Investors increasingly view ESG as a core part of their investment analysis as its link to CFP in terms of reducing risks, improving performance and building reputation is becoming evident. Thus, there is a clear need for companies to embed ESG considerations in their strategy and business practice, as well as communicating this to the investor community in a clear and substantive manner. The GRESB assessment is one of the key tools real estate companies can use to identify gaps in their approach that they need to address and communicate this continuously evolving process to investors.
Greengage ran a breakfast workshop to address the practical implications of promoting the ESG performance of real estate portfolios to ensure their sustained long-term value. The aim of the workshop was to give professionals the opportunity to discuss key topics and share best practice case studies. It focussed on the actions within an organisation that GRESB encourages and discussed the value in developing certain approaches and processes. Participants included investors, developers, asset managers, fund managers and managing agents.
Developing a robust sustainability strategy underpins a company’s ESG activities. This is reflected by the GRESB assessment were sections under the Management and Policy dimension, although only 28% of the overall GRESB score, are considered essential for an entity’s ability to report high quality data in other sections. The strategy development, implementation and review process was considered a key topic to be investigated by workshop participants. In a group work exercise, significant components of this process were recognised as identifying material issues; securing stakeholder engagement and high-level buy-in; formulating strategy objectives and targets; and tracking progress and reviewing your approach. Below is a summary of participants’ insights and experiences as to what needs to be considered in each component.
To successfully identify material issues, you should consider:
- Starting with a broad, inclusive list of topics and then narrowing down particular issues.
- Undertaking a peer review analysis to better understand your competition and what they identify as their material issues.
- Communicating with your stakeholders to identify what their material issues are. Key stakeholders are end-users / customers, shareholders, investors and local communities.
- Designing a process to rank, prioritize and categorize issues identified in terms of potential impacts and opportunities.
- That for real estate it is also important to assess the local context of an asset.
To achieve effective stakeholder engagement and high-level buy-in, you should consider:
- Going through a process to identify who your relevant stakeholders are in your value chain, internal and external to the organization. This should include employees, customers, communities and investors.
- That different stakeholders may speak a different ‘language’ – for instance the sustainability and investor relations department.
- Working as part of the core business rather than preaching or providing a service.
- That engagement is a time intensive, long process – be ready for this and give yourself enough time to go through this process.
- That the engagement process should be well-structured, with a process design that focusses on answering key questions and producing clear outcomes.
- That the process should be transparent and inclusive and communicate diverse benefits, as well as risks.
To successfully formulate strategy objectives and targets, you should consider:
- That there should be a strong alignment with corporate strategy, ensuring and objectives and targets are relevant to the organisation.
- That objectives should be SMART: specific, measurable, achievable, relevant and time bound.
- That objectives / targets should be aligned with impacts.
- Formulating objectives / targets concisely that can be easily communicated to different departments, stakeholders, the public, potential new employees.
- That objectives should be ambitious and consider the context of peers.
To effectively track progress & review your approach, you should consider:
- Identifying KPIs and put mechanisms in place to collect data effectively.
- Ensuring that there is a clear line of responsibility for data collection and analysis, this should ensure a smooth handover if personnel changes.
- Communicating the rationale of collecting specific data to operational level through a clear narrative.
- Enabling feedback from those collecting data in different departments to improve the process.
- Scheduling a periodic review of material issues, strategy objectives and targets to ensure adaptation to changing business environment.
These insights were further considered in the context of a case study prepared by British Land focussing on their 2020 sustainability strategy. This constituted a shift from regulatory compliance, minimising negative impacts and managing risks to creating positive impacts and value for stakeholders. Alignment with the ‘places people prefer’ commercial strategy was considered essential from the beginning of the strategy development process. This case study provided an effective demonstration of how the above group work findings have been implemented by a leading property company.
Climate change risk
The second key topic investigated in the workshop was adequately addressing climate risks to assets. The UK Climate Change Risk Assessment updated in 2017 identifies flooding and overheating as hazards particularly affecting the built environment. Modelling future climate impacts for specific assets or locations can provide insights that inform actions to take now to ensure long term resilience. This will be central to satisfying investor expectations to better understand exposure. Edward Dixon, Sustainability Special Projects Manager at Land Securities, presented the approach to climate risks they are taking to enhance the resilience of their assets. A disastrous one in one-hundred-year flood in Leeds in 2015 caused £700m in damages, highlighting how vulnerable some real estate assets are to the increasing flood risk. Land Securities is responding to identified risks with a new 2017/18 commitment to:
‘assess and mitigate site specific climate change adaptation risks which are material across our portfolio’
Considering climate mitigation in policies, risk assessments, acquisitions and new developments is central to GRESB and to the new approach taken by Land Securities. Understanding the ‘protection gap’ of insurance and additional risks posed by future climate conditions, particularly in construction will be significant.
Health and wellbeing
Overheating due to climate change will put further stress on the health and wellbeing of occupants. Potential financial impacts such as increased productivity, staff retention and reduced absenteeism have propelled health and wellbeing to the top of the agenda. GRESB introduced a health and wellbeing module that considers impacts on employees and through products and services in 2016. There is thus a strong need to understand how to best measure and identify potential actions to improve wellbeing in office environments. Greengage shared some to their insights from participating a 7-month collaborative learning programme, the Wellbeing Lab, in which the UK Green Building Council brought together companies committed to measuring the impact of their office space on their occupants and to implement improvements. This project involved environmental quality monitoring, an occupants survey and analysing organisational data. The Offices Compendium launch event was held on 19 April in London, you can read the full report here. To further detail our approach to measuring health and wellbeing in office environments Greengage is organising an event as part of the Green Sky Thinking Week, please find further information here.
This article is written by Lisa Lange and Chris Burgess, consultants.