climate driver and has highlighted those most material to the financial performance of our assets. The outputs of this assessment are helping us prioritise the implementation of further asset level mitigation measures that respond to the climate drivers identified as having the largest relative financial impact.

This work was finalised during FY24. It will be reviewed annually as part of our risk management processes and repeated periodically (likely every 5 years) at an asset, fund and portfolio level, incorporating current climate science.

Managing physical climate risks and opportunities

Our assessment of the financial impacts of physical climate risk has focused on understanding the inherent risk of a set of chronic and acute climate events at each asset. We can then overlay the existing risk mitigation and management measures to understand the residual risk of each identified climate risk at an asset and fund level across our portfolio. In assessing the risks, we consider the worst-case outcomes from the various climate scenarios and time horizons, and existing risk mitigants, as assessed within QIC’s Risk Management Framework.

This process has helped us understand the overall resilience of existing strategies and measures at each asset to mitigate climate-related risks and identify further actions for implementation, prioritising those that respond to climate risks likely to have the greatest financial impact.

In considering physical climate risk across our key decision making processes, we integrate the outcomes of our assessment work in the following ways:

Active asset management

The results of our work to understand the possible financial impacts of climate change have informed the assessment, management and prioritisation of climate-related risks in asset level risk registers. These are established and maintained through our WHS&E management system. These risk registers use QIC’s enterprise-wide risk matrix to:

1. Assess the inherent risk rating
2. Document existing risk mitigation controls
3. Assess the residual risk rating considering the controls in place
4. Identify and manage the implementation of any additional risk mitigation initiatives, focusing on those that respond to the risks expected to have the biggest financial impact to an asset.

The specific consideration of climate-related risks in our standard operational risk management processes ensures that:

• Asset specific experience and operational knowledge contributes to the risk assessment
• Climate-related risks continue to be assessed and managed within our existing management processes
• Roles and responsibilities for managing risk are clearly defined
• The implementation of additional risk mitigation initiatives is incorporated into capital and operational budgets, and tracked and reported on.

This approach enables the management of physical climate-related risks and opportunities to follow the same process at the fund and portfolio level, in line with QIC’s broader risk management processes.

Development projects

Within our development processes, the results of our work to understand the possible financial impacts of climate change have informed project-specific climate change risk assessments, and the resulting climate adaptation measures have been incorporated into our projects. The results have also informed climate resilience guidance contained in our Sustainable Design Brief.

Our Sustainable Design Brief embeds our ESG strategy and long-term ESG objectives into our building design and delivery activities, including those related to physical climate resilience, clearly stating our minimum requirements regarding the sustainability performance of new developments and major renovations, and ensuring we maximise the improved investment performance that sustainable and resilient buildings can deliver.

Capital transactions

A separate process is used to assess physical climate-related risks within any capital transactions we undertake. This leverages the knowledge gained from the financial climate assessment completed across our existing portfolio, and helps evaluate how an acquisition or divestment might impact our overall risk exposure at a fund and portfolio level.

A review of physical climate-related risks is included in early stage ESG assessments of prospective acquisitions to help the business understand whether an acquisition might pose a risk to, or support, the delivery of our ESG strategy and long-term objectives at the fund and portfolio level. Climate-related physical risks are initially assessed via Munich RE’s Location Risk Intelligence portal. This portal provides location-specific exposure ratings for a range of climate-related physical risks under two climate scenarios (RCP 4.5 and RCP 8.5) over three time horizons (2030, 2050 and 2100), and provides an initial view of the asset’s risk exposure compared to other assets within the fund and broader real estate portfolio.

If our interest in a potential acquisition progresses to technical due diligence, we require a deeper dive assessment of climate-related physical risks (including acute and chronic risks) and opportunities related to the prospective asset using scenarios that align with our existing analysis - RCP 2.6, RCP 4.5 and RCP 8.5, and time horizons of 2030, 2050 and 2070. The results of this assessment are incorporated into the overall evaluation of the opportunity, which includes consideration of the potential financial implications the asset’s risk exposure might have at both the fund and broader portfolio level.

Potential divestments consider asset level climate risk as determined by our physical climate risk assessments, which may partially drive our decision to divest. Due diligence information provided to prospective buyers includes an assessment of the potential physical climate risks exposures, as assessed via Munich RE’s Location Risk Intelligence portal.

Material climate-related physical risks

Table 11 shows the material climate-related physical risks, relevant time horizon, potential financial impacts identified through assessment of climate-related risks and opportunities, and responses to manage these. Physical climate risks are deemed material if the risk is assigned an inherent risk rating of ‘Medium’ or higher⁵²as assessed within QIC’s Risk Management Framework.

The risks and opportunities outlined below, and our corresponding management responses relate at both the real estate portfolio and Fund level (QPF, QTCF, QACPF, QARP and QOF).

⁵² Using a scale of Very Low, Low, Medium, High and Very High, as assessed within QIC’s Risk Management Framework.

Table 11: Material climate-related physical risks for QIC Real Estate

Table 12 shows the residual risk ratings of the material climate-related physical risks as a percentage of QIC Real Estate’s portfolio gross asset value. The ratings demonstrate the overall resilience of our existing portfolio, and strategy related to managing climate-related physical risks.

Table 12: Residual risk ratings as a percentage of QIC Real Estate portfolio gross asset value (30 June 2024)

⁵³ Assets not currently assessed represent 2% of portfolio gross asset value and include a development site and two industrial assets acquired in FY23 under joint venture, and another joint venture asset managed by the co-owner. Risk assessments on these assets will be undertaken as part of our next assessment cycle.

In 2019, QTCF issued a A$300 million Climate Bond Initiative (CBI) certified green bond, a world-first for the retail property sector and an important milestone for QTCF, endorsing our 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 2023 calendar year Green Bond update report here.

The QTCF 2023 calendar year Green Bond update report has received limited assurance from Sustainalytics. Their annual review letter can be viewed here.