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ESG at EQC

At Equity Commonwealth, we believe that sustainability, social responsibility and strong corporate governance are key contributors to our success. Our approach to Environmental, Social and Governance (ESG) matters is all-inclusive, addressing our effect on the environment, our social impact and our relationships with all of our stakeholders, including our shareholders, tenants, employees and vendors.

The Company’s ESG program actively manages environmental impacts and climate-related risks and opportunities. Our environmental and climate strategic planning and initiatives, combined with our targeted capital investments, are aimed at reducing carbon emissions, mitigating risks and potentially realizing climate-related opportunities that benefit our stakeholders.

Equity Commonwealth's ESG focus includes:

maintaining high corporate governance standards that are aligned with the interests of our stakeholders

implementing a diversity, equity and inclusion initiative

emphasizing diversity of all types as an important part of our culture

efficiently managing energy costs
independent auditing of greenhouse gas (GHG) emissions
assessing present and future climate-risk to business and properties

creating high levels of stakeholder satisfaction

actively engaging in our communities

employee-driven sustainability working group that collaborates on ways to be more socially and environmentally conscious

Social Responsibility

We believe in a shared commitment to diversity, ethics, integrity and community engagement, which commitment serves as the foundation of our corporate purpose.

We have fostered a culture at Equity Commonwealth based on a meritocracy where integrity, diversity of opinion, working passionately and collaboration are fundamental. We believe that diversity of all types brings varying perspectives, encouraging differing viewpoints in order to effectively manage risk and create value.

We have continued to focus our efforts in the areas of diversity, equity and inclusion (DE&I), as well as employee health and well-being. Our President and CEO David Helfand signed the CEO Action for Diversity & Inclusion Pledge as a signal that we will put DE&I into action by creating a culture of involvement, respect and connection, where all employees’ voices are heard. Our goal is to create and sustain an inclusive environment where diversity thrives and employees want to work. Our vision of diversity includes race, gender, age, sexual orientation, physical ability and ethnicity, among others, and celebrating diversity is one of our core values.

The Company acknowledges that improving DE&I in our business will require a long-term, sustained effort. Toward that end, we launched an online weekly microlearning platform focused on diversity, inclusion and leadership development, surveyed vendors regarding the diversity of their team members and enhanced our parental leave policy to provide paid time off for primary and secondary caregivers. We also conducted stakeholder engagement surveys for both our employees and our portfolio tenants.

In our October 2022 employee survey, we had a 91% overall response rate, with 85% of the participants reporting they are “very happy” to be working at EQC. Additionally, 85% praised EQC’s open and honest two-way communication and 80% of the participants indicated that their perspective and opinions are heard and valued. Overall, the survey provided meaningful feedback and an opportunity to discuss and address employee concerns. These surveys form an important part of our ongoing focus on engagement and overall employee experience.

Our commitment to community brings active engagement, both as individuals and in our corporate capacity. We are involved with local organizations and community outreach programs, including the Greater Chicago Food Depository and other Chicago-based, grass-roots organizations.

We seek to maintain the highest standards of integrity and ethics. We have implemented a set of rules that governs our conduct and can be found in our Code of Business Conduct and Ethics, which covers our employees and trustees and applies to the Company's relationships with its vendors. This Code remains a cornerstone in fostering a respectful and ethical work experience at the Company, setting forth our anti-bribery policy, our standards with respect to compliance with the United States Foreign Corrupt Practices Act and similar governance-related matters.

Environmental Impact

In collaboration with our outside vendors Conservice ESG (formerly GOBY) and Schneider Electric USA, we monitor and manage EQC’s environmental impact through an environmental management system (EMS). The EMS tracks energy emissions and water usage, leveraging a framework similar to that of a Plan, Do, Check and Act model and in alignment with the International Organization for Standardization (ISO) 14001 EMS.

Verification under this EMS includes data intake, extraction, staging, configuration, reporting and quality assurance. In addition to the calculation of specific GHG emissions, the EMS makes usage metrics available at multiple granularities, from the portfolio to the individual meter level.

