Making Assurance Work for Real Assets | The Pulse by GRESB

In this episode of The Pulse by GRESB, Chief Innovation Officer Chris Pyke speaks with Steve Wilkerson, Senior Manager at GRESB Partner Forvis Mazars, about the importance of sustainability assurance. They discuss what assurance means in the context of sustainability reporting, how it supports data credibility and risk management, and its role within the GRESB Assessments. The conversation covers common challenges and what distinguishes high-quality assurance work. Listen to insights from:

Can’t listen? Read the full transcript below. Please note that edits have been made for readability.

Chris: Welcome to The Pulse by GRESB. I’m Chris Pyke, Chief Innovation Officer for GRESB, and this podcast is our platform for sharing industry insights and meeting leaders in our community. Today I am joined by Steve Wilkerson. He is a Senior Manager at Forvis Mazars, which is a GRESB partner and market leading provider of sustainability assurance. He’s based in Denver, Colorado, and he’s been in the accountancy field for more than a decade. Steve, thank you very much for joining our show. We’re very excited to have you and to hear your insights.

Steve: Yeah. Thanks for having me, Chris. I’m excited to talk about assurance on this podcast.

Chris: Awesome. So let’s drop into this big picture. For the purpose of sustainability, what is assurance and how do you understand its role in our broader efforts to advance sustainability, protecting value, managing risk for companies around the world? How does it fit in?

Steve: The purpose of sustainability assurance is to increase the credibility of information used by stakeholders. Stakeholders are using this sustainability information, so it’s important to have it be correct. It’s also important for it to be correct so you can better identify where are there improvements that you can make in this data itself?

Chris: Nice. Alright and, I guess the bottom line is we agree with you and the GRESB Foundation recognizes that in the Standards ’cause that credibility, that protection, is critical. And so talk about how assurance more specifically fits into the GRESB assessments. Where do you allocate your time? Where are you creating value for GRESB participants?

Steve: Yeah, so there’s a variety of different procedures that we perform, and we take a risk-based approach where we have procedures that address the key risk. One of the key risks that we see for sustainability information is the risk of completeness. For example, completeness of emission sources if you’re reporting greenhouse gas emissions. So we spend a good amount of time understanding the entity structure. Understanding the entire locations and the location listing so that all locations and emission sources are included. This goes back to the concept of organizational and operational boundaries, if you’re familiar with those concepts from the Greenhouse Gas Protocol.

Chris: Awesome. And that’s something that maybe folks don’t appreciate enough that one of the fundamental things we’re dealing with is, do I have all the information? Do I have everything within the boundary ? Can you speak a little bit about the challenge of answering that question?
‘Cause folks may take it for granted that it’s straightforward to know that you got it all, but maybe it may not be that easy.

Steve: Yeah.

Chris: How does that look on the ground?

Steve: So for people who have a financial accounting background, you’re familiar with double entry accounting where there’s a debit and credit. So because of that, completeness is not as much of a risk for sustainability. Often it’s difficult to get a full listing. Even utility providers have trouble providing a full listing sometimes for whole building utility data itself. So there is some more complexity there, especially if you have a complex entity structure with different kinds of entities that roll up to each other. Really getting a good understanding of that and tying it back to your organizational boundary chosen of operational control or financial control as well as equity share. Those are options as well. But
those. options are nuanced with GRESB, who has some additional criteria for what entities need to be included and what locations need to be included.

Chris: Yeah. In our efforts to be sector specific, we also are idiosyncratic. So that is, that’s both a charm and a curse. So when you think about the work you do, a part of it is catching errors. These are situations where these are complex data, complex ideas, and people make mistakes. Or they just, maybe they don’t get the ideas right. What are the most common things you encounter that, if you were to share that across the kitchen table, what are the things that you would like to remind people that you end up detecting on their behalf?

