As environmental targets once again make the news, with China and the US this week ratifying the agreements made at last December’s Paris Climate Conference, the release of the 2016 GRESB Real Estate, Developer and Debt assessments shows that reporting on sustainability factors has become the new norm in real estate.
‘This year we saw again an increase in the number of companies participating worldwide, with 759 real estate companies and funds reporting their sustainable data, representing 66,000 assets across 63 countries, with a total value of about $2.8 tln in gross asset value,’ Nils Kok, CEO of GRESB, told PropertyEU.
The annual survey, analysing global real estate companies and funds’ Environmental, Social & Governance (ESG) performance since 2009, found that this year on average energy consumption fell by 1.2%, GHG emissions dropped 2% and water consumption fell nearly 1%, continuing the positive trend. Companies also reported they are putting greater focus on occupier health and well-being.
‘The 2016 GRESB data demonstrates that the global real estate sector is working to manage its carbon footprint, build resilience in the face of climate change and respond to more stringent environmental regulations,’ Kok said. ‘In 2016, 90% of property companies and funds reporting to GRESB are integrating carbon management strategies into their investments. These actions have contributed to a 2% annual decrease in carbon emissions, the equivalent of taking 704,464 passenger cars off the road.’
Adhesion to the survey reflects a change in attitude across the industry, Kok noted. ‘When we first launched the survey in 2009 it was really a matter of pension funds sending out letters saying "you’ve got to report" to a number of firms. We had almost 200 companies involved at that stage,’ he added.
‘Now in 2016, reporting on non-financial information – ESG – really has become the norm both for private equity and listed real estate firms. It’s much less about filling people in and much more about companies and fund managers actively reporting. This process might have been initiated by investors and adopted by a handful of companies in 2009, but now it’s the new normal. It’s not reported as frequently as financial data but it’s definitely seen as necessary to talk about it once a year.’
According to the survey, entities reporting to GRESB for seven consecutive years outperform their peers by an average of 12 points across all aspects of ESG. As a result, the overall GRESB Score increased by 11% to 60. In 2016, 18 debt funds participated in the GRESB Debt Assessment, an increase of 80%. The average GRESB Debt Score rose by 6% to 48.
Europe saw continued growth in GRESB participation with 390 companies and funds providing information about ESG performance – an increase of 2.6% compared to 2015 – as the average European GRESB Score reached 60.
Increasing engagement from senior leaders
European data show that overall performance is underpinned by increasing engagement from senior leaders, more formal policy commitments, new environmental management systems and increasingly sophisticated information systems. GRESB revealed that this year’s benchmark includes asset-level operational performance data for more than 22,000 individual buildings worldwide, often flowing directly to GRESB from third-party tools.
But could macro-economic and geopolitical trends dampen future attention to these areas? Kok doesn’t think so.
‘We started this survey back in 2008/2009, arguably when the crisis hit, so this could well have failed in the first year. But as we developed and the markets continued to struggle with recession, we saw an increase in the implementation of ESG practices, reporting on management quality, which wasn’t surprising as management quality matters when times get tough,’ he explained.
‘Actually, I don’t think that macro-economic indicators really matter – every year we’ve seen not only an uptick in the adoption of these practices but also performance improving right across the board,’ Kok said. ‘The markets have started to realise that there’s a business opportunity here and that’s changed attitudes tremendously.’
With climate change claiming all the headlines this week, its place on business agendas isn’t going away. ‘Greater political buy-in on climate change will make a difference, but we’re also seeing significant increase in investor interest focusing on regulation. The real estate sector will be critical in the whole discussion on energy efficiency. It just became the 11th official industry in the GICS industry classification, so its place in sustainability talks has been assured,’ Kok concluded.
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