EQC then uses the collected and visualized data in an effort to create a transparent approach in identifying top and bottom-achieving performance indicators, as part of our efforts to implement improvements and track results back into the EMS.

In May 2023, Equity Commonwealth obtained an Independent Assurance Statement for Scope 2 GHG emissions, based on assertions and environmental data regarding indirect emissions from purchased electricity and water usage for CY2022. This assurance audit was performed to a limited level of assurance and materiality based on the verifier’s professional judgment, using the independent third party’s verification procedure and ISAE 3000. A copy of the Independent Assurance Statement is included in the Appendix below.

Property Sustainability

At Equity Commonwealth, we are focused on operating our properties efficiently from both an economic and environmental perspective, including by:

managing energy procurement costs with the cost-effective purchase of utilities in deregulated markets
tracking energy consumption and benchmarking properties in order to evaluate performance trends in an effort to enhance efficiency
utilizing efficient LED lighting at properties
performing HVAC retro-commissioning studies
upgrading VAV boxes to direct digital control
upgrading building automation systems
conducting annual cybersecurity risk assessments
enhancing our portfolio lease forms by incorporating additional energy conservation, energy consumption data sharing and sustainability-related clauses

Of the four properties in our portfolio as of March 31, 2023, two have been certified with the EPA's Energy Star label, and two have also achieved LEED certification from the US Green Building Council.

Equity Commonwealth has achieved LEED certification status from the US Green Building Council for the following properties:

Equity Commonwealth has achieved Energy Star certification from the EPA for the following properties:

Vendor Sustainability

We engage CBRE, Inc. to provide property management services for our properties and require its team to comply with our Code of Business Conduct and Ethics. In addition, CBRE, Inc. emphasizes its own integrated program of environmental and social responsibility, which is documented in its Corporate Responsibility Report that is available on its website.

Memberships

In 2020, Equity Commonwealth became a GRESB member and has participated in the 2020, 2021 and 2022 GRESB Real Estate Assessment. GRESB is also aligned with many of the standards set forth in the Task Force on Climate-Related Financial Disclosures (TCFD).

Equity Commonwealth has been a member of the U.S. Green Building Council since 2020.

In 2021, Equity Commonwealth's President and CEO David Helfand signed the CEO Action for Diversity & Inclusion Pledge.

COVID-19

We continue to closely monitor the COVID-19 pandemic and its impact on our business. Our priority is the health and safety of our employees, tenants and building staff. We monitor federal, state and local government requirements and guidance for operating workplaces. Our building protocols focus on enhancing building safety to lower the risk of viral transmission of COVID-19, including:

indoor air quality improvements such as MERV-13 filters and additional outdoor air ventilation, where practical
increased availability of sanitizer stations near common area touchpoints
face coverings over nose and mouth when in building common areas, where required by local law
encouraging social distancing in common areas and elevators, where required by law
offering tenants additional enhanced cleaning options for their tenant premises
following enhanced cleaning and communications protocols when notified of COVID-19 incidents in common areas or tenant premises
applying applicable CDC, ASHRAE, and WHO recommendations, where practical

Climate-Related Disclosures

Since we took over responsibility for EQC in 2014 with a new Board and internalized management team, we have become a fundamentally different company with a smaller portfolio of four higher-quality assets, a strong balance sheet with significant capacity and a track record of consistent execution. Through September 30, 2022, we completed $7.6 billion of dispositions, including the sale of 164 properties totaling 44 million square feet. As a result of these sales, we exited 116 cities, 28 states and Australia and three land parcels, and dramatically reduced our carbon footprint and the risk that climate change will adversely affect our business.*

*For purposes of this climate-related analysis and disclosure, all property calculations are based on the portfolio we took over in May 2014, including properties classified as discontinued operations as of March 31, 2014 and excluding two land parcels previously classified as properties.

