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.
Businesses are expected to have timely, accurate, and verifiable financial information on hand at all times. As investor appetite for ESG disclosure and sustainability reports increases, the demand for non-financial data is rising nearly to that level of expectation. Stakeholders, as well as the public, are acutely aware of the risks associated with a company’s poor sustainability performance, unfavorable working conditions, and lack of diversity among management, and other factors.
The need for accurate data is clearer than ever. In July 2020, the accounting firm EY warned that companies failing to meet investor expectations surrounding environmental, social, and governance (ESG) factors were at risk of losing access to capital markets. The firm found that most investors want a more disciplined and rigorous approach to evaluating companies’ non-financial performance. According to EY, these investors have become increasingly dissatisfied with the information they received on ESG risks as the pandemic’s social and economic impacts played out on a global stage.
Now, more than ever, investors are holding companies to higher ESG standards—and they require accurate data to measure performance and improvement.
“The pandemic shone a spotlight on the components of ESG in real estate—especially social and environmental considerations,” said Katherine Sherwin, Global Head of Real Assets ESG Integration at BlackRock, a multinational investment management firm, in a recent article. “Society’s experiences of COVID-19 will change the way we occupy and use real estate, long after the pandemic has abated. We’re going to see a fundamental shift in disclosure—especially in the commercial sector, in offices and retail spaces.”
Pinpointing Key ESG Metrics
While social and governance factors are rising in importance to investors, environmental performance data remains the most straightforward to collect and measure. Environmental data can indicate much about a real estate portfolio’s future, helping owners identify potential energy-saving strategies and areas of improvement as well as focus on assets that require resilience strategies to protect them from unique climate risks.
“There are many important data points for ESG investors—environmental performance, energy consumption, greenhouse gas emissions, clean water consumption,” says Sherwin. “The data helps you run your building, and it is also needed to report to stakeholders, to give them an understanding of their investment performance.”
Much of this information can be supplied directly from utility bills—but gathering this data is often easier said than done, depending on the size of the portfolio. Establishing a baseline for CRE assets may require a heavy lift initially, but technology can help owners automate the collection of this data, creating a scalable, repeatable process as owners set targets and track progress toward their environmental goals.
As investor demands evolve, real estate owners will also be asked to examine social and governance data points, like workplace health and safety, diversity in leadership, and the company’s relationship with and impact on surrounding communities. These metrics are often found not in automated reports but in relevant policy and governance documents, which must be accessible in a centralized location so they can be found and updated easily when it’s time to report.
Providing Data Stakeholders Can Trust
In a 2020 BlackRock survey cited by the Financial Times, 53% of investors cited “poor quality/availability of data and analytics” as their biggest challenge to sustainable investing.
Stakeholders are no longer asking, “Do you have ESG data available?” but “How did you collect it?” and “Why should we trust it?” In short: Quality is everything. Simply reporting whatever ESG data a firm has on hand is no longer sufficient. Companies need to be transparent and intentional about the integrity and consistency of their data.
So what does it take for ESG data to be considered investment grade? The criteria are notably similar to the principles that guide credit rating agencies: Investment grade data must be timely, accurate, complete, and auditable. This means that real estate owners need to be able to extract and examine their data at regular intervals, institute automated quality checks, identify data gaps, and establish a clear chain of custody from meter to market.
While investors attempt to understand ESG performance on a deeper level, incomplete, inconsistent, and unverifiable data remains a common roadblock. In many of these cases, owners are relying upon outdated, manual processes. A recent survey of real estate and sustainability professionals revealed that 40% of executives collect ESG data automatically through a technology provider, while another 36% still rely on manual data collection.
“Good technology will drive improved sustainability reporting,” Sherwin said in the article. “The data has become smarter, with better ways to collect it on a more frequent basis. The lesson for asset owners is to improve their digitization and data collection because the pandemic hasn’t dampened investor appetite for quantitative data. Regular sustainability reporting—much like financial reporting—will continue to be vital for transparency and investment decision-making.”
Though ESG was gaining traction in the years leading up to the pandemic, the unprecedented events since 2020 forced companies to reckon, in real-time, with unforeseen existential risks that few were adequately prepared to address. In the short term, this knocked many companies off guard, but it also highlighted the importance of taking long-term risks like climate change more seriously than ever. In addition to providing stakeholders with ESG information they can trust, owners will need accurate data to devise asset-level resilience strategies that will strengthen their portfolios for years to come.
This article was written by Amanda Davis, Content Marketing Manager at Measurabl