GRESB Scoring Insights 3: What does a GRESB Score mean?

This is the third article in a series of insights. We started with “Why GRESB Scores?”, followed by “Value beyond GRESB Scores.” Next comes the question, “What does a GRESB Score mean?”. In this article, I want to answer this question in two ways: First, what does a score mean based on the GRESB Standard itself. Second, what does a score mean for financial returns.

The GRESB Standards are both a framework and a language to assess the environmental, social, and governance performance of real estate and infrastructure. The Real Estate Standard starts with two core components: Management (30%) and Performance (70%). The ratios are important. GRESB stakeholders believe that management matters for sustainability, but data and measured performance matters more. This is reflected in the majority of GRESB outcomes. The median entity achieves more than 80% of available management points, reflecting a wide range of leadership, plans, policies, stakeholder engagement, and risk assessments. There is more variance in the other 70% of the score. The Performance Component focuses on data coverage and year-over-year improvement in areas including energy, emissions, water, and waste. These are complemented by recognition for green building certification coverage, a holistic measure of asset design and operations (depending on the circumstances).

These criteria mean that a top-scoring real estate entity in 2024 has:

1. A dedicated internal leader with periodic reporting to company leadership
2. Comprehensive sustainability policies and performance targets
3. A set of risk assessments covering a range of physical, social, and governance risks
4. A high coverage of measured, operational performance data
5. A high relative rate of year-over-year energy, emissions, water, and water improvement relative to peers

These qualities define a well-managed property company with data and performance equal to the best organizations in its peer group. Companies without these attributes receive lower GRESB Scores, and they can use this information to prioritize opportunities for improvement. These criteria can be expected to change as stakeholder expectations shift in response to experience, technology, regulation, and other factors.

GRESB Scores, Ratings, and financial metrics are designed to inform the investment process. By design, the qualities underlying GRESB Scores are, in part, predictors and correlates of financial returns. Statistical relationships between GRESB Scores and financial metrics have been investigated by many independent research teams around the world.

Notable findings include:

• Positive correlations with return on assets for green building certification coverage (2012, Journal of International Money and Finance).
• Positive correlations with return on assets for listed REIT returns (2015, The Financial Rewards of Sustainability, University of Cambridge).
• Positive correlations with ODCE cumulative returns (2022, Sustainability and Private Equity Real Estate Returns, Journal of Real Estate Finance and Economics).
• Positive correlations with total return indices for European private real estate (INREV 2023 GRESB ESG Insights).
• Positive correlations with Asian private real estate returns (2024, ANREV).

These studies span more than a decade and use a range of economic techniques to explore different market segments. They vary in the way they use GRESB Scores, Ratings, and metrics. Some focus on topline, 0–100 scores (e.g., the 2015 study of REIT returns by the University of Cambridge). More recent work unpacked GRESB Scores, emphasizing individual components and aspects. For example, the 2023 analysis of European private real estate found significant correlations between total returns and the GRESB Performance Component. They all point to the value of GRESB’s material, non-financial information in setting expectations for risk-adjusted returns.

Going forward, the GRESB Standards will evolve to continue capturing aspects of firm management and asset performance that differentiate leaders and inform capital markets. In turn, we will support research that explores associations between these qualities and financial returns. This iterative pattern of Standards development, industry benchmarking, and independent research provides the basis for continuous improvement and ongoing relevance to the investment process.