The Global Real Estate Sustainability Benchmark can help investors and property managers to measure the sustainability of their assets and its implications for asset value and risk management.
On May 9, 2019, Ireland was the second country in the world to declare a ‘Climate and Biodiversity Emergency’. The Irish Government now recognises the need to act on climate change. We are all too familiar with the reasons why climate change is important, but perhaps less so of how it affects investors’ decision-making processes and how it impacts on property asset management.
The Global Real Estate Sustainability Benchmark (GRESB) is a global standard for environmental,
social and governance (ESG) benchmarking for listed property companies, private funds,
developers and investors that invest directly in property. It uses standardised and validated data
to assess and benchmark the ESG performance of real estate assets. In 2018, 903 entities from
64 countries with 79,000 properties worth USD$3.5 trillion (USD$1 trillion in Europe) in gross
asset value submitted to the GRESB (Figure 1).
Investors are increasingly focused on the sustainability of their portfolios and how this aligns with their ESG policies and strategies. Additionally, they want to ensure that their real estate
investments are managed efficiently and responsibly, and that there is a programme in place to
reduce risks caused by climate change, energy price volatility, water scarcity, evolving customer
demands, and changes in environmental legislation across different property types and markets.
The impact of such risks on investments is often difficult to understand. The GRESB assessment
works like a scorecard, allowing them to view and analyse high-quality sustainability data in a
standardised format for an asset, company or a fund.
How does it work?
The GRESB assessment evaluates performance against seven sustainability aspects and contains approximately 50 indicators, ranging from policies to evidence-based data. There are two dimensions to the data submitted – entity (company) level, and asset (property) level. Data submitted is then compared to its peers taking into account country, region, investment type and asset variations. Results are plotted in the GRESB model and a rating from one to five stars is awarded.
The deadline for submission of all data is July 1 each year, and results are available in the first week of September. All submitted data is entered through the online GRESB portal and data is submitted by property sector, such as office, retail, hotel or industrial. The first year of submission to the GRESB is a grace year and the data is not published. This gives companies/funds an opportunity to review their submission and improve in the second year of participation. The data in year two is published through a portal and is visible to investor members.
What they don’t tell you in the manual
Aramark has been involved in the GRESB for over two years. From the perspective of a property management agent working with clients on delivery of the GRESB, we have found that the process is quite onerous at the start, and is very data collecting intensive. Engagement with, and some level of understanding of the process by, all parties, such as the client’s representative, building managers, technical advisors, managing agents and tenants, is essential.
Under the stakeholders’ engagement, the GRESB recognises the need to have the top people in a company/fund involved, and specifically asks that a senior decision maker be named, who is accountable for the entity’s strategy and is briefed on ‘sustainability performance of the entity’.
Engaging the right people in a company/fund who can make decisions, and set targets and policies relating to sustainability, means that this will be taken seriously across the organisation. One of the biggest challenges we found that the company/fund faces is the collection of consumption data such as electricity, gas, oil, water and waste from tenants within their portfolios. In order to collect the data, it is essential that tenants are on board. This can be a challenge, especially in single-let full repairing and insuring (FRI)-leased properties where the tenant has full control over the asset. The lease usually does not prescribe for the tenant to hand over their consumption data and, in many cases, tenants will not willingly participate straight away, and generally want to know what is in it for them. If the portfolio submitted to the GRESB consists primarily of single-let properties, and tenants do not engage to provide data, then the
portfolio is unlikely to score well.
In order to open the conversation about sustainability, and find ways for mutual benefits between landlord and tenant, tenants’ engagement in the GRESB with property owners and managing agents is a key priority. In modern buildings it is more common to see sustainability clauses included in leases, making it easier to obtain data. The GRESB does, however, recognise the difficulty in obtaining tenants’ data and puts a different weighting on directly and indirectly managed properties.
Building ratings such as LEED, WELL, BREEAM, etc., are important to the GRESB: the more ratings a portfolio has, the better it will score overall. However, the process is not as simple as obtaining, for example, a LEED Design and Build plaque, but then doing nothing for the rest of the building’s life. LEED EBOM (operations and maintenance) and similar for existing buildings, which are awarded during the building’s operations, are also key scoring metrics.
The key to implementing sustainable building policies and strategies is engagement with an active property management company from the outset.
The GRESB and strategic property management
The key to implementing sustainable building policies and strategies is engagement with an active property management company from the outset. To ensure that the process is successful, a property and building manager who not only proactively manages the building’s operations and engages with tenants on a regular basis, but understands the sustainability goals, is essential. With a defined sustainability strategy in place, a building asset can achieve improved health and well-being for all occupiers, and reduce the detrimental impact on the environment as a whole.
Within this article, we have barely scratched the surface of the GRESB. There are many more aspects, such as health and well-being, resilience, and new construction and renovation. For more information, go to www.gresb.com.
Katerina Kopecna MRICS MSCSI
Divisional Director, Aramark Property