In my last blog I wrote about the importance that debt finance plays with regards to commercial real estate investment and questioned how long before policy instruments and market drivers shift their focus towards commercial real estate lending.
Well this may be much sooner then we think.
Currently one of the most influential sustainability benchmarking initiatives in the commercial property sector is the Global Real Estate Sustainability Benchmark or GRESB. First launched in 2009, the survey has grown exponentially from 198 property companies and funds participating in 2010 to 637 in 2014, representing 56,000 assets across 59 counties and $2.1tr GAV.
Such a meteoric rise demonstrates the popularity and value of GRESB with the investor community and the impact it’s having on commercial property companies and funds. Feedback from our own BBP members demonstrates that GRESB is beginning to really penetrate the market - each year there are an increasing number of fund managers asking whether their funds have achieved a Green Star (a sign of best in class) and how they can improve their score.
If you’d taken a poll in 2010 I don’t think anyone would have foreseen the change that’s occurred over the past five years.
So, it is important to note that last month saw the launch of the 2015 GRESB Debt Survey - the first year that GRESB have launched a Survey for real estate debt funds. As part of our active engagement with GRESB, the BBP provided detailed feedback during its development phase via our Commercial Real Estate Lending Working Group.
The Survey covers six main aspects which align closely to the topics our own Working Group has been focussing on. The first three are more generic and aimed at an organisational level with the last three tailored specifically to debt funds:
- Management: assessing how sustainability is implemented into the overall business strategy and the processes for decision making.
- Policy & Disclosure: assessing the existence and transparency of sustainability policies at an organisational level.
- Risks: assessing risks relating to corruption and bribery.
- Due Diligence: assessing the sustainability characteristics considered as part of any new lending process e.g. Flood Risk or Building Certifications such as EPC or BREEAM ratings.
- Monitoring: assessing how sustainability risks of the existing loan book are continually monitored e.g. changes to EPC ratings over time and impact Minimum Energy Efficiency Standards may have on the value of the asset the loan is secured against.
- Opportunities: assessing whether a lender has integrated any policies which go beyond risk management e.g. including specific sustainability requirements as part of the condition of a loan.
So the big question is will the GRESB Debt Survey have an equivalent impact on the debt sector?
Time will tell, however, we know that the GRESB survey is one of the key industry benchmarks that investors use to assess the performance of the companies and funds in which they invest. So, it is probably fair to assume that the GRESB Debt Survey could potentially have a similar impact.
So what should debt fund managers do? I would argue the best form of action is to participate.
We know that the Debt Survey is highly unlikely to be perfect and it will require refinement over time. Therefore, it’s now, while the Survey is in its infancy that debt fund managers have the greatest opportunity to provide feedback to ensure its appropriateness over the coming years.
From our engagement with GRESB we know that they place significant value on the feedback from the BBP and the wider industry. You can read more about our GRESB 2014 Consultation Response here. Each year, GRESB have listened, adapted and improved the Survey on the basis of our feedback.
Furthermore, participants have the ability to opt for their results to not be disclosed to their investors which will give them a year’s grace and opportunity to make any necessary changes to internal policies and processes.
As the debt finance sector slowly awakens to the reality of sustainability, it is the perfect time to help shape the tools that investors will use to transform the industry.
So engage now……before it’s too late!
‘Originally published at www.