Environmental, Social, and Governance Objectives
BACK TO HOMECrossHarbor Capital Partners (“CrossHarbor” or “the Firm”) is an investment management firm focused on commercial real estate in the United States. The Firm is dedicated to integrating Environmental, Social, and Governance (“ESG”) practices at both the firm and investment levels of the organization. We believe that considering and managing material ESG risks and opportunities over the investment lifecycle helps us to mitigate undue risks and unlock value enhancing opportunities, allowing us to invest intelligently and better meet the financial objectives of our investors. In addition, our ESG integration framework allows us to implement and measure specific actions that support our commitment to be a responsible community citizen that promotes resource efficiency, enhanced sustainability, ethical values, equal opportunity, and high standards of transparency and integrity. Aligned with our dedication to upholding responsible investment practices, we officially became a signatory to the United Nations supported Principles for Responsible Investment (“PRI”) in 2023.
Additionally, CrossHarbor recognizes the importance of providing ample housing supply across diverse incomes and demographics through our alignment with the United Nations Sustainable Development Goal 11: Sustainable Cities and Communities. CrossHarbor funds the development and management of housing across a broad continuum of incomes to support the housing needs of all segments within the communities it invests in, including in Opportunity Zones and geographies with shortages of workforce housing. This includes conventional market rate rental apartments, senior housing, student housing, workforce housing, master planned communities, build to-rent homes, residential dwelling units (RDUs), for-sale single-family, and vacation homes.
As part of our overarching corporate goals, CrossHarbor has established the following firm-level ESG objectives:
- Diversity and Inclusion: We are dedicated to building a diverse workforce at all levels of the organization. Our goal is to create an environment where all staff members feel valued for their contribution and included in the firm’s shared success.
- Charitable Engagement: CrossHarbor supports community organizations by encouraging our employees to volunteer and serve as board members with non-profit organizations to drive positive impacts in our communities.
- Waste Reduction: We are committed to reducing/eliminating waste products, including minimizing the use of paper products at our offices, to support environmental sustainability.
- Greenhouse Gas Emissions Reduction: We aim to decrease our emissions by operating out of green building certified office buildings and promoting the use of alternative transportation methods to our employees. This effort is part of our broader strategy to reduce our environmental footprint and contribute to a healthier planet.
Purpose and Scope
This ESG Policy (“the Policy”) outlines CrossHarbor’s ESG integration approach for its investment strategies across the risk/return spectrum on behalf of a diversified and highly regarded group of endowments, foundations, public and corporate pension plans, financial institutions, family offices and sovereign entities. The Policy serves as a guide to internal and external stakeholders on CrossHarbor’s ESG objectives as part of our responsible investment guidelines and defines roles and responsibilities for the implementation and maintenance of the Policy.
The extent to which this Policy is applied will be determined on a case-by-case basis, dependent upon the Firm’s role in each given transaction and how such role affects its ability to conduct due diligence or influence integration of ESG considerations in the investment process .while upholding the Firm’s fiduciary duties and investment mandates.
Exclusions
Absent a compelling business reason, CrossHarbor does not typically invest in assets involving the displacement of low-income households, the production of nuclear, biological, and chemical weapons or their components, and the production of banned weapons such as cluster bombs, landmines, and uranium ammunition. We also exclude investments in thermal coal mining and power generation, businesses with inhumane working conditions, gambling companies (including providers of online casinos, but excluding companies that provide services or software to gambling companies), and large-scale manufacturing or factories.
Roles & Responsibilities
CrossHarbor’s investment team is primarily responsible for implementing the Policy by conducting the ESG due diligence assessment for each investment opportunity and summarizing and presenting any material findings of the assessment, along with any recommended follow-up actions, to the Investment Committee. The investment team is also responsible for working with management on any agreed-upon ESG risk mitigation or value creation initiatives post-close.
The Firm’s Investment Committee is responsible for integrating ESG considerations into investment decision-making alongside other material factors.
CrossHarbor’s ESG Committee is responsible for maintaining and overseeing the implementation of this policy, with oversight provided by executive level members. The Committee ensures that deal teams and the Investment Committee have the necessary tools, training, and capacity building for effective policy implementation. Additionally, it conducts annual reviews of the policy to determine if updates or modifications to the policy or its supporting tools are necessary.
Pre-investment
During the acquisition process, CrossHarbor’s investment team completes an ESG due diligence assessment on all new investments at the time of confirmatory diligence. The assessment provides for a differentiated approach by asset class, property type, and for new construction versus standing assets to identify material risks that could negatively impact the investment’s value, and/or opportunities for value creation.
Asset class-specific guidelines
ESG due diligence assessments for debt investments aim to front-load the ESG integration process in the pre-investment stage, recognizing the limitations for this asset class on post-close stewardship opportunities. As such, the ESG due diligence process is tailored to focus primarily on ESG risks with potential to negatively impact the investment’s value, with such risks factored into final investment decision-making as applicable.
