In today’s rapidly evolving sustainability landscape, the need for standardized and transparent reporting has never been more critical. As investors and stakeholders increasingly demand clear insights into companies’ sustainability performance, global frameworks such as the International Sustainability Standards Board (ISSB) and GRESB have emerged as guiding forces. In June 2023, the ISSB issued its inaugural Standards for Sustainability Disclosures, encompassing IFRS S1 and S2.
As the industry leader in assessing the sustainability performance of real assets, GRESB’s methodologies have become an essential part of global sustainability standards. By examining the interplay between GRESB and IFRS S2, this article sheds light on how reporting to GRESB can help real estate companies prepare for meeting some of the requirements of ISSB’s standards.
What is IFRS S1 & S2 ?
The ISSB is a standard-setting body established in 2021 under the International Financial Reporting Standards (IFRS) Foundation. Its mission is to develop disclosure standards that meet investor needs for sustainability performance information.
IFRS S1 establishes a comprehensive set of disclosure requirements that enable companies to communicate sustainability-related risks and opportunities to investors. IFRS S2 focuses specifically on climate-related disclosures and is designed to be used in tandem with IFRS S1. Together, these standards provide a global baseline for sustainability-related disclosures for capital markets.
The disclosures under both IFRS S1 and S2 mirror the framework established by the Taskforce for Climate-related Financial Disclosures (TCFD) in that they are both broadly categorized under the four overarching themes of governance, strategy, risk management, and information on metrics on targets.
While IFRS S1 and S2 share a common approach, they differ in the specifics of ‘metrics and targets.’ IFRS S2 requires disclosures on both cross-industry metrics and industry-based metrics, the latter of which are associated with “particular business models, activities, or other common features that characterize participation in an industry” (article 28(b), IFRS S2).
Previously, these metrics were overseen by the Sustainability Accounting Standards Board (SASB). However, the ISSB has now assumed responsibility for the SASB Standards. These industry-based metrics can be found in the IFRS’ Industry-based Guidance on implementing Climate-related Disclosures, which provides sector-specific insights and aligns closely with the specific risks and opportunities in different industries.
The importance of IFRS S2 and other sectoral standards in real estate
With the current influx of generalized ESG reporting regulations, it is crucial that sectoral standards remain a clearly visible beacon to help investors navigate the distinct nuances of each industry. This is especially relevant for real estate, a unique asset class that requires a specialized disclosure framework, which cannot be fully captured by sector-agnostic standards. This is because real estate assets generate significant sustainability impacts spanning across energy consumption, water usage, waste generation, and a variety of additional elements that are best understood with reference to aspects such as location and property type, amongst other factors.
In this context, IFRS S2’s industry-based metrics play a vital role in addressing the most material and pressing issues facing the real estate sector. By offering tailored insights and guidance, these metrics provide the necessary analysis and understanding required by stakeholders in the industry.
GRESB’s role in defining industry standards
The industry-based metrics for real estate are outlined in Volume 36, page 292 of the IFRS guidance document. These metrics address topics such as energy management, water management, management of tenant sustainability impacts, and climate change adaptation. For each topic, there are detailed associated metrics and constituent disclosures that investors can use to assess an entity’s performance in relation to the climate-related risks and opportunities in the real estate sector.
Within real estate, it is particularly noteworthy that ISSB recognizes GRESB as an industry leader. In fact, the GRESB Real Estate Assessment forms the basis upon which the IFRS’ industry-based metrics for real estate have been modeled. GRESB is referenced throughout this guidance document, and numerous definitions, calculations, and terms used in the guidance are directly drawn from GRESB.
Furthermore, the guidance consistently emphasizes that “the entity shall consider the 2018 GRESB Real Estate Assessment Reference Guide as a normative reference, thus any updates made year-on-year shall be considered updates to this guidance”(page 297, IFRS guidance document).As a result, the GRESB Standards form the scaffolding of the IFRS’ disclosure metrics for real estate, thereby reinforcing GRESB’s position as the global standard for real estate.
Looking ahead
As more countries choose to adopt the IFRS Standards, the role of the GRESB Assessment as the foundation for the IFRS’ real estate disclosure framework becomes increasingly important, and the relevance of reporting to GRESB increases in tandem. Reporting to GRESB not only allows entities to measure their ESG performance within a standardized and globally recognized framework, but it also sets them up to successfully report to other external frameworks.
GRESB’s status as a pioneering industry leader is further strengthened by IFRS S2’s linkage of its real estate disclosure metrics to the evolution of GRESB Reference Guides, reflecting GRESB’s commitment to advancing industry evolution and emphasizing its dedication to continuously innovating its Standards to enhance sustainable real assets.
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Figure 1: Boxplots showing the distribution of percentage of different energy types. Table 4: Emission Factors Calculation (AZNMc Example) Note: Res = residential; Com = commercial; EF = emission factor
