Mainstreaming ESG benchmarking in real assets
10 years ago, APG, PGGM and USS came together with the University of Maastricht to design a real estate survey. They wanted more transparency on the ESG performance of their real estate investments and a closer engagement with their managers. The inaugural Real Estate Assessment was launched in 2009, and GRESB was born.
In the years that followed, an entire industry has come together to develop a common language and consistent approach to measuring and reporting on ESG performance. Today, more than 100 investors, representing over USD 22 trillion AUM, encourage their managers to report to GRESB, and the resulting Real Estate and Infrastructure Benchmarks cover more than USD 4.5 trillion in real asset value.
The reason why we established GRESB is simple. Ten years ago there was no uniform or consistent way to measure the sustainability performance of real estate companies and funds across countries, across regions and across private and publicly traded investment structures. And if you can’t measure and compare, it is difficult to engage with a manager on how to improve.”Patrick Kanters, Managing Director Global Real Assets at APG Asset Management
This process of annual ESG benchmarking on such a large scale has built a powerful global ecosystem of investors, lenders, managers, service providers and industry bodies working towards a shared vision of sustainable real assets. It’s a story that demonstrates how a top-down demand for ESG transparency and benchmarking encourages a bottom-up response that drives the spread of sustainability best practices around the world, raising the standard of an entire industry.
Standardized benchmarks work because they give clarity and direction to the market and a means to focus on complex problems. They help capital providers and asset managers compare investments across portfolios, inspiring a deeper engagement on the opportunities, risks and choices that need to be made as the industry transitions to a sustainable future. And at an aggregated level, benchmarks provide an objective reference point on sector and regional performance, help to track industry progress against relevant targets and shine a light on where to focus improvement efforts.
Having the asset owner as the driving force behind the GRESB Assessments, and engaged in their development from the beginning, has been key to the rapid growth of the benchmark. This investor pressure is driving transformative change through the investment chain and raising the sustainability standard of an entire industry.”David Russell, Head of Responsible Investment at USS.
The report “10 years of GRESB” celebrates the key milestones in our development over the past decade and includes commentary from a group of sustainability champions from across the world who have inspired us with their leadership and commitment. Our industry is full of such people who have contributed so much to our collective vision and the growth of the benchmark. This momentum in the right direction is vital and should be celebrated, but it does not take away the urgency of the challenges that lie ahead.
In the next decade we will need to take dramatic steps as an industry if we are to achieve our shared vision of sustainable real assets. Preeminent among the challenges is climate risk and resilience. Central banks have already made the link between climate risk and financial stability, calls for mandatory climate related disclosures are intensifying and it’s clear that the longer the industry delays in addressing risks associated with climate change the more disruptive the policy response will inevitably be.
At the same time, it’s not enough to just focus on climate action. We are facing multiple convergent crises to which a sustainable real asset industry can make an important contribution – ecological system breakdown, mass extinctions, growing inequality, political instability, mass migrations, demographic changes and accelerated urbanization – and significant improvement in one area can only be delivered together with measures to increase progress in all areas.
The stakes are getting higher for the industry and it’s clear that our success in the next decade will not only be measured by the coverage of our benchmarks, but by our ability to influence investment practices that lead to more sustainable and resilient real assets. We have listened to the feedback of our members, partners, governance bodies, and working groups, and engaged with the broader industry that relies on our benchmarks and standards and identified a set of priorities and commitments to guide the next phase of our work. These align with our three strategic pillars: Assessments, Technology and Stakeholders.
1. Assessments: Real Estate, Infrastructure and More
Recognizing all participants as GRESB Members
The last 10 years have shown the power of an industry-led benchmark to inspire a collaborative effort to improve ESG transparency across the world. We are proud of the role our members have played in shaping the Assessments and Benchmarks and are committed to finding ways to further integrate their collective intelligence into our work. This starts in 2020, when we will recognize all participants as GRESB Members, opening up new opportunities to be involved in our working groups, committees and governance bodies.
Greater transparency in the Assessments
Transparency is one of our core values and we are taking steps to improve our Assessment guidance and support so that participants are able to report more accurately and efficiently. Future improvements include providing immediate feedback on calculated variables derived from Assessment inputs, more detailed scoring information and, ultimately, draft scoring within the Portal as well as greater clarity on validation decisions, and their rationale, in the Benchmark Reports.
