Governance

Good governance and broad oversight across all levels of Prologis help ensure resilience throughout the organization. They enable us to be proactive in anticipating market, regulatory and environmental changes—and help us adapt to them. Our overall approach to risk management preserves our business value and enables us to deliver results to our stakeholders.

Strong Oversight Preserves Value

Integrated oversight across all levels of the company helps preserve value and proactively mitigate risk. It supports financial, structural, operational and reputational resilience to our business. The resilience and dependability of our business makes us a reliable partner for our customers, investors, employees and communities.

Prologis’ ESG program is overseen by our board governance and nomination committee. The ESG team reports directly to our chief legal officer and general counsel who reports directly to our chief executive officer. Keeping an “ear to the ground,” our directors meet with employees and visit our properties to ensure that the vision, strategy and culture of the company is aligned and embraced at all levels. 

Beyond the board level, we are committed to rigorous oversight at all levels. We have an active investment committee that performs diligence over every capital decision to ensure that the company’s financial assets are protected. Our property managers and maintenance technicians are on the ground in every region and all markets, keeping close watch over our customers and our facilities so they can quickly respond to their needs. Our Risk Management team actively evaluates our portfolio exposure to ensure we have sufficient coverage and protection of our facilities and are prepared for whatever changes may come.

Risk Management Ensures Resilience

ESG is incorporated as a key principle across other functions within the business, including how the company evaluates and mitigates risk. We proactively manage financial, operational, organizational, emerging and macroeconomic risks through a dynamic risk oversight framework that includes:

  • Board engagement with executive and risk management teams, including risk assessment mapping and one-on-one interviews between each director and our risk management team.
  • Executive management committee meetings focused on strategic risks. 
  • A structured approach to capital deployment vetted through weekly investment committee meetings.
  • One of the strongest balance sheets in the REIT industry.
  • A dedicated and empowered cybersecurity team charged with addressing the rising challenges of data protection and security.
  • Rigorous internal and third-party audits that assess the company’s controls and procedures.
  • A centralized team, closely aligned with their counterparts in each market, dedicated to managing risk globally.

Effectively identifying and managing risk is critical to maintaining business resilience and operational continuity. At Prologis, ESG has always gone hand in hand with risk management. We take a proactive approach to assessing natural hazards and climate exposures across our portfolio, including earthquakes, windstorms, floods and coastal exposure. These assessments allow us to determine the appropriate risk mitigation measures for our portfolio and plan for longer-term trends. We take preventative measures to improve the resiliency of our buildings to promote business continuity in our customers’ operations.

In the last several years, we have been fortunate to avoid catastrophic losses caused by natural disaster, but we always seek to be better prepared for the next major event. Because of the scale of our business, we are able to negotiate broad coverage at competitive terms and priority status with nationally recognized service providers. For example, in 2019, Hurricane Dorian's path threatened our South Florida portfolio. The local Prologis teams worked around the clock as the hurricane advanced toward Florida, preparing for the worst. They engaged with our builders, roofing vendors and restoration contractors in advance so that we could make any needed repairs quickly. We also obtained FAA clearance for third-party drone assessments of our roofs to assist in our expedited response. There was constant communication with customers about the status of our buildings, as well as among our team members who regularly checked in through our automated safety response system to ensure that all Prologis employees remained safe as the storm passed. Looking longer term, other risk mitigation measures include site selection and enhanced construction specifications, such as increased floor heights in flood-prone areas, resiliency planning, onsite emergency response plans and equipment, safety preparation and comprehensive insurance infrastructure that leverages our scale to cover potential damage.

Prologis Alignment with TCFD

TCFD Logo Reverse

In our stakeholder outreach programs, we listen to our stakeholders’ needs. Investors and other stakeholders identified the Task Force on Climate-related Financial Disclosures (TCFD) as a guiding framework for companies to show how they are responding to climate change. In response, we created a mapping tool to demonstrate our program’s alignment with the TCFD core elements, as outlined below:

     

    Governance

    • Risk, including climate-related risks, are part of the Prologis board’s oversight responsibility. Recent board updates have focused on coastal risks, as well as ESG progress on greenhouse gas (GHG) reduction and solar array installations.
    • Our chief legal officer and general counsel oversees both the Risk Management and ESG teams with broad support and engagement across the entire organization. One example is our structured Investment Committee process, overseen by our Executive Committee, that requires risks and ESG considerations be evaluated for every investment.  

    Strategy

    • Material risks and opportunities associated with climate change are evaluated.  
    • Risks include increasing severe weather, flooding or coastal risk.
    • Opportunities include enhanced energy efficiency products and renewable energy development.
    • Business considerations evaluated under short-, medium- and long-term timeframes.

    Risk and Opportunities

    • Acute and chronic climate-related risks are evaluated at an asset and portfolio level. Third-party risk assessments and internal risk indexing tools developed by our GIS team provide a good understanding of our risks, allowing for preventative risk mitigation when appropriate.
    • Global Risk Management and ESG teams work with our local market teams to consider risks and opportunities and ensure our portfolio remains resilient over the term of our ownership and beyond.
    • Climate risks are considered within the company’s annual risk mapping and comprehensive Dynamic Risk Oversight strategy.

