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.
In recent years, the scrutiny surrounding Environmental, Social, and Governance (ESG) data has intensified, with organizations placing greater emphasis on the assurance and verification of such information. GRESB awards more points to ESG reporting that has undergone external verification or assurance, but this has traditionally been a voluntary endeavor. However, with the increasing formalization of reporting standards, such as the Corporate Sustainability Reporting Directive (CSRD) and forthcoming ESG disclosures from regulatory bodies like the SEC, the assurance of ESG data is transitioning from optional to obligatory.
Under the CSRD, the initial wave of organizations is mandated to report ESG data starting from the fiscal year 2024, with limited assurance required in the first year and potential progression towards reasonable assurance by 2028-2029. Similarly, the SEC stipulate limited assurance for filers on fiscal year 2029 data, with reasonable assurance expected two years thereafter.
The real estate industry, in particular, faces unique challenges regarding ESG data. As governmental bodies lack the technical expertise to regulate ESG disclosures effectively, they have delegated this responsibility to auditing firms through assurance requirements. As a result, real estate managers must proactively prepare for the mandatory assurance of their ESG data.
Preparation involves establishing robust data collection, processing, and integration systems aligned with auditor expectations. Failure to do so may result in a laborious and resource-intensive assurance process. Auditors are likely to scrutinize data discrepancies, decision-making processes, and data processing methods. For instance, they may inquire about fluctuations in energy consumption or the sources of emissions factors used for GHG calculations.
Property managers can mitigate these challenges by preemptively organizing supporting information, such as consumption investigations and emission factor sources, in a manner that facilitates efficient data verification. Setting up these processes before data collection commences is crucial, as attempting to retrofit systems during the assurance phase can lead to inefficiencies and delays.
Identify your points of consumption
The first step in preparing for ESG data assurance is to comprehensively identify all points of consumption or meters within your organization. This includes understanding which meters lack information and where coverage is missing. By conducting a thorough assessment of your data sources, you can lay a strong foundation for accurate and comprehensive reporting.
Collect consumption data
Once you have identified your points of consumption, the next step is to collect consumption data systematically. Internal stakeholders should be empowered to take ownership of recording decisions in a structured manner. This ensures consistency and accountability in the data collection process, laying the groundwork for reliable ESG reporting.
Process data consistently
Data processing is a critical aspect of ESG reporting, yet it lacks standardized regulations. To address this challenge, it is essential to process data consistently with the requirements of the framework and align input across various reporting standards. While regulations may still be evolving, leveraging platforms like Scaler can ensure adherence to rules, document calculation methodologies, and incorporate the latest market knowledge. For example, portfolios aligned with the EU EPC label A may initially attract investment based on EU alignment. However, changes in labeling methodologies may impact this alignment over time. By using a robust data platform, managers can effectively track input and methodology changes, enabling them to respond swiftly to evolving regulatory requirements.
The mandatory assurance of ESG data represents a significant shift in the financial landscape, necessitating proactive measures from organizations, especially within the real estate sector. By prioritizing the alignment of their data practices with audit expectations, managers can streamline the assurance process and demonstrate their commitment to transparent and credible ESG reporting.
This article was written by Sacha van Tuijn, Head of Client Engagement, Scaler.