Over time we will add an additional layer of transparency in both the GRESB Real Estate and Infrastructure Assessment showing where managers are on the journey of including all of their assets in the benchmark.
In 2020 we will introduce a new Review Period in the Assessment Cycle to further strengthen the reliability of our Assessments and Benchmark results. The Review Period will start on September 1, when preliminary individual GRESB results will be made available to all participants. During the Review Period, participants will be able to submit a review request to GRESB using a dedicated form. The final results will be launched to both participants and Investor Members on October 1. Public Results events and other results outputs will be rescheduled to October and November in order to accommodate the September Review Period.
Widening our scope and impact
GRESB has been approached by several institutional investors and asset managers to develop a global ESG benchmark and assessment framework for assessing investments in agriculture, forestry and other real asset verticals. A first step will be to convene an Industry Working Group to discuss the development of the new Assessments.
We are also exploring applying our benchmarking methodology and industry-led approach to other asset classes such as private equity or private markets more broadly. Two additional areas we are investigating are government-owned infrastructure and corporate real estate.
2. Technology: Platform, Products and Services
New tools to assess and manage transition and physical risks
The investment industry is sharpening its focus on transition and physical risks associated with climate change. Starting in 2020, we are introducing new tools for investors and managers to inform their engagement on these risks and support strategic decision making.
The 2020 Real Estate Assessment will include an integration with the Carbon Risk Real Estate Monitor (CRREM) methodology to show real estate carbon transition pathways at portfolio and asset level to remain within 1.5 and 2.0 degrees of warming. The pathways will be an important tool to understand and mitigate the long-term systemic risk associated with the investments required to transition to a low-carbon economy.
GRESB has an important role to play in helping the investment community understand climate-change risks in real asset investments. The CRREM science-based decarbonization targets and pathways can be used to inform our engagement with external investment managers in order to reduce transition risks.”Mathieu Elshout, Senior Director Private Real Estate at PGGM
In parallel, we are upgrading the Real Estate Asset Portal to enable managers to assess the exposure of their assets to physical climate risks. These new services, which are based on integrating geo-coded asset data with third party geospatial risk datasets, will be accessible entirely at the discretion of managers. Our 2019 collaboration with Verisk Maplecroft on a Climate Risk & Resilience Scorecard for real estate portfolios, which focuses on physical risk data, is an early example of this approach. Going forward, these integrations will be available directly in the Portal, and will expand to include financial metrics and other third-party datasets.
Stronger focus on measuring performance and impact
Over time, we envisage introducing an even higher weighting of the Performance Component towards the GRESB Score. The Performance Indicator metrics in the Assessments will be standardized to provide better comparisons and more transparency on actual performance. These changes will be flagged in advance, to give time for the industry to understand and adjust to expectations.
With a growing number of our Investor Members interested in understanding their contribution to the UN Sustainable Development Goals (SDGs) and their investments’ ESG impacts and outcomes in general, we are taking steps to ensure our Assessments are aligned with new taxonomies that are being developed. Other important national and global frameworks and targets that investors and managers are seeking to align with include the World Green Building Council’s Net Zero Carbon Buildings Commitment, the TCFD recommendations, the Paris Climate Agreement, Science Based Targets initiative, EU Sustainable Finance Taxonomy and Disclosure Regulations and the International Energy Agency Sustainable Development Scenario. We are committed to supporting these efforts by refining the performance metrics to enable reporting of impacts and outcomes, aligned with these frameworks.
A further evolution of ESG performance data
Several factors are now converging to facilitate a further evolution in performance data accessibility and reliability in the Assessments and Benchmarks. First, requirements for asset-level reporting in the Performance Component of the Real Estate Assessment will enable us to introduce a new asset-level validation process. Second, we are leveraging advanced technology to put in place more automated error and outlier checks. Third, the expanding API integrations with GRESB data partners are resulting in a more streamlined and robust asset-level performance data reporting process. And fourth, we are moving forward as an industry to define common guidelines for performance data reporting as reflected in the GRESB ESG Data Standard.
The sum of these efforts is creating a high-quality ESG performance data flow and global database, from asset-level up, that investors and managers can rely on to better understand risks and opportunities and take appropriate actions.
More flexible outputs
Consistent with developments in the world of ‘big data’, our members are seeking to use their data in more flexible ways. We will provide both tailored solutions around specific products, and greater flexibility for advanced users in the future. These outputs will be developed through close engagement with investors and managers to include customized impact analyses and peer group comparisons; enhanced access to raw data for modeling and time-series analyses through a re-designed data export tool; as well as enhanced portfolio analysis tools, including footprinting based on aggregated asset data.
3. Stakeholders: GRESB Members and Partners
Increasing the accessibility of the Assessments
With the 2020 restructuring of the Assessments into separate Management and Performance Components (and Development Component for real estate developers), managers will be able to complete one of the Components and still be part of the benchmark. For example, managers with more opportunistic strategies and those who are constructing a portfolio or raising capital will find value in the Management Component as a way to share structured ESG information with investors. The Management Component will also provide an easier entry point to new participants for whom the reporting burden can be particularly challenging, such as those in emerging markets.
While the restructuring will open up the Assessment to new participants, the GRESB Score will only apply to:
- Real Estate entities completing both the Management and Performance (or the Management and Development Components in the case of developers)
- Infrastructure Funds participating with at least 25% of their assets in the Infrastructure Asset Assessment
- Infrastructure Assets completing both the Management and Performance Components
The GRESB Score will continue to underpin the GRESB Ratings and drive the global Benchmarks, just as it does today.
Improving reporting efficiencies and support
Reducing the reporting burden for Assessment participants is not a new imperative for GRESB, but it’s one that requires continued focus. The sheer scale of the transition we are going through as an industry requires an ESG reporting process that is as straightforward and efficient as possible. We are introducing new tools within the Portal to increase reporting efficiencies, improving our alignment with other reporting initiatives and strengthening our capacity in those non-OECD markets where our coverage is still relatively low. In addition, we are building a new online Assessment training program alongside our in-person training to make the content more accessible to managers and partners around the world.
Designing a new collaborative research agenda
We’re in the process of designing a new collaborative research agenda with our members, partners and industry partners. Our extensive ESG coverage of the industry means we are in a unique position to provide deep insights back to the market on the evolving state of sustainability in real assets.
Building on initiatives already underway, our 2020 research efforts will focus on providing deeper insights into transition and physical risks associated with climate change. There is also the opportunity to develop a new suite of aggregated benchmarks by sector, region and country relevant for our industry partners, their membership and networks.
Annual reporting on our operational performance
As an organization with fewer than 30 employees and a relatively small operational footprint, our most significant impacts come from our assessment and benchmarking work and, ultimately, the extent to which we are able to influence investment practices that lead to more sustainable real assets. At the same time, we are committed to managing the impacts from our operations, being transparent about our own performance and taking action to further improve it in the future.
We have reported on our operational performance in 10 Years of GRESB. Reflecting our material impacts, we focussed our social reporting on employees and our environmental reporting on our operational GHG emissions.
We have taken the step to offset our GHG emissions from staff flights, office energy consumption and staff lunches, estimated for the decade where data is available, by planting two GRESB Forests via the Treedom program. One forest of 802 trees will be located in Kenya. The second forest, in Guatemala, will have 250 trees.
Looking forward, we have made a commitment to improving the sustainability of GRESB events and will continue to measure the key indicators highlighted in this report as well as engage more closely with our stakeholders on how best to communicate our impacts and reduce these further in the future.
Thank you for engaging with our shared mission
As we look back over what has been a remarkable decade for ESG benchmarking, we are reminded that we are only here today because of the global community that has developed around our shared mission.
As investors, lenders, managers, operators, leaders, influencers and experts, you are the ones digging in to ask and answer the tough sustainability questions. You are the ones managing the risks, identifying the opportunities and finding ways to make positive real-world impacts. It’s your efforts that are making the difference. Your decisions that are re-shaping the markets. And your investments that are shaping the future that we and next generations will inherit.
The transition to a sustainable real asset industry is one of the most fundamental challenges we face. We can only meet it with reliable ESG information, meaningful global benchmarks and collective action from all our stakeholders as we work towards a more sustainable future.
Thank you for making the story your own.
Sander Paul van Tongeren
Co-founder and Managing Director