Last week the Global Real Estate Sustainability Benchmark (GRESB), launched its 2014 Survey. The release marks the fifth consecutive year that GRESB has been working to provide institutional investors with timely and actionable information about property companies and private equity funds.
The real estate industry has taken notice. Following pressure from investors, regulators, as well as building occupants, the industry has started to look more closely at sustainability issues, with many property companies and fund managers integrating sustainability into their overall business strategy. In 2013, 550 property companies and funds participated in the GRESB Survey (the complete list of reporting companies and fund managers is public), managing USD 1.6 trillion in value. 550 companies and funds may sound trivial, but the GRESB database covers 49,000 assets in 46 countries. In 2014, GRESB is looking forward to increasing the transparency of the real estate sector, starting at the portfolio level, then drilling down into the sustainability performance of individual assets. Imagine the opportunity in improving the efficiency of those 49,000 assets – that’s some serious cost savings (and carbon reduction) right there.
GRESB may a new idea for some green building professionals. It was established in response to the demand for sustainability data from investors in property companies (REITs) and private equity real estate funds. GRESB focuses on firms and funds as a whole, rather than assessing the attributes or performance of individual assets. GRESB has helped drive the sustainability conversation from single buildings to entire portfolios.
Where LEED and its global equivalents provide a standardized assessment on the energy efficiency, water efficiency, and other environmental characteristics of offices, shops, schools, etc, GRESB aims to become the global industry standard for assessment of the environmental, social, and governance (ESG) performance of real estate portfolios. Those portfolios typically include anything ranging from tens to thousands of individual assets, and are managed by professionals, such as Brookfield, Prologis, Prudential, Vornado, etc.
Importantly, GRESB’s goal is to provide real estate investors with the tools they need to accurately monitor and manage sustainability performance and to prepare for increasingly rigorous ESG obligations. Investors use this information to better understand immediate sustainability risks (e.g., flooding, energy efficiency regulation), but also to zoom in on sustainability-related investment opportunities, such as the repositioning of inefficient assets that might otherwise become obsolete. In the latest edition of the Economist, this argument is further laid out: better information helps to steer investments away from polluters and helps to steer capital to those that manage ESG risks and opportunities in a good way. So, to use the words of USGBC CEO Rick Fedrizzi: another “nutritional label, like on a box of animal crackers,” but now for the capital market (read this CNBC article for more good information about the future of the real estate sector).
The GRESB benchmark is aligned with other globally recognized reporting frameworks such as the Global Reporting Initiative (GRI), the Principles for Responsible Investment (PRI) and the Dow Jones Sustainability Index (DJSI). While those frameworks are typically sector-agnostic and focus mostly on large, listed companies, GRESB examines sustainability-related issues specifically for the real estate sector. This includes strategies, policies and objectives, to measuring environmental performance data regarding energy and water consumption, GHG emissions and waste. The benchmark also investigates the use of voluntary standards and certification such as LEED and ENERGY STAR, so at the end, all actions taken at the asset level roll up into a metric for the portfolio.
Note that the data that GRESB collects, and the ratings it provides, are not meant just for socially responsible, mission-driven investors, such as Calvert, the Catholic Brothers, or Trillium, but rather for mainstream pension fund, fiduciary managers, and investment consultants. These capital providers are typically significant in size, and the pool of capital using GRESB data now includes more than 100 institutional investors, fund managers and property companies managing USD 6.1 trillion in assets. And that excludes a part of the capital market that has only just started to seriously think about the implications of sustainability for their investments: the debt market (e.g., a recent green bond offering by Unibail Rodamco, Europe’s largest REIT).