How to leverage frameworks, standards and certifications to drive value
ESG is taking on a greater significance in the Commercial Real Estate (CRE) industry. With 82% of CRE experts considering ESG elements when making investment or operational decisions, ESG strategies are changing from nice-to-have to an absolute necessity. The top question many owners and operators are facing is no longer whether or not they should include ESG in operational decisions, but rather, how quickly they will need to.
A new report from Deloitte suggests the number of ESG-mandated assets in the United States could grow nearly 3x as fast as other assets, comprising half of all professionally managed investments by 2025. It predicts an estimated 200 new funds in the U.S. with an ESG investment mandate are likely to launch over the next three years – more than doubling the activity from the previous three years.
Partnering with reputable outside organizations to prioritize your chosen ESG objectives can aid in future data collection, reporting, and disclosure – ensuring your commitment to ESG isn’t simply checking a box. Developing partnerships shows employees, tenants, and investors that you’re serious, allows you to build long-term sustained growth and gives you a competitive advantage.
In the era of ESG 3.0, there is an abundance of frameworks, certifications, standards, and rating systems that exist for any business and/or industry to internally align, report, and disclose their ESG efforts in a pseudo-organized fashion. Here are some differences between them.
ESG framework: Guides the direction of ESG reporting but will not provide a methodology for the collection of information, data, or the reporting itself. Frameworks are useful to use alongside ESG standards, or when a well-defined standard does not exist.
ESG standard: Standards dictate how information and data are collected, and how a report needs to be produced (what topics and business areas to include). Standards make frameworks more actionable by ensuring comparable, consistent, and reliable disclosure.
ESG certification: A credential individuals can gain to demonstrate their knowledge of and use of environmental, social, and governance factors in institutional investment analysis. This type of analysis is important to companies who want to understand the overall value and sustainability of an organization or investment.
What all of these have in common is trying to solve the lack of a universal and standardized ESG framework by forming consistent reporting measures that responsible parties can rely on and follow with confidence. However, with what seems like endless options and an already saturated market to choose from, real estate professionals are challenged with sorting out the noise to find the option that works best for their company and operations. Financial parties are taking a scrupulous look at companies that disclose ESG practices, advancing discussion around the credibility and trustworthiness of popular frameworks along with instances of greenwashing and cherry-picking information.
Adopting ESG for your organization yields an infinite number of outcomes and, understandably, involves an overwhelming number of decisions you need to make right now if you want to add real value to your company, building, or portfolio. If you’re new to the world of ESG you might be asking how and where to even begin.
Outlined below are the most reputable and commonly used ESG disclosure frameworks for Real Estate professionals who wish to disclose externally.
Carbon Disclosure Project (CDP)
CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts. It is the largest climate-change-focused data collection company with 13,000+ companies representing more than 64% of the global market cap participation last year. As the world’s most prominent investor-backed sustainability reporting standard, the CDP provides standardized industry comparisons and aids companies in determining whether their sustainability strategies are truly successful.
Since its beginning more than two decades ago, the CDP created a system that resulted in unmatched engagement on global environmental issues. By translating the TCFD’s (Task Force on Climate-Related Financial Disclosures) recommendations into a disclosure framework, the CDP provides an invaluable service, making it the gold standard for corporate environmental reporting.
Reporting your environmental data through CDP enables you to protect and improve your company’s reputation, boost your competitive advantage, uncover risks and opportunities, track and benchmark progress, and influence investors. In a world where mandatory disclosure is gaining momentum, disclosing through CDP also helps companies get ahead of regulations.
Global Real Estate Sustainability Benchmark (GRESB)
A collection of internationally recognized benchmarks to track ESG performance of the commercial real estate and infrastructure sectors. Hailed as the ESG reporting framework of choice for CRE professionals, GRESB has set the precedent for credible benchmarking, goal measurement, and reporting/disclosure within our industry.
Participants of GRESB receive a complimentary ESG assessment, called an Asset Assessment, which is aligned with the UN Principles for Responsible Investment (PRI), Global Reporting Initiative (GRI), and the Paris Climate Agreement. Completed by participants, the overall evaluation is based on ESG indicators across Management, Performance, and Development standards.
Entities that participate in GRESB assessments are provided with business intelligence on their performance in comparison to competitors, as well as recommendations to improve their score and communicate with investors. Operators receive a GRESB score and can purchase a benchmark report, in which they can expect a detailed analysis of their current performance. Investors use GRESB’s analytical tools and industry benchmarks to grade their own portfolio’s ESG performance, engage with property managers, and meet reporting obligations.
What is the value in disclosing through GRESB?
It’s good for your bottom line.
- GRESB subsidizes companies that score highly.
- The modern investor takes ESG ratings into account when evaluating a company’s value. Disclosing through GRESB shows a company’s willingness to improve its ESG score and is, therefore, a promising sign to potential investors.
- Obtaining a high GRESB score will also assist in consumer interest. Given that tenant satisfaction is a primary facet of CRE ESG initiatives, tenants will use GRESB scores when deciding where to lease from.
It helps you stay competitive.
- GRESB’s Benchmark Reports offer greater visibility into your organization’s competitors’ performance . Outlining strengths, weaknesses, and opportunities you to improve ESG and related business practices.
- GRESB’s curated recommendations, paired with the insights above, enable you to make data-driven decisions about future ESG initiatives and implement processes to position your company for continued success.
Science Based Targets initiative (SBTi)
The SBTi is a partnership between the CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF).
The SBTI defines and promotes best practice in emissions reductions and net-zero targets in line with climate science. Technical experts provide participants with assistance and resources to stay on track of their net-zero targets and equip them with independent assessments of their performance. Organizations interested in taking a pledge to reduce their carbon output join SBTi because they want to know the concrete numbers behind how much and how quickly they need to reduce their greenhouse gas (GHG) emissions to help prevent the worst effects of climate change.
Nearly 1,000 organizations across the world participate, gaining detailed feedback and support from SBTi’s technical experts. Businesses who sign the SBTi commitment letter receive recognition on their website, as well as on the CDP, UN Global Compact and We Mean Business websites. Aligning with SBTi provides clarity and guidance on net-zero achievements while enhancing positive brand value and recognition for CRE companies that are truly dedicated to reducing our industry’s 40% global contribution of GHG emissions.
A final consideration
When deciding whether to utilize one of the frameworks outlined above, it is important to note that all work in a similar space, but each has its own strengths. For example, the TCFD, CDP, and GRESB were built on top of the other, becoming more granular in scope and focus. Fortunately, your company doesn’t need to limit itself and can disclose through them all. Just remember, ESG is becoming increasingly important, and only the proactive companies will reap the benefits.
