The majority of EG readers have probably never heard of the acronym GRESB. Others will have written it off as pointless jargon. However, the Global Real Estate Sustainability Benchmark should not be dismissed. It is making major inroads into capital markets, and firmly establishing itself as the global real estate sustainability standard. Here are five reasons why close attention should be paid to it.
A nutritional label for the capital market
GRESB highlights which property portfolios perform best in sustainability terms. To achieve this, it questions real estate companies on behalf of investors to find out how sustainable they are. It also investigates and measures performance on issues such as water and electricity consumption, GHG emissions and waste, tenant satisfaction and community-level impacts. Actions taken at the asset level translate into a single sustainability score for the portfolio.
Where BREEAM and its international equivalents provide a standardised assessment of the sustainability characteristics of individual buildings, GRESB does this for entire property portfolios comprising anywhere between a few, to thousands of assets, managed by professionals such as Brookfield and Hermes. In this sense, GRESB can be seen as “a nutritional label for the capital market.”
Backed by Goliath investors
GRESB was spawned in 2009 from a collaborative research project between Maastricht University and two institutional investors, APG and PGGM. Five years on, it is backed by more than 40 institutional investors located globally, ranging from USS and Aviva in the UK to AustralianSuper in Australia. Given its increasing global reach, participation in the benchmark is becoming more relevant. Not doing so may put a company at risk of not receiving investor cash because of doubt that it doesn’t manage investments appropriately.
Indeed, investors including pension funds, endowments and sovereign wealth funds now use GRESB to rate the sustainability performance of their investments. The pool of capital using GRESB data includes a staggering $2.1tn (£1.3tn) in gross asset value and covers 56,000 assets from 637 participating companies – representing an increase of 31% in a year (and 62% in two years).
Focus on commercial real estate
What is the secret of GRESB’s sudden success? Its focus on commercial real estate has allowed it to gain ground where larger, older organisations have faltered. Secondly, other frameworks such as the Principles for Responsible Investment and the Dow Jones Sustainability Index are typically sector-agnostic. Where GRESB excels is in its focus on sustainability-related issues specifically for the real estate sector. As a result, GRESB understands its niche and provides meaningful information to its members. In recognition of this, Nils Kok, GRESB’s co-founder and executive director, was presented with The World Green Building Council’s prestigious David Gottfried Global Green Building Entrepreneurship Award – the Emmy of real estate.
The questionnaire is short
How does GRESB work? Every April, GRESB issues a questionnaire. Participating companies have three months to respond to around 50 questions (about six require long-form explanations of around 250 words) in seven areas relating to environmental and social performance.
Once the response period closes, GRESB starts sifting through the data, extensively vetting it before publishing the results in September. Based on its response, a company receives an overall score out of 100, indicating how far it has progressed in integrating sustainability into its portfolio. A detailed report is made available via an online portal to the investors, so that they can engage with the custodians of their capital on specific sustainability issues and exert pressure where it is needed.
Yielding results
What has it achieved? If the results published earlier this month are anything to go by, something seems to be working. According to the latest figures, the overall GRESB score for all companies combined increased by nine points in 2014 and is now 47 (out of 100). Of the 637 companies that participated, 227 received the esteemed “green star” label, bringing the proportion of green stars to 36%, up from 22% in 2013.
This increase is particularly encouraging, when the effect of 156 new companies joining GRESB this year, with typically lower scores than those who have previously participated, is considered. Put simply, an increasingly significant proportion of managed funds are taking account of, and making progress on, certain sustainability issues.
In other words, more companies are doing it and the competition is getting stiffer.
That said, there now needs to be more focus on creating meaningful results and optimal use of resources. Results from the 2014 survey suggest that the sector is moving in the right direction – with energy use, GHG emissions and water use all modestly declining by 0.82%, 0.31% and 2.3% respectively (based on like-for-like data from 508 participants). Imagine the opportunity for improving the efficiency of those 56,000 assets for cost savings and carbon reduction.
Prepare for 2015
GRESB shouldn’t be dismissed as another piece of pointless jargon. If GRESB continues to gain momentum, then sooner or later, investors may insist on participation. If they are really serious, they may even expect their funds to be much-coveted green stars. Don’t get caught out.
The good news is that there is plenty of time before the survey is launched in April 2015, but plan early. Getting the data right and ensuring that efforts are focused on the most important aspects is vital. It is worth seeking the advice of an external consultant to simplify and harmonise data collection, and being better prepared for an audit by GRESB if selected.
Laura Jockers is an associate director in upstream sustainability at JLL
