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.
The real estate sector was one of the early adopters of ESG, driven by investor and regulatory constraints. ESG reporting is becoming increasingly important as investors, tenants, and other stakeholders are paying more attention to the social and environmental impact of companies. As a result, companies have been collecting data for reporting. However, the challenges do not end with obtaining the necessary and required data. The most crucial component of ESG reporting is gathering reliable and high-quality data, as poor-quality data can lead to misrepresentation and negative impacts on the companies’ performance and brand image. Why is the quality of data so crucial in the real estate sector?
It is important for investors seeking to mitigate risk, identify long-term performance drivers, or make investment decisions, to understand the true ESG performance of companies through quality data. Questionable data submission isn’t acceptable for financial metrics. Similarly, companies should not have to accept inaccurate, unverified, outdated, or incomplete ESG data as a representation of company performance.
Always strive for quality data
Data quality can facilitate and improve decision-making. It offers a precise picture of a company’s performance across all ESG domains. Internally, regularly monitored environmental data can reveal inefficiencies in energy use at the facility level and areas for improvement in sustainability measures that can lead to cost savings. Quality ESG data may also increase accountability and transparency, enhancing a company’s reputation and brand image.
The success of an investment depends heavily on the quality of the data provided, which is particularly true in the case of ESG investing. Indeed, there is a lot of incomplete or imprecise data and greenwashing in the field of reporting. A company that takes the time to choose the right tools and provides accurate metrics and KPIs makes quality investments and is more likely to be considered an industry leader.
When faced with an investment decision, players can optimize it by tapping into larger amounts of data regarding an asset’s performance. The temptation is to collect and save as much data as you can in the belief that it will one day be useful. However, if a large amount of unstructured, irrelevant, or low-quality data is acquired, this might become overwhelming. This can also represent a potential source of liability if it includes out-of-date or inaccurate data. A more effective approach to developing a data strategy is to identify data that can contribute to clearly defined outcomes in line with the overall corporate strategy.
The same might be said for data that can be used to gauge a KPI or provide a greater grasp of return on capital (ROC) or another component of performance. With an outcome-driven strategy, data collecting and wider connected strategies will provide real value rather than vague expectations of prospective future advantages.
The importance of data quality in ESG reporting
Companies must comply with an increasing number of new ESG regulations and requirements (SFDR, EU Taxonomy, GRESB, CSRD, and more). In ESG reporting, companies are faced with growing volumes of data that must be extracted from various data source systems. This increase is just one of the results of the ESG topics that drive many reporting standards: climate change, energy management, and responsible business practices, among others.
Obtaining sufficient ESG data about an asset remains a significant challenge, whether it is before its purchasing or information about how much investment would be needed to be in line with net-zero targets. There is a proliferation of ESG standards both at the asset and portfolio level. Moreover, different measures are not necessarily comparable, reducing transparency across the industry. You need to get quality data to be able to put it to good use.
For ESG reporting to be fully effective, data collection and quality controls must be integrated and have the same level of accuracy as financial data.
Avoid poor ESG data at all costs
Costs from poor data quality can have an impact on financial and operational processes. It can be in particular from wasted resource time on manual data entry methods and from missed revenue opportunities associated with either the loss of investor’s interest or the loss of energy efficiency. Misrepresentation of a company’s performance and inconsistent data outputs can lead to a decline in credibility and trust in the company or accusations of greenwashing.
Companies that are lacking complete and traceable ESG data may be unable to verify this fact on their own in order to comply with different initiatives. They may also have difficulty transferring data from one platform to another for reporting purposes.
ESG metrics are a particular focus that is currently driving better use of data in real estate. Investors need to understand and measure the environmental performance and energy consumption of individual assets or their portfolios as a whole, and they also want to understand how that translates into carbon emissions and how these ratings compare to other buildings and peers. On the other hand, tenants want to ensure they live in buildings that reflect their values and contribute to sustainability goals. This shared interest has driven change and encouraged collaboration in the industry.
Data collection is no simple task, and it is even less simple if there is a large amount of data to collect. Even if successful data collection is completed, raw and unchecked data has little value as it may include errors, so you can’t be completely confident in interpreting it. It is important to work on data quality to extract precise insights and KPIs. With multiple assets, one of the biggest challenges to overcome is accessing data from many suppliers and sources, each with its applicable standards. Furthermore, it is important to take into account the regulations of each country. It can quickly become chaotic, as each one calculates their KPIs differently.
Why an ESG platform makes a difference
Collecting this high-quality ESG data is complicated due to the lack of standardization in data and reporting frameworks and inconsistent definitions of ESG itself. The most important first step in an organization’s sustainability efforts is to proactively address these challenges to mitigate future risks associated with inaccurate data. Real estate professionals can leverage ESG data platforms in multiple ways these tools help companies collect and analyze ESG data, identify areas for improvement, and mitigate risks.
Benefits of using an ESG platform:
- Get an overview of your data and its source, and know your data quality
- Increase good decision-making
- Transparent reporting to stakeholders; investors and tenants increasingly prioritize ESG performance, and accurate reporting builds trust
- Plan actions/investment to put in place an ESG strategy thanks to reliable data
- Enable users to generate informative and easy-to-understand reports
- Help reduce risk by identifying potential issues early and ensuring long-term sustainability
Conclusion
There is a vast amount of data in the real estate sector, and reviewing, analyzing, and making sense of it is one of the hardest challenges to overcome. With the right ESG platform, actors can have instant access to all the centralized data they’ll need. Thanks to this reliable data, investors and asset managers can leverage actionable insights at both the asset and fund levels and lead informed decision-making.
Written by Clémentine Tanguy, Content Manager at Deepki.