    Metrics & Targets

    • One of the primary metrics for assessing climate-related risks and opportunities is Prologis’ science-based target (SBT) for reducing GHG emissions. In addition to measuring progress toward our SBT, Prologis also measures efforts to enhance the efficiency and sustainability of our assets.
    • We aim for 100% LED lighting across our global portfolio by 2025.
    • We aim for 400 MW of installed solar capacity by 2025.

    Guarding Against Natural Disasters

    Prologis is vigilant in assessing our exposure to natural hazards affecting our portfolio and commits the appropriate resources to ensure that we are proactive in preparation, protection and response to minimize any impacts to our customers, our business and our employees. 

    Mitigation includes facility location planning, building design and significant investment in voluntary measures, including seismic retrofits to improve a property’s resiliency. We incorporate features into our building design to mitigate both short-term and long-term risks arising from our changing climate. Prologis has a Disaster Preparedness and Recovery Plan to help prepare our employees for potential hazards. Training includes an equal balance in preparedness at home and at work. Technology tools are in place to ensure employees can communicate even when there are network outages.  

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    Safety

    Safety is foundational to our business. Prologis maintains high safety standards within our construction practices to actively ensure the safety of our employees, customers, suppliers and contractors. For our global developments, Prologis offers a third-party administered anonymous safety hotline available to all internal and external parties where safety concerns may be reported.

    Another safety measure that was implemented throughout 2019 was the requirement that each development project have a dedicated person responsible for safety. The dedicated safety professional oversees and flags any safety concerns before they can turn into a greater hazard. Beyond the safety professional, Prologis has also conducted additional audits of some of our development sites to ensure that safety measures are being implemented and followed.

    We continue to engage with our general contractors as partners in promoting safety. In 2019, we hosted the second annual general contractor safety summit where we identified pathways to further enhance safety across all of our construction projects.

     

    I-17 Logistics Center Construction

    Prologis I-17 Logistics Center, Phoenix, Arizona.

    Human Rights, Ethics and Strong Governance

    Integrity is the cornerstone of every action we take. Our word is our bond. This forms the critical foundation of the partnerships we establish with our customers, investors, employees and communities. Stakeholders trust that we conduct business fairly, ethically and in full compliance with all laws and regulations.

    Prologis has a long-standing Code of Ethics and Business Conduct and a Global Anti-Corruption and Foreign Corrupt Practices Act (FCPA) Policy, which are applicable to all employees and the board. Every Prologis employee must commit to our Code of Ethics and Business Conduct. All new hires receive extensive ethics training at the commencement of their employment. The company also provides regular ethics training in every country where we do business, as well as in-person FCPA training in Mexico, Brazil, China and Europe. In 2019, 100% of our employees participated in such training in their local language. Our Code of Ethics and Business Conduct and our Global Anti-Corruption and FCPA Policy have been translated into 16 languages and can be found on our website, as well as posted on our intranet. Any ethics concerns can be reported via an anonymous, 24-hour ethics helpline or through direct communication with management. Any concern is thoroughly evaluated by our Ethics Committee, which prescribes solutions to address any concern. Our commitment to doing business ethically and with integrity ensures that we continue to serve our customers and that we are a trusted long-term partner for them, our investors, our employees and our communities.

     

    Town Hall

    Quarterly town hall at our San Francisco headquarters.

    Prologis’ policies also include a commitment to protecting human rights. We have adopted responsible workplace practices and endeavor to conduct business operations in a manner free from complicity in human rights abuses. In particular, Prologis’ core values and culture of integrity (I), mentorship (M), passion (P), accountability (A), courage (C) and teamwork (T)—IMPACT—embody a commitment to ethical business practices and strong corporate citizenship. It is Prologis’ policy and practice to provide equal employment opportunities to all individuals, free of discrimination regardless of race, gender, gender identity, creed, religion, sexual orientation, marital status, national origin or ancestry, sex, age, physical or mental disability, medical condition or veteran status.

    Prologis recognizes that governance cannot just be a top-down, management-led initiative. It requires the support and input from all employees at every level of the company. As noted previously, we've created two hotlines to enable employees and external stakeholders to express their concerns about possible ethics or safety violations.

    In 2019, Prologis received 16 inquiries directly through our internal Ethics Helpline, a confidential third party-administered helpline for reporting suspected Code of Ethics and Business Conduct violations. Prologis received six additional inquiries for suspected violations through regular communication channels with management. Of the twenty-two total reports, as of December 31, 2019, five remained as ongoing investigations. For each of the substantiated reports, appropriate action was taken and the matters are considered resolved.

    Guarding Against Corruption

    Corruption is an obstacle to trade and undermines fair business practices. Prologis has a zero-tolerance policy for bribery and corruption. We act with professionalism, fairness and integrity in all our business dealings and relationships. Our employees and board members receive regular training—in their local language where appropriate—on our Code of Ethics and Business Conduct, information security, global fraud prevention and the Global Anti-Corruption and Foreign Corrupt Practices Act (FCPA) policy to ensure they remain current on ethical issues and corporate expectations.

    100% of global operations are assessed for risks related to corruption. Our internal control processes assessed our operations for risks related to corruption, including risks regarding documentation for competitive bidding of contract work, proper monitoring of actual costs against budgets and forecasts, the comprehensiveness of corruption policies, training and rigor of investigations and enforcement of policy violations, the sufficiency of the “tone at the top” to combat corruption and the conduct of proper third-party due diligence. After the risk assessment, it was determined that Prologis does not have any significant risks related to corruption that aren’t already managed through various processes and policies.

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    ESG Governance at Prologis

    Governance at Prologis Infographic

    Investment Committee Evaluation with ESG Focus

    Prologis takes a long-term view to all investment decisions, including developments, acquisitions and dispositions. Our Investment Committee, comprised of senior leaders (including ESG leadership), conducts this review process. They conduct a multilayered evaluation of all investments, considering the ROI from all angles, including ESG. The many checks and balances for each investment decision ensure that capital is allocated responsibly, thereby preserving Prologis’ financial strength and resilience. By incorporating ESG into the Investment Committee’s evaluation and maintaining a strong focus on ESG within our business, Prologis aligns with the six Principles for Responsible Investment (PRI). See a map of our alignment to PRI.

    Opportunity

    Department input from global platform provides analysis of investment criteria

    • Legal
    • Tax
    • Accounting
    • Risk Management
    • Operations/Property
    • Management
    • Development
    • Essentials

    Plus others

    Criteria

    Environmental Risks & Opportunities

    • LED/solar opportunities
    • Climate/weather-related risk
    • Environmental remediation

    Social Responsibility

    • Municipal requirement
    • Workforce proximity

    Governance and Resilience

    • Financial Resilience (e.g. IRR, cap rates, tax considerations)
    • Operational Resilience (e.g. building features meet customer needs)
    • Customer business continuity

     

    Initial Evaluation

    Highest executives and rotating members that ensure the inclusion of new, diverse perspectives

    Committee consists of:

    • Permanent investment committee members (i.e. CEO, CFO, CIO, COO, CLO, CCO)
    • 5 rotating members from Europe/Americas
    • 4 rotating members from Asia

    Final Approval

    Ensure the responsible allocation of capital to maintain Prologis’ financial resilience

    Initial IC feedback implemented and resubmitted for final approval, as necessary

     

    Board Oversight and Outreach

    Avid Modjtabai

     

    Prologis welcomed Avid Modjtabai as a new independent director in February 2020. Ms. Modjtabai brings extensive finance and technology expertise, along with a strong focus on customer experience as a 27-year veteran at Wells Fargo bank.

    Prologis’ Board of Directors has final oversight over our ESG program through the Governance and Nomination committee.

    In 2019, our directors joined our senior management team to participate in outreach efforts through our Governance and ESG Roadshow, engaging more than 70% of our public investors.

    Board Composition and Diversity1

    2019 Board Tenure

    5 new directors in the last five years

    27% female (3 directors)

    41–72 year age range

    82% of Board geographical composition relates to key markets in which we do business3

    84% of our top 25 customers covered in the 10+ industries represented by the Board

     

    1. Directors nominated for election at our 2020 annual meeting of shareholders.
    2. Although the entire Board was rebuilt at the time of the AMB- ProLogis Merger in 2011 and the tenure of the rebuilt Board started at that time, we include four members in the 12+ year category. as they were directors of the legal acquirer prior to the Merger.
    3. Based on geographical area of current residence.

     

    Sustainable Supply Chain

    As the provider of well-located, modern, efficient logistics facilities, we are a component in our customers' supply chain, and we can serve to help them make progress toward their own sustainability goals. This includes working with customers to gather data on building performance that is used for reporting and to prioritize investments to improve building efficiency. By incorporating ESG concepts into our lease agreements, we were recognized as a Gold-level Green Lease Leader again in 2019. These collaborative relationships, which further our joint and individual ESG efforts, help unlock value for both our customers and our business. 

    Our procurement team is positioning the company to better leverage our data, scale and spend on construction, operations, capital and administrative expenses. We are working to ensure consistent standards and practices across our platform, achieve cost savings and share the resulting benefits with our customers. We typically ensure that the two largest material components of our facilities, concrete and steel, are purchased from local suppliers. Partnering with local businesses allows us to invest in the communities where we operate, spurs local employment opportunities, and reduces shipping and transportation costs and their associated environmental impacts.

    We hold our suppliers and contractors to high standards. We do this initially through our Supplier Code of Conduct. Furthermore, we engage with a global supply chain risk management evaluator to conduct prequalification assessments of potential suppliers to ensure they meet our standards.

    Learn More About Governance

    For a complete description of Prologis’ corporate governance practices and our approach to risk management, please refer to our Proxy statement and our 2019 Form 10-K, or visit the Investor Relations page on our corporate website.

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