The following summarizes our assessment of climate-related risk, in line with recommendations made by TCFD and GRESB, with respect to our remaining portfolio assets and corporate headquarters. In sum, we believe our remaining portfolio is well-positioned to adapt to climate-related changes that may occur for the following reasons:

Approximately 97% of our previously owned physical assets converted to cash or cash equivalents
Properties primarily located in non-coastal areas
One-half of our portfolio properties possess LEED certification
Potential to upgrade properties and achieve greater energy efficiency and resilience
Increasing energy and climate-related costs passed through to diversified tenant base

Our current state of readiness has us well prepared to navigate future challenges with the potential to seize opportunities and integrate climate change within our strategic planning. Such strategic planning, combined with our strong corporate governance, will provide us the opportunity to implement initiatives to reduce carbon emissions, mitigate risks and potentially realize climate-related opportunities that benefit our stakeholders.

Governance

Our commitment to the principles of ESG starts at the top. Our Board oversees our ESG program and initiatives, our management team regularly reports to our Board on that program and our executive officers are evaluated and compensated, in part, on the Company’s efforts with respect to ESG initiatives.

Our Board and committees, in consultation with management, actively oversee and manage the Company’s risk, including periodically reviewing our policies and procedures with respect to risk assessment and risk management. Specifically, our Board oversees climate-related risks and opportunities, aided by management-led discussions and presentations. Our Board administers this oversight function directly, with support from its three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, each of which addresses risks specific to its respective areas of oversight (https://ir.eqcre.com/committees-charters-1/default.aspx). Each committee reports its findings to the full Board.

In 2019, we formed an ESG team to focus on ESG risks and initiatives. This team is co-managed by our Senior Vice President of Engineering, Construction and Operations and our Senior Vice President – Legal. The team comprises and leverages a variety of subject matter experts within the Company (e.g., human resources, IT, leasing, legal, asset management and finance) as well as a variety of third-party consultants. The ESG team co-managers report directly to our CEO and General Counsel, who oversee the ESG team and our sustainability activities and performance. Our CEO and General Counsel regularly update our Board on sustainability initiatives.

Climate Strategy and Portfolio Resiliency

Since we took over responsibility for EQC in 2014, we reduced the risk of climate change adversely affecting our business by selling 164 of our 168 assets. The remaining risks that could disrupt business continuity and profitability include potential physical risks from extreme weather as well as business and market risks that may arise during the nation’s transition to a low-carbon economy. Our climate-resiliency efforts are focused on the physical and transition risks to our portfolio properties and corporate headquarters.

Multiple Scenarios Regarding Potential Impact of Climate‐Related Risks and Opportunities

Our four remaining portfolio properties and our corporate headquarters are likely to experience moderate-to-enhanced effects of climate change. Our corporate headquarters at Two North Riverside Plaza in Chicago, IL, comprises approximately 29,377 rentable square feet leased within an approximately 536,739 square foot office building. The primary climate risk affecting these properties is anticipated to be rising temperatures and increased storm intensity, which could result in summer drought-like conditions and flooding during winter and spring. Properties in proximity to forested areas (Bridgepoint Square in Austin, TX and Seventeenth Street Plaza in Denver, CO) face increased risk of wildfire damage and/or resulting diminution of air quality and increased air pollution. Properties in proximity to bodies of water (Herald Square in Washington, D.C. and Two North Riverside in Chicago, IL) could experience flood damage from rising sea levels and storm surge, although none of our properties are located within special flood zone hazards nor require flood hazard insurance through the National Flood Insurance Program. Our urban buildings (Capitol Tower in Austin, TX, Seventeenth Street Plaza and Herald Square) may experience urban heat island effect, exacerbating already increasing temperatures; our corporate headquarters in Chicago is not likely subject to this same risk because of Lake Michigan’s cooling effects.

From a financial perspective, electricity usage and associated costs are likely to increase at our portfolio properties with rising temperatures in the future. However, these rising regional temperatures may also result in cost savings during winter months and potentially reduced snow and ice management expenses, where applicable. At Herald Square, we purchase electricity via a locked-rate energy supply contract. The balance of our portfolio properties is under regulated electric utility contracts, where price increases must be approved by Public Utility Commissions (PUCs), who are tasked with ensuring safe, reliable and affordable utility services. Utility costs are generally passed through to our tenants pursuant to their leases.

We assess transition and physical climate risks, as well as climate opportunities, by examining the impact, probability and timeframe of when a risk could potentially commence (short-term [1-2 years], medium-term [3-15 years] and long-term [16-40 years]):

Transition Risks

Policy & Legal

Recently proposed rules and regulations adopted by the U.S. Securities and Exchange Commission may require us to incur additional compliance costs and may expose us to enforcement actions, fines, penalties and/or litigation with respect to compliance and reporting matters (short-term risk)
Mandatory or voluntary compliance with other evolving climate/emissions reporting standards (medium-term risk)
Regulations that increase the cost of utilities (medium-term risk)
State and city-level legislation that limits built-environment emissions, resulting in fines and/or alternative energy procurement costs (medium-term risk)

Technology

We anticipate that climate-related technological innovations will continue over time, potentially requiring investment in new technologies to reduce GHG emissions (medium-term risk)

Market

Reduced demand for office space (short-term risk)
Increased restrictions and initiatives related to commuting and carbon footprint (medium-term risk)
Increased cost of raw materials and utilities (medium-term risk)
Increased tenant demand for green, efficient buildings (medium-term risk)
Increased expense of construction materials (short-term risk)

Reputation

Stakeholder perceived inadequacy of our climate and ESG efforts, affecting our share value, competitiveness and tenant willingness to lease space from us (medium-term risk)
Negative investor perception of our existing portfolio properties (medium-term risk)

Physical Risks

Acute

Extreme heat: linked to droughts and increased water demand and can cause disruptions to building infrastructure, tenant dissatisfaction, increased costs of operation and decreased efficiency (medium-term risk)
Wildfires: linked to droughts and can threaten forest-adjacent areas as well as cause diminution of air quality and increased air pollution (short-term risk)
Tropical storms and tornados: potential for property damage (wind and hail) and/or power outages. Insurance costs may increase and become difficult to obtain (short-term risk)
Extreme precipitation: linked to surface water and sewage flooding (short-term risk)

Chronic:

Increasing average temperatures: increase costs of energy and water during cooling periods balanced against potentially reduced costs during heating periods and reduced snow/ice management costs (medium-term risk)
Sea level rise: risk of inundation and devaluation due to proximate increasing water levels. May require investment in flood-resistant infrastructure (long-term risk)
Urban heat island effect: linked to exacerbated heat spikes in dense impervious surface areas that increase cooling costs and health hazards (medium-term risk)

Opportunities

Resource Efficiency

Upgrade properties with capital investment to potentially reduce operating expenses and carbon footprint (medium-term opportunity)

Energy Source

Evaluate the cost effectiveness of low-carbon energy sources to incorporate renewable energy where available and appropriate (medium-term opportunity)

Products and Services

Engage with our tenants, investors and other stakeholders to understand sustainability and climate-change perspectives (short-term opportunity)

Technology

Review technology developments that produce greater operating efficiencies to offset rising energy and technology infrastructure costs (medium-term opportunity)

Resilience

Seek and assess potential partnerships with sustainability-minded service providers to increase climate resilience up and down the supply and service chains (long-term opportunity)
Market to sustainability-oriented and climate-focused tenants across our office building portfolio who are aligned with the implementation of ESG-related initiatives (long-term opportunity)

Risk Management

We periodically identify, analyze, prioritize, treat and monitor climate-related risk, including as part of our annual portfolio risk review where we assess physical risks and their potential impacts. Each year, in collaboration with our insurance broker, we review our portfolio to ensure our underwriting information and risk mitigation practices are accurately identified, estimating potential total losses for each policy period. This process identifies appropriate changes to the insurance program due to potential catastrophic natural disasters such as floods, hurricanes and earthquakes. It also allows for the confirmation that adequate coverage is placed at each portfolio building compared to potential losses.

Appendix

CY2022 Independent Assurance Statement