Steve: So in addition to having incomplete listings or inadequate identification of boundaries, other risk of material misstatements are lack of support for key assumptions. So not having those assumptions documented and well supported is a key part of it. When you don’t have utility information or other types of activity data itself. Also, inaccurate use of emission factors. It’s important to use current emission factors and use appropriate emission factors. And these are what you use to convert non greenhouse gas emission data into greenhouse gas emissions. So taking your electricity consumption or your natural gas consumption and converting that into a greenhouse gas emission amount. As well as improper calculations. So if you’re using a system, you probably have a little bit less risk of this, but if you’re using a spreadsheet to calculate information, which sometimes in the real estate community, you do that for some of your scope three emissions. There’s risk in that spreadsheet of not having appropriate links or not including proper totals. So that’s where systems can be helpful. And real estate and infrastructure are industries where systems are often being used.

Internal controls or inadequate data collection. It’s important to understand what the data collection process is and procedures. Also SOC reports, those are helpful to analyze for your critical software vendors. So this SOC report is an audit on the system that you’re using. On the software itself. So that has some really good information about is that system functioning the way it’s supposed to be functioning, and what internal controls you need to have on your end to properly use that software. And then last one I have is proper disclosure that aligns to the reporting criteria. So if you’re reporting to GRESB, making sure that you’re following all the GRESB standards and other types of reporting criteria.

Chris: That makes sense. So Steve, let’s use that as a jumping off point to say as we mentioned in passing, GRESB has developed over the last 15 years, its own idiosyncratic ways of doing things. Many of them based on very good reasons based on the nature of real estate. But assurance, the work you do, also connects to a wider world of reporting systems. Whether that is CSRD, whether it’s the California Climate Reporting Laws or other regulatory frameworks. If we zoom out a little bit. What does that landscape look like and what are some of the key things that change as you go from a GRESB centric assurance up to these other regulatory reporting platforms? For folks who may be a little less familiar with the requirements of that universe, can you just give folks a little bit of a primer on those systems

Steve: So CSRD is a lot. Currently the Omnibus proposal or directive is taking effect. So it’ll be interesting to see where this all lands, because with omnibus there’s a two year delay if you haven’t started reporting, and also a reduction in metrics. But some of that reduction hasn’t been talked about. But the key thing to know about CSRD is that this includes all sustainability topics that are material. You would do a double materiality assessment to identify what topics are significant or material for you, is pollution material, is water usage, and so on. And then for those material topics, you would report on that information and get it assurance over the entire sustainability report. For California, scope is limited to greenhouse gas emissions and climate risk data. So those greenhouse gas emissions need to undergo assurance for scopes one and two. You have an additional year to report scope three information, and then in 2030, that’s when it switches over to reasonable assurance for scopes one and two. And then for scope three, you have to get limited assurance over that data itself. So the scope is more limited to greenhouse gas emissions that would need to undergo assurance.

Chris: Got it. So that sounds like that emerging world is a lot. Do you find that the work that GRESB participants are doing with assurance for GRESB is broadly compatible? Is it helping them get ready for CSRD and helping ’em get ready for California requirements? Obviously there are a number of technical differences. That’s why you guys are there to help people through that, but do you find that what they’re doing now with GRASP is good preparation for what you expect from these regulatory systems?

Steve: It most certainly is. I really appreciate how GRESB focuses on information that improves risk adjusted returns over time. So it’s really useful information and a great place to start for sustainability reporting. There are some nuances to consider when you’re reporting to CSRD in California. So for example, your greenhouse gas emissions will have to align with the greenhouse gas protocol. So that’s not a big lift, but there’s a couple of differences there. GRESB has the estimation policy where you can estimate up to three months of data. But if you don’t have that data, which hopefully that’s in limited circumstances, you wouldn’t report emissions from that. But greenhouse gas protocol says, give your best estimate to your emissions that you’re calculating. So using a square footage amount to estimate consumption of utility information is gonna be what you would use for reporting under greenhouse gas protocol.

Also, making sure that you have all emission sources covered if you’re reporting to greenhouse gas protocol is important. So one example is fugitive emissions. These are emissions from refrigerants, from air conditioning units and other types of equipment, and typically that’s a material amount. We see that that’s often above 5% of a company’s scope one emissions, if they have similar real estate locations, so that’s important to consider those types of emissions as well as the energy emissions.

