With GRESB results out this week, Paul Sutcliffe, co-founder and chief operating officer of sustainability, technology and services company Evora Global, spells out the significance of the real estate benchmark.
- The Global Real Estate Sustainability Benchmark (GRESB) is the ‘go to’ benchmark for real estate investors, putting pressure on fund managers to obtain four- and five-star ratings for their portfolios.
- The best scores go to companies with strong data coverage, good management systems and comprehensive Green Building Certification.
- While the standard is aiding conversations, it must continue to evolve, with a greater focus on performance, reducing risk and improving sustainability.
GRESB has released its 2023 Public Results, where it publishes global aggregated benchmark data showing the state of ESG in the real estate industry.
GRESB stands somewhat alone and it is the go-to fund-level benchmarking tool specifically designed for the real estate sector. For investors it is, of course, a key source of Environmental, Social and Governance (ESG) information. Strong ESG data is crucial to reducing risk, ensuring compliance and long term investment success. Investors want answers that address these concerns and GRESB is one of the few authoritative sources they can turn to.
The number of GRESB submissions continues to grow year after year. It now plays a big part in shaping the real estate sector’s perspective and we can expect this year’s results to be pored over by investors.
There’s no doubt GRESB will impact decision-making. Fund managers will continue to be under pressure from investors, who want their asset values preserved or improved upon and know a high GRESB score can impact this. Indeed, we know there are investors out there who only want to back portfolios with higher ratings.
Access to data can determine GRESB scores
It would be a mistake for an investor to assume a five-star GRESB rating represents a highly sustainable portfolio. More likely, it is an indicator of a well-managed portfolio with assets that have strong ESG management systems, data and Green Building Certificates accompanying them.
In simple terms, funds with access to data and strong systems in place do better than those without. There are likely to be assets in some portfolios with lower GRESB ratings which could, in fact, be very sustainable in terms of performance, but have difficulties obtaining and supplying data.
Meanwhile, a portfolio which can provide comprehensive data and which has Green Building Certificates for all of its assets is likely to score well – even if those certificates are only a ‘pass’ grade and true sustainable performance is lacking. This puts some portfolios at a disadvantage as getting hold of data is more challenging for some areas than others. Generally speaking, it is easier for a fund manager to get comprehensive data for a portfolio of office blocks with relatively few tenants than, for instance, for an industrial-based portfolio with many.
Understandably, fund managers tend to focus their efforts on areas where GRESB points are most achievable. This means plenty of attention is given to management and data collection. It also tends to mean they ensure assets in their portfolios have all simply obtained Green Building Certificates, rather than ensuring those assets really excel in sustainability.
Evolution
GRESB helped the real estate industry to focus more on sustainability. For example, more fund managers are now considering how they can achieve net zero, and this is positive.
Also, I am pleased that we are seeing a growing awareness and understanding of the ‘social’ component of ESG. There is no use in simply creating energy-efficient assets unless those assets are useful, enjoyable and accessible to users.
But GRESB, together with the industry, needs to continue to evolve, with more focus given to performance and sustainability improvement. We are headed in the right direction but there’s still a long way to go. I would personally support moves to increase the focus on assessing programmes that quantifiably reduce risk and maximise opportunity.
The opinions of guest authors are their own and do not necessarily represent those of SG Voice.
