Last week, we announced that GRESB is merging with the Green Building Certification Institute (GBCI), which effectively means that GRESB will now fall under the umbrella of the GBCI. I am excited about GRESB’s future plans and am convinced that this merger is an important step towards fulfilling the needs of the real estate industry for investment grade sustainability data on real assets – from buildings to portfolios.
There are many ways to nudge developers, investors and occupiers to improve the sustainability of new construction, and equally importantly, existing buildings, with price signals as the first-best solution. In the general absence of such price signals (cap-and-trade schemes for buildings and building owners are increasinlgy emerging, in for example Tokyo), it is my belief, and the consensus in the industry, that information transparency on sustainability performance can help to create market efficiency. Think about the well-known experiments around information provision on your energy consumption relative to your neighbors. Equally, if tenants, owners, brokers, developers, and investors, have simple, standardized metrics about the sustainability performance of an asset or a portfolio, markets will be able to price in this information, rewarding high-performing assets, while creating less demand for underperforming assets.
Designing and implementing accurate ratings, labels and benchmarks for the real estate sector is challenging, with different property types, geographies, and end-users needing different types of information. But over the past decade, clear trends have emerged: energy ratings, based on real performance data, are now available in countries such as Australia, Singapore, the US, and some European member states (most EU countries use energy ratings based on intrinsic building performance). Green labels, both for new construction as well as existing buildings, are tools ingrained into 21st century investment-decision making. And while different geographies might use labels with different names, their philosophy is aligned.
At the portfolio level, GRESB has worked hard to establish that same common language, applicable across the world, and across property types. The concept of portfolio-level benchmarking was designed with a real demand in mind: institutional investors that seek to understand the sustainability performance of REITs, private equity real estate funds, or the performance of their own real estate portfolio. We designed, amended and improved the common language over time, in close collaboration with the industry, always keeping the demands of real estate investors in mind. Since the inception of GRESB in 2009, coverage has grown significantly, now including almost 800 property companies and funds globally.
Five years on, institutional investors continue to seek for the best ways to assess and integrate sustainability in their real estate allocations, with application of such information now slowly broadening to real estate lending, but also with an increasing desire to understand the performance of individual assets, in portfolios and JVs. And while the coverage of GRESB has increased significantly, there is a need to further grow participation across markets in Europe, Asia, the Americas and the rest of the world. Most importantly, there is a strong push for increased reliability of ESG data, such that the information can be used in investment-decision making, for green bonds, green equity indices, and other applications alike.
Facing these significant challenges, the GRESB Board set out earlier this year to find a strategic partner on our journey, while remaining focused on GRESB’s mission to enhance and protect shareholder value by evaluating and improving sustainability best practices in the global real estate sector. After careful evaluation of the sustainability benchmark landscape, we found full alignment in the mission, vision, and views of the Green Building Certification Institute (GBCI). It is a not-for-profit organization, providing certification services to green building and green business programs including the LEED program. The GBCI is independent from the USGBC, has its own board, and aims to provide the services to allow buildings and business to distinguish themselves when it comes to sustainability performance.
This is an important strategic step for GRESB, and in the near term, it will allow us to achieve three things:
- Further develop and execute our roadmap towards investment grade data: the GBCI has a decade-long experience, expertise and advanced web applications infrastructure for providing independent, objective reviews of documentation and evidence related to sustainability benchmarking. Having access to the GBCI’s resources will allow GRESB to scale and refine the validation process and with that fulfill the needs of our membership base. This further focus on data quality is aligned with feedback we received from our stakeholders during previous consultation periods, as well as Advisory Board and Benchmark Committees. GRESB will keep control over the validation process, while adding temporary review staff to the GRESB team during peak periods. This will allow the existing GRESB team to further develop the validation process, while enhancing data quality;
- Scale up our resources to grow GRESB participation globally: GRESB serves almost 50 institutional investors that allocate capital across the world. We have been able to manage our growth with a small team in Amsterdam, and our service to our clients was greatly boosted by on-site presence in Asia-Pacific when hiring Ruben Langbroek as a Head of Asia. To further develop the benchmark and our client products and services, we will need to grow the GRESB team, providing better and faster service to GRESB participants, physical presence in more countries and regions, and engaging with investors and the real estate industry to improve the understanding and performance of sustainability in the global real estate sector;
- Deliver advanced, integrated sustainability solutions, eventually linking real time data, asset-level information, and portfolio-level reporting, to assess the full spectrum of sustainability performance in the real estate sector. There is an undeniable trend of investors moving closer to assets, or at least increasing their understanding of asset performance within portfolios. Recognizing those needs, in combination with the opportunity to start serving not just the equity market, but also the fixed income side of real estate, GRESB is now working closely with asset-level data providers, to develop API connections that seamlessly connect their platforms to the GRESB online portal. The second step is to understand the sustainability characteristics of individual assets, ranging from the presence of an energy label (and its level) to, for example, the quality of lighting. In a bold view, we want to understand the “greenness” of all investable assets across the globe. That might be a utopian vision, but look at the trends visible in the real estate market, including GRESB’s 2014 results, and you will see that such transparency is slowly taking shape.
Serving the needs of global investors and recognizing the unique characteristics and peculiarities of each market, we recognize and feel strongly about GRESB’s independence. This was an important consideration when evaluating potential partners, both for GRESB and for APG Asset Management and PGGM Investments, which are two of its founding members. As laid out in our governance document, we decided that we would continue to operate as a stand-alone, independent organization, based in Amsterdam. We decided that the new Board should have a majority of independent directors – out of the seven directors, three are representatives from our pool of Investor Members, while one director will be a representative of the real estate industry. We decided that important decisions, such as changes in strategic directions, but also terms & conditions applying to data submitted by companies and funds, as well as fees, should be subject to approval from the investor members on the Board. This way, the role of GBCI in the day-to-day business of GRESB will be principally through the GRESB team working with GBCI for knowledge, resources and expertise. And of course, as a global, industry-driven benchmark, GRESB will continue to equally consider all globally accepted certifications, not just LEED. The GRESB Survey and methodology will remain independent and keep its global approach that we so carefully crafted over time.
I’m deeply excited about what lies ahead, and the GRESB team remains fully committed to its main goal: creating transparency in the sustainability performance of the global real estate industry. We’re looking forward to making that happen, greening the built environment one asset, one portfolio at the time.