GRESB (Global Real Estate Sustainability Benchmark) has established itself as a globally recognized framework for benchmarking and reporting the environmental, social and governance (ESG) performance of real estate portfolios. Last month, representatives from the European commercial real estate community came together in London to attend the results launch of the 2017 GRESB Real Estate Assessment. Chris Crawshay Jones, Consultancy Manager at Schneider Electric Energy and Sustainability Services attended the event and returned with four key takeaways.
1. Membership in GRESB increasing due to demand from investor community
Every year, the number of privately held funds and listed companies participating in GRESB increases. In 2017, an impressive 850 entities jointly representing more than £2.7 trillion in assets under management submitted responses – a 20% jump from 2015. A key driver behind this shift is the increasing demand from investors for greater transparency in the management of sustainability risks and opportunities. Based on a recent GRESB survey, 94% of investor members are now using ESG data to support them when making decisions on allocating their capital. As a result, membership grows each year and investment managers are becoming increasingly motivated to improve and maintain their GRESB scores and to ensure they are keeping up with their peers. Funds that score poorly may struggle to attract future interest from investors.
Among other criteria, GRESB participants are assessed on stakeholder engagement programs. These initiatives typically start in house, focusing on employees, moving towards monitoring of supply chains and improving tenant relationships as they mature. Interestingly, there is a disproportionate gap when comparing the scores achieved by 1 and 5 Star performers – 1 Star performers are disproportionately lagging behind 5 Star companies in their Stakeholder Engagement scores compared to other assessed domains such as Management, Policy & Disclosure and Performance Indicators.
Given the significant 25% weighting of Stakeholder Engagement as a proportion of the overall score, this gap presents a real priority, and opportunity, for lower scoring funds to focus their efforts in 2018.
3. Future scenario planning impacting energy and carbon targets
Following the Paris Agreement and the establishment of the United Nations Sustainable Development Goals(SDGs), there is an aspiration to double the rate of improvement of energy efficiency by 2030 (under SDG target 7.3) to help keep global temperature increase below 2 degrees. To achieve this, global energy efficiency needs to improve with a 2.6% compounded annual rate between 2010 and 2030.
The commercial real estate sector plays a significant role in determining whether this target is met and thus the relevance of GRESB as a means to monitor, progress and galvanize these efforts is becoming increasingly clear. Based on like-for-like portfolio energy consumption as a measure of improvements in energy efficiency, GRESB participants have stayed ahead of this trajectory and are on track to meet the 2030 objective. But what about property portfolios not currently reported in GRESB? It is not clear how the sector as a whole is performing and it would be short-sighted to assume SDG 7.3 will be met by 2030 without future challenges.
Beyond energy efficiency, property companies such as Land Securities are leading the way to reduce carbon emissions by committing to Science Based Targets (SBTs), thus aligning their sustainability activities more strategically to the agreed level of decarbonization required to keep global temperature rise below 2 degrees. Furthermore, the role of future-looking scenarios in responding to climate change and setting meaningful targets will become even more relevant with additional frameworks such as the Taskforce on Climate-related Financial Disclosures gaining momentum in coming years.
Companies will be required to engage with investors around these issues such that the financial risks and opportunities of climate change are better understood and reported to stakeholders. Companies with a head start and commitment to setting and meeting performance and carbon targets will remain ahead of the curve, both in terms of contributing to the SDGs and also their ability to communicate with investors around how they are responding to climate change.
4. More rewards for increased transparency
GRESB has shown a commitment to improve reporting modules and challenge participants in the transparency and complexity of their data – actions that help to drive positive change in the real estate industry. For example, the new Health and Wellbeing Module, completed by 30% of participants in 2017, provides investors with additional insight into the social value created by their capital. GRESB has announced future amendments to the Performance Indicator (PI) aspect of the survey.
The PI section, which holds a joint top weighting at 25%, alongside Stakeholder Engagement are key areas where participants communicate to investors on how their portfolios perform. The upcoming PI changes reward participants that report transparent and accurate asset-level data (as opposed to portfolio-level data). Additional points will be available via an enhanced three-tiered scoring approach that evaluates asset data in terms of transparency, quality and performance. Early adopters of GRESB may benefit from this, as they are typically more familiar with the scoring methodology, have more comprehensive reporting systems in place and have been shown to structurally outperform those that started later.
But what about companies who only have access to portfolio data? Collecting asset-level data will increase the reporting burden, particularly for those without access to the GRESB API program who enter information manually into the platform. These additional layers of complexity may also isolate funds and property companies that are yet to join the GRESB benchmark as they may risk exposing comparatively poor PI scores to investors
There are clearly benefits to be had from early adoption. There is likewise a risk that late adopters get left behind and struggle to maintain performance alongside their more prepared and more pro-active peers, however sharing of best practice and the support of service providers will help to close this gap. It will be interesting to see how GRESB and its participants evolve and respond to these challenges in future reporting years.
EcoStruxure™ Resource Advisor: Automated GRESB Data Management
Schneider Electric’s EcoStruxure™ Resource Advisor, an enterprise energy and sustainability software platform, introduced a new GRESB data transfer functionality. To simplify the data collection process, Resource Advisor sends data automatically to GRESB, automating data collection and analysis and streamlining annual reporting. See how Forest City utilized Resource Advisor to further support its GRESB submission.