Sector Scores “Re-Balanced”

GRESB helps set an improvement pathway

Indicator MA6 captures whether and how Asset companies include ESG factors in the annual performance targets of personnel.

We looked at this indicator carefully this year to see if there was any correlation between the strength of the consequences of achieving these targets, and the GRESB scores achieved, and indeed we found a strong correlation.

Scores are highest where there are both financial and non-financial consequences for achieving ESG targets, scores are somewhat lower when consequences are only financial, lower again when consequences are only non-financial, and lowest of all when there are no consequences at all.

In a very important improvement this year, we introduced materiality based scoring across many of the Asset Assessment indicators using standard sector materiality weightings, assigned to each entity based on their primary sector. This tailors the assessment to each asset’s sector so that participants were assessed on the ESG issues that are material to their sector.

This figure shows the response of participants to all issues that were either ‘Highly relevant, ‘Relevant’ or ‘Not relevant’ (the three materiality levels we applied). As might be expected, a high proportion of participants addressed ‘Highly relevant’ issues in their policies, risk assessment and the like. Around half of the participants addressed ‘Relevant’ issues. Whilst a lower proportion addressed ‘Not relevant’ issues, this was still around 25% suggesting that there might be some wasted effort that could be better spent on the most material issues.

Participants were also given the opportunity to review the materiality weightings, and nominate and justify different weightings if they disagreed with the standard sector weightings. In 92% of cases, participants agreed with the standard sector weightings showing strong support for materiality based scoring. The areas of disagreement focused around Child labour, Employee health & safety, Light pollution, Stakeholder relations, and Biodiversity & habitat.

This data will help to further redefine the materiality process in 2019 and beyond.

The Asset Performance Indicators look at whether and how assets report on their most material ESG issues. There are currently 7 Performance Indicators in the assessment as shown. Here we show historical trends of indicator reporting in the green circles, with 2016 being the innermost circle and 2018 the outermost. Interestingly, asset reporting on performance indicators did not improve, halting the trend seen last year.

This is primarily because half the asset participants were new as shown in the blue bar charts. In these charts, showing 2018 performance, the mid blue bar is repeat participants, the light blue bar is new participants and the black dot is the overall average. It is clear that new participants in general report less. Repeat participants however continued to improve their performance reporting.

Feedback from our investor members is that they desire more focus on performance indicators and we have responded – we standardized metrics for indicator reporting building a basis for comparable intensity metric reporting. Intensity metrics utilise a numerator (measure of impact) divided by a denominator (measure of asset size). The numerators are our main performance indicators (energy, GHG, water and waste).

The two most common and readily available denominators are Gross Asset Value and asset output. This figure shows our calculations regarding the capability of our participants to report on common intensity metrics. In each of these mini-figures, the top, light blue bar is the percentage reporting the numerator, for example, for Energy, this would be energy consumption in MWh. The second, green bar is the percentage reporting the denominator, being either an output metric such as Megalitres of water treated, the top series across, or GAV, the bottom series across. The third, grey bar is the overlap, that is the percentage that report both numerator and denominator and therefore can report the intensity metric.

Looking across the top and bottom series, you can see that about 30-55% of assets currently have the ability to report on GAV intensity and 20% on output intensity. We will work with the industry to further standardise reporting and provide guidance to ensure consistency and comparability.

To drive performance improvement, it is good business practice to set targets and track performance against them. These figures provide a summary of how assets are setting targets for Energy and GHG emissions. The ‘race tracks’ show 1) what percentage of assets reported actual performance on the indicator, 2) the next line shows what percentage set targets for 2017, 3) the next line distinguishes where the targets set were legitimate (we removed targets that were identical to actual or unlikely zeros), and 4) the final line shows what percentage of assets actually achieved their target. The blue race tracks are for 2017 targets and the dark green are for long term targets.

Whilst over half of participants are measuring performance, only about 15-20% are setting legitimate targets and only 12% reported achieving the 2017 target, showing much room for improvement. On the other hand, participants as an overall average beat their 2017 Energy and GHG emissions targets by 1.2% and 1.7% respectively. The long term targets are set on average about 4 years into the future and for energy on average target a 9.1% annual reduction, while for GHG emissions they target a 1.4% annual increase. While the energy reduction targeted is impressive, the rise in GHG emissions targeted is a long way from anything like net zero emissions that might be required for a rapid transition to a low carbon economy as advocated by some.

For the first time, we have started to calculate ESG intensity metrics. The results should be treated with caution as more needs to be done to standardise reporting boundaries and assumptions. Nevertheless, these results show what the industry is capable of reporting and how we can start to compare sectors and assets in the future. We have focused for a start on Greenhouse Gas (GHG) emissions per unit of gross asset value (tCO2e/$), being a measure of Carbon Intensity. This chart shows the carbon intensities for 11 sectors for which we could obtain large enough sample sizes. These box and whisker plots show the minimum value, 1st quartile, median (circle), 3rd quartile and maximum moving upwards respectively. Note this graph is on a log scale.
Unsurprisingly Power Generation x-Renewables shows the highest intensity, an order of magnitude higher than the next highest. Electricity Transmission is next, followed by Energy Resources (energy pipelines, processing and storage). Most other sectors are in a similar range with Rail Companies somewhat lower but with a wide dispersion. This sort of information will no doubt become increasingly important for investors as the world transitions to a low carbon economy.

It has been postulated that ‘ESG is easier for large entities’ because they can support the overhead of dedicated staff for this aspect. However we found no correlation between Gross Asset Value and GRESB Asset Score. Assets across 5 orders of magnitude in GAV achieved a very wide range of scores.

The above graph displays the average score of each aspect in the Asset Assessment per GRESB star rating. A clear dip can be found at the Monitoring and EMS level for three star participants and above and suggest a clear area for improvement in the systematic collection of data on ESG issues.

37 of the 280 Asset participants completed both the core Infrastructure Assessment and the Resilience Module. Responses for eight new indicators in the 2018 GRESB Resilience Module are summarized in this section.

The new results provide a unique picture of how infrastructure companies and funds from around the world are beginning to address resilience. Over 80% of respondents report designating an internal leader and establishing clear lines of communication and accountability through cross-department teams or working groups. More than 60% of respondents report identifying and engaging stakeholder groups and taking action to reduce risks during new construction and operations. Less than half of infrastructure respondents report systematically tracking the impact of extreme events and near misses.