2023: A wave of new ESG reporting requirements

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.

With 2023 already in full swing, there is no doubt that this year is and will be a significant one for real estate and ESG, with greater demand for transparency and accountability. Real estate investment companies are also facing a daunting task when it comes to properly reporting on vast quantities of data across environmental, social, and governance factors. Here’s what’s changing in ESG reporting and how technology can help.

Real estate compliance encompasses the sets of regulations that govern properties and their components, and the regulations increase and evolve every year. Staying on top of these regulations is critical to successfully managing a real estate portfolio with properties in different locations. Companies must comply with industry-standard laws, rules, and regulations set by government organizations. If a company does not comply with any of these standards, it can be subject to substantial penalties, lawsuits, a negative reputation, and in some cases, closure.

Indeed, as voices for climate-friendly investments and carbon controls grow worldwide, the first year of mandatory reporting to the Task Force on Climate-related Financial Disclosures (TCFD) has proven challenging for many UK companies. The same is true for the Tertiary decree in France and other national regulations. Reasons for this include the complexity of data collection, the need to implement robust and concrete new processes, sometimes involving information provided by third parties in the company’s value chain, and the lack of established reporting good practices.

The existing and evolving ESG requirements are as varied as the jurisdictions that are required to meet them. Some focus on climate change, others cover all ESG factors. New legislation, such as the EU Taxonomy or the Sustainable Finance Disclosure Regulation (SFDR), is pushing for accelerating the data collection process renovation. In parallel, market practices are emerging as a solid framework for engaging in energy-ambitious renovations.

Internationally recognized reporting standards such as SBTi are being adopted more widely and are helping players in the industry to define ambitious ESG strategies in line with Deepki’s clients’ sustainability goals.

You all know it: the real estate industry is responsible for approximately 37% of CO2 emissions and greatly impacts our daily lives. To meet the EU’s climate and energy targets for 2030 and reach the objectives of the European Green Deal, more and more real estate organizations commit themselves to sustainable climate targets such as zero emissions and keeping global warming below 1.5 degrees. In the EU, the Corporate Sustainability Reporting Directive (CSRD) is the latest EU Regulation regarding ESG and non-financial reporting, aiming to speed up EU progress on reaching net zero. It is a step up from the current EU Regulation, the Non-Financial Reporting Directive (NFRD). With the new CSRD reporting requirements, merely commitment and ambition aren’t enough for real estate organizations to achieve their sustainability objectives.

The CSRD sets out to optimize the scope of the existing requirements. It makes mandatory for real estate players to report on both their inward and outward ESG actions, with special consideration for social and governance factors. This concept is referred to as double materiality. Double materiality relates specifically to the bi-conditional relationship between companies and climate change. Making proper materiality analysis will include not only how a company’s activities impact climate change but also how climate change affects the financial materiality of the company. It will allow for a big-picture overview of the interactions between the environment and companies.

The CSRD applies to all listed companies and large companies on EU-regulated markets that meet any two of the following three criteria:

• ≥ 250 employees,
• ≥ EUR 20mln of assets on the balance sheet,
• ≥ EUR 40mln of net revenue.

By introducing more detailed reporting requirements and expanding the number of companies that have to comply, CSRD is setting a higher bar in terms of reporting in real estate. The widening of the scope is expected to come into effect as of 2023. It will have a significant impact on more than 50,000 companies in the EU, many of which are real estate organizations.

ESG regulations continue to evolve rapidly around the world, which means that real estate players must become smarter about how they manage and report on ESG issues. Furthermore, there is no common global standard for ESG assessment, reporting, and disclosure, which challenges RE players to be aware of the ESG disclosure and reporting requirements in the sector in which they operate. As in other areas of compliance, access to accurate data and the ability to process it will be key in terms of time, resources, and cost to stay in compliance.

During Deepki’s second ESG Index webinar, we asked attendees which were their major challenges regarding quality data. 70% said “missing or inaccurate data” was the main obstacle that they had to overcome, 25% “incorrect data attribution,” and 5% said “data overload.” These results indicate what we are seeing in the market, with many investors lacking confidence in the maturity of their ESG approach. While they are defining their position on what their ESG should look like, they are all at different stages in adopting technology and integrating technology solutions into their existing ESG processes.

In this context, data is key to the success of any ESG report. Collecting this high-quality ESG data is a challenge for companies due to the lack of standardization of the data and reporting framework, as well as the lack of consistency in the definitions of ESG itself. This is why having a centralized platform can be a game-changer in your reporting strategy.

For real estate companies that need to organize their reporting for investors and board members, having a centralized technology platform that monitors, analyzes, and provides reports on ESG metrics is critical. Real estate firms with ESG requirements must take massive volumes of data and distill it into records and reports to outline their ESG policies in practice.

Reporting to different organizations and regulators is time-consuming and complex. Technology platform like Deepki’s data intelligence platform Deepki Ready™, supported by a dedicated customer success team, aggregates your data to enable you to provide the most comprehensive ESG Reporting. All data, from energy, water, and waste, to social and corporate governance, is collected within the platform in a standardized way that complies with all your essential reporting requirements. Such technology can help you manage your ESG goals and commitments with confidence, knowing that experts handle the complex process of getting the right data. In this way, you increase stakeholder confidence by improving communication, reporting, and transparency, knowing your exact performance at all times.

Investors face a complex set of ESG regulatory and reporting challenges, and many of them struggle to navigate the future. Regulations will continue to evolve rapidly, but technology can help reduce complexity so that real estate players can focus on other mission-critical tasks. To manage this, investors need to consider high-quality ESG research and data collection methods in order to create solid and effective action plans alongside partners like Deepki.

This article was written by Clementine Tanguy, Content Manager for Deepki.

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