Conversely, for equity investments it is recognized that there may be greater scope for CrossHarbor to participate in value creation initiatives over the course of the investment lifecycle. The ESG due diligence process therefore focuses not only on potential ESG risks that may pose a risk to the investment, but also risks that may be mitigated and opportunities for value creation over the ownership period. It is noted that within equity assets, the level of CrossHarbor’s influence and therefore degree to which it may participate in ESG risk management and value creation will vary by transaction, and diligence assessments for each deal will be completed in accordance with such considerations.
Property Type-specific Guidelines
CrossHarbor’s due diligence assessment criteria differ depending on property type (e.g. commercial, residential, or hospitality properties). For example in the case of commercial properties, social and environmental impacts associated with the tenants’ industry and business model may be considered. For hospitality properties, opportunities to incorporate environmental sustainability features into facility operations and the guest experience may be considered.
Development Stage-specific Guidelines
The due diligence assessment criteria also differ depending on whether the transaction involves an existing property or a new-build construction project. Factors such as tenant relations will be considered for existing buildings, and for new buildings, greater emphasis will be placed on exploring opportunities for high-efficiency systems and fixtures. In the case of CrossHarbor Institutional Partners (CIP) fund investments, construction contracts entered into directly by CrossHarbor will be subject to due diligence as per CrossHarbor’s Responsible Contractor Policy (RCP).
For all asset classes, property types and stages of development, completion of the assessment may entail discussions with our sponsors and/or borrowers on relevant ESG topics and/or requests for additional information.
ESG factors considered as part of the assessment could include, but are not limited to the following:
- Environmental factors: Energy efficiency, water management, waste management, exposure to and management of climate change risks, green building certifications.
- Social factors: Diversity, equity & inclusion, labor practices, employee health & safety, tenant relations and engagement, supply chain management, access & affordability.
- Governance factors: Business ethics, business model resilience risks, compliance with local jurisdiction benchmarking requirements and policy/regulatory changes.
Investment Decision-making
Following this assessment, CrossHarbor’s investment team reviews the findings and integrates relevant insights into Investment Committee materials along with any recommended goals, actions, and targets deemed appropriate to address material ESG risks and opportunities, and considered practicable within the context of CrossHarbor’s role and level of influence in each transaction. The Investment Committee will provide due consideration to such findings and recommendations alongside other diligence results and approve at its discretion any recommendations deemed to be appropriate for integration into deal structuring.
Post-investment
Where feasible depending on the Firm’s role and level of influence in each investment, CrossHarbor’s investment team engages in stewardship activities with property management teams post investment, as follows:
- Communicates to the relevant partners (sponsors, operating partners, or property managers, as relevant to each investment) its commitment to advancing ESG objectives, and works with such partners in mitigating material ESG risks identified during the due diligence process as appropriate, including through corrective action plans and ongoing monitoring of progress.
- Collects standard information on property managers’ ESG-related practices on an annual basis;
- Encourage property managers to identify and raise material ESG-related concerns to CrossHarbor.
- Offers support and guidance where property managers raise material ESG-related concerns or are undertaking ESG-related initiatives during the hold period.
Human Rights Considerations
In the case of CIP fund investments, it is recognized that the Firm has a relatively higher level of influence with respect to labor practices associated with its investments. As such, CrossHarbor has established a Responsible Contractor Policy (RCP) applicable to CIP investments. The RCP applies to CrossHarbor’s direct contracts for construction, tenant improvements, capital expenditures, and operational services with a minimum contract value of $100,000 annually and requires CrossHarbor to work with its JV partners to assess contractors’ labor practices and record of human rights violations as considerations in selecting and/or renewing vendor contracts.
Conflicts of Interest
At times, potential and actual conflicts of interest may arise in connection with CrossHarbor’s investment management services, including those related to ESG matters. CrossHarbor has put in place internal policies and procedures designed to disclose and mitigate the potential for such conflicts, including disclosure to and approval by our Limited Partners Advisory Committee.
Political Engagement
CrossHarbor typically does not engage in any form of political engagement, whether directly or via third-party organizations. In rare cases when the Firm wishes to participate in direct or indirect political engagement activities, a proposal for such activity will be subject to prior review by the Firm’s compliance function, and by the Firm’s ESG Committee to ensure alignment with this ESG Policy and the principles of the PRI. In addition, CrossHarbor employees are subject to the guidelines on Political and Charitable Contributions, and Public Positions as outlined in the Firm’s Compliance Manual.
Transparency & Reporting
CrossHarbor is dedicated to transparency and will provide periodic updates to its investors on its ESG activities and progress. ESG information will be included in CrossHarbor’s annual report, as well as at its annual investor meeting.
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