Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position. Please refer to official GRESB documents for assessment related guidance.
Stakeholders are no longer focused on financial data alone, and organizations today face increasing market pressure to meet new criteria – especially with the emergence of European regulations like the Tertiary Decree, MEES (Minimum Energy Efficiency Standards), the Dutch Building Decree, etc. To help real estate players in this quest for extra-financial value, there are now numerous labels and certifications offering different types of analysis for real estate portfolios and funds. To assess your ESG (environmental, social and governance) initiatives and communicate on your commitments, ESG reporting is now essential. But incorporating these criteria into your overall strategy and providing cohesive ESG reporting requires a pragmatic approach, one that prioritizes actions based on your goals and what you’re looking to showcase. Let’s break it down!
4 good reasons to incorporate ESG into your business strategy
1. Because ethical investing is more resilient
The Covid crisis has shown that ethical investing is more resilient than purely financial investment. According to Olfa Maalej, member of the board of directors at Neuflize OBC, SRI (Socially responsible investment) business indices outperform traditional indices by 4.5%.
2. Because a global economic outlook is vital
It’s imperative to look at the economy through a global lens today; no single element is self-contained or independent of outside factors. At the same time, viewing the economy as a whole means considering everything it impacts: jobs, the environment, etc.
3. To promote your company’s image
Scandals surrounding companies due to working conditions or environmental issues have become common, with a growing number of calls for boycotts. Communicating on your ESG commitments is a positive way to differentiate and promote your business.
4. To reduce environmental impact in the building sector
In Europe, the property sector accounts for 40% of carbon emissions. Half of these emissions come from building construction, the other half from building utilization. Lowering these emissions would have a significant, positive environmental impact, and a few simple measures can sometimes lead to substantial savings. For example, moving different teams to the same floor during the summer months (when many offices are empty) can reduce energy consumption by 75%.
The new challenges around ESG reporting
By definition, ESG reporting is meant to provide an assessment of your assets’ extra-financial performance at a given point in time, allowing you to monitor progress on your ESG strategy and to share information on your commitments and results with various stakeholders.
Once you have a series of successive reports, you can map the evolution of your ESG performance, for better or worse. The key question here: how to evaluate this path to show whether things are going in the right direction and at the right pace? Answers can be found in three different approaches to ESG reporting:
1. Certifications: certifications assign you a score, evaluating your ESG performance against a given standard. These are useful tools for evaluation and guidance, but can lead to misguided efforts if they become an aim in themselves; obtaining a label should never eclipse the goal of reducing CO2 emissions. Also, certifications aren’t suited to an approach based on long-term measurable goals.
2. Low carbon pathways: for example, the goal of carbon neutrality by 2050. Low carbon pathways let you communicate in a much more engaging, transparent way about the market, in particular thanks to formalized calculation methods. Also, a carbon emission indicator is much simpler to understand than a certification or score from a rating agency.
3. Benchmarks: a sort of middle ground between certifications and carbon pathways, benchmarks let you compare your company with its peers each year, softening the bias of an abstract rating with the market reality – although unfortunately without really taking long-term objectives into account.
But how to choose the best approach for highlighting your ESG performance? It’s important to note that all three approaches are probably necessary today, as tools for enabling market transition. New actors seeking an initial assessment of their ESG performance can turn to certifications. Those more experienced in ESG issues can set long-term carbons neutrality objectives and shape their roadmap accordingly. Finally, for the many players looking to measure themselves against peers – whether for marketing purposes or to monitor their transition – benchmarking is perfectly suited to their needs.
3 steps to defining an ESG strategy that’s adapted to your assets
1. Take stock
Once you’ve clearly identified all the assets in your portfolio, map out the voluntary initiatives that are already in effect (reporting, certifications, etc.) Take inventory of any requirements you are subject to, and make sure you’re in compliance. This is also an opportunity to see how your company compares with its peers, showing where you’re ahead and where you’re behind.
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Open data can be a first step in evaluating your assets’ performance. For example, using a simple address you can access all kinds of information about a building, view certifications and evaluate potential risks (floods, earthquakes, proximity to chemical plants, etc.). This allows you to assess specific building characteristics (surface area, certifications), local context (quality of life in the area, transportation access) or even the building’s resistance to natural and technological threats.
2. Define your ESG objectives
Define coherent objectives that are adapted to your situation, and make sure they take into account all regulations and risks. There’s no point in setting overly ambitious, unattainable goals; be ambitious but realistic! Before taking action, communicate these objectives clearly and simply to your teams to get everyone on board with the strategy. Finally, establish concrete, measurable monitoring indicators. These will be essential in determining whether you are on the right path.
3. Implement your strategy
Identify the people and groups responsible for moving things forward and work with them to establish a timetable outlining the different measures to be taken. Map out and centralize all key information so that everyone has access to it, which will facilitate communication and make it easier to advance. Lastly, monitor the progress of your defined indicators. And throughout the process, remember to aim for ongoing improvement – for example, optimizing your data collection or drawing up short, medium and long-term recommendations.
In order to facilitate its CSR (corporate social responsibility) reporting, Mercialys has managed to centralise all its ESG data. The project took place in 3 stages:
- Collection and centralisation of data on a single application: mapping with the old information system and integration of asset data, activity data, consumption data and ESG data;
- Improvement of data reliability and traceability: configuration of data collection forms for the various users – property managers, human resources department -, creation of a 3-step information validation process and the possibility of adding supporting documents in order to facilitate the audit;
- Calculation of CSR indicators: automation of indicator calculation and creation of a ready-to-use consolidated export.
Mercialys now benefits from all its ESG data being reliable and centralised on a single platform in order to facilitate the publication of its CSR reporting and to facilitate the audit each year.
Good practices to follow
● Foster internal collaboration by raising awareness among employees. This step is essential and must be done upstream.
● Automate data harvesting where possible, and where not possible, simplify collection by using a single form.
● Hold regular follow-up meetings with specific objectives. Each stakeholder needs a clear overall view of the project and its progress, in order to be effective.
● Adopt an approach of continuous progress, always aiming to move your process and your team forward.
Defining your ESG strategy and communicating it clearly through reporting are essential practices today, but it’s not always easy knowing where to begin. Following our 3-step approach (assessment, setting goals, implementation & follow-up) will help you get started and ensure a successful outcome!