Chris: That’s a really good example with the fugitive emissions. That’s something we want to bring into the GRESB Standards. And I think maybe regulation is gonna help us do that. So let’s, in the spirit of landing the plane, let’s end with two forward looking questions. So if you are an asset manager, you’re looking to do assurance, maybe you’re trying to think about how your own assurance process works. How would you describe what high quality assurance looks like? What helps differentiate a high quality accretive value producing assurance from maybe something that is a bit less? What should they look for? What distinguishes great work in this space?

Steve: Yeah, I think that’s a really good question. I’ll take a step back and talk about assurance standards. So assurance standards set the requirements for an assurance provider on how to conduct an assurance engagement. So there’s various different assurance standards out there. We use AICPA or the American Institute of CPA, attestation standards for our work, but other standards include ISAE or ISO 140643. So these standards really set the expectations on what is done during assurance.

I think it’s really important to have some sort of oversight over the assurance provider. Someone auditing the assurance provider provides better quality work. We participate in a peer review program where another firm is taking a sample of our assurance engagements and looking at the documentation and seeing did we do a quality job on the assurance, and that brings a lot of good data quality. We also have internal inspections where after an assurance engagement is done, someone will look at our documentation and see if we did a quality job. For assurance more broadly within the firm, we have the PCOB, which is the regulator for public company They look at financial audits. So there’s a lot of oversight that forces us to bring a high quality assurance engagement to the market, but you don’t always see that across different types of firms.

Chris: Yeah, that’s really helpful, to give people a sense of, the rigor and the cross checks and the standards that folks , when they hear the word assurance, it sounds simple enough. You get the idea that someone’s checking your homework. But it’s not just you checking their homework. You have peers checking your own homework, and you’re compliant with standards that go above and beyond. That’s pretty amazing. And so let’s close with this. What would you recommend to a manager who’s thinking about their assurance program and trying to make sure it’s really creating value for their organization.

Steve: Yeah, I think it’s important to think about what overall are the goals of the organization and using the environmental data to align with those goals. If you have very specific goals where you want to reduce emissions, having the emissions calculation be detailed enough that would be shown in the data itself. If you have a more broad calculation, you might not see a a reduction in emissions. I think it’s important to think about how you’re using the assurance process to create credibility. Like you should feel challenged during assurance process to improve items like we provide a list of recommendations on how to improve calculations going forward, and also thinking about how to decarbonize and make other improvements to your environmental data. That’s a real value add and something that you’ll see during the assurance process of, hey, this is an area where you can make improvements and improve the data quality as well as improve your performance.

Chris: All right. Maybe with that we’re gonna draw our time to a close here, but I really appreciate your insights and I really would encourage folks to follow on this conversation and learn more about the role of assurance and learn more about these assurance standards. Steve, to close this out, is there a place where folks can go if they want to get smarter on assurance? Either in the case of GRESB or the broader standards that you mentioned.

Steve: Yeah, so there’s a variety of different resources. The GRESB website has great information. Reading through the assessments is valuable to know what is required ? What undergoes assurance? There’s both assurance over the environmental data itself as well as assurance over a overall sustainability report. And if you look into those scoring documents, you can see how many points you would get for assurance over those various items. And what are the acceptable assurance standards to use for those items. In In terms of greenhouse gas emissions, greenhouse gas protocol really sets the standard that’s used universally and they have a lot of good resources on their webpages as well.
Searching on AICPA’S website for information, there’s resources that include how to choose an assurance provider and other things such as that.

Chris: Alright. I think that gives people a real tangible way to go forward. This is a complex area, but obviously one that’s increasingly important, that’s reflected in GRESB Standards and more broadly in the interests of investors and stakeholders. So Steve, thank you for making us a little bit smarter on this important topic. We really appreciate your insights, your time. I hope we’re gonna see you out there at one of our regional insight events over the next couple months.

Steve: Thanks Chris. I appreciate it.