Global Real Estate Sustainability Benchmark (GRESB)

Global Real Estate Sustainability Benchmark (GRESB)

GRESB assesses the sustainability performance of real estate portfolios (public, private and direct) around the globe. The dynamic benchmark is used by institutional investors to engage with their investments with the aim to improve the sustainability performance of their investment portfolio, and the global property sector at large.
GRESB uses the data submitted by companies and funds to assess and benchmark the sustainability performance of the global real estate sector. It has developed three products to communicate the benchmarking results to GRESB Respondents, (Associate) Members and Partners. This is through scorecards, CSR benchmarks report and a member portal.

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Sunday, 3rd November 2013

Jon Lovell, Deloitte Real Estate

GRESB is effectively marketed as serving two principle functions; the first to improve transparency in the non-financial performance of investment portfolios, and the second to provide a barometer of risk for investors in relation to the exposure of their capital to non-financial performance issues.

In relation to the first, the principles of Responsible Property Investment (RPI) are centred around the integration of ESG factors into management and decision-making, and in that respect, initiatives such as GRESB absolutely have their place. There is no doubt that GRESB has played a really significant role in advancing awareness and, to an extent, and understanding of sustainability issues within the global real estate investment community. In particular, it has arguably done more than any other reporting initiative to improve the level of engagement between investors and their fund managers (I use the fund manager term in its most generic sense) on sustainability performance. That can only be a good thing and I think GRESB deserves significant plaudits for that, notwithstanding the validity of the comments offered by many of you guys on some of the limitations within the survey from a sustainability/ESG point of view.

It is, however, with regard to the second function that I have more of a concern. GRESB’s self-stated mission is to enhance and protect shareholder value by evaluating and improving sustainability practices in the global real estate sector. This implies that the GRESB survey and report (which is the centre piece of the GRESB’s outputs) provide a/the means by which shareholders/investors can evaluate the exposure of their capital to sustainability related risks. And to quote directly from the 2012 GRESB Report, “this methodology is intended to illustrate not only the mitigation of climate change or other environmental threats, but also the accompanying reduced risk and improved financial performance of real estate investments”. Admittedly, the 2013 GRESB Report, makes less of an assertion that GRESB benchmarking data provides an indication of risk exposure, but I think the precedent is pretty well established.

Thinking from an investors point of view, I am not convinced that GRESB provides an appropriate barometer of a risk exposure other than:

• In generic terms, by providing an indication (and only an indication) of the relative resource and carbon-intensity of capital invested (selectiveness and incompleteness of the data provided by respondents + the incomparability of measurement metrics between real estate market geographies means that the truth of the picture is, perhaps unavoidably, distorted);
• The existence or otherwise of certain ESG management processes by those who are managing their capital.

The risks to financial performance arising from sustainability issues are very much asset-specific. They arise from a combination of tenancy and leasing profiles, exposure and vulnerability to environmental hazards, local (by which I mean sub-national) market conditions, asset type, regulatory context, socio-political geography and other factors. To illustrate the point in very crude terms, an energy guzzling asset may not be at heightened investment performance risk if there are no near-term lease events, the regulatory environment is weak and the relationship between energy consumption and the on-going viability of the underlying business of the occupier(s) is tenuous. On the other hand, an asset with mid-range performance attributes may have a material and near-term risk to value, for example, as a result of tenant migration if there is an impending lease event with a tenant which has a high propensity to be influenced by energy performance, and the availability in the market of alternative and better-performing accommodation for which the direct and indirect relocation costs would not be prohibitive.

One might argue that these asset-specific variations even themselves out through aggregation to portfolio-level benchmarking, but the margin of difference between the risk profile of individual assets from a sustainability perspective can be so significant that I do not think this is a fair or safe assumption to make.

I guess, all things considered, my over-riding view would be that GRESB provides
a) a very useful platform (for which there continues to be scope for improvement) through which investors can engage with the custodians of their capital on RPI / ESG matters at a high-level (e.g. to be confident that certain approaches to managing ESG issues are in place); and
b) a really useful tool for the sector as a whole to communicate, both within itself and to external stakeholders, how an increasingly significant proportion of managed funds are taking account of, and making progress on, certain ESG issues (arguably, the global real estate industry could use GRESB and other benchmarking tools much more effectively for this purpose).

But, even as a proxy, GRESB is in no way a substitute for investors scrutinising their fund managers/general partners/management boards on asset- and portfolio-specific risk assessments and mitigation strategies, based on prudent analysis of all relevant ESG issues. I have had some really interesting and engaging conversations with private fund manager and listed clients when advising them on asset and portfolio risk exposure, but it is revealing that the conversations really get juicy when the investors are in the room too!

I think the really important point is that GRESB needs to be very clear about what it is, but also very clear about what it isn’t. Assertions that GRESB provides a really important function in promoting dialogue and reporting between investors and fund managers are, I think, very well justified. Assertions that I’ve seen written and verbalised about GRESB’s role as a risk management tool for investors (from a financial performance point of view) are, I think, overstated.

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Sunday, 3rd November 2013

Roxana Isaiu, Global Real Estate Sustainability Benchmark (GRESB)

GRESB is currently hosting a Consultation Period and welcomes suggestions from all Survey participants. Internally, we are reviewing this year’s Survey and working on refining questions, the Guidance and the verification. Our governance structure is set up to give members and Survey participants regular opportunities to give feedback either via the Consultation Period or via our Benchmark Committee (comprised mainly of fund manager members) and Advisory Board (comprised mainly of investor members) both of which meet 3-4 times per year. Sustainability is anything but static, and while GRESB does not want to change the content of the Survey, we will amend some of the questions in order to reflect the trends and requirements on the market such as procurement and community. These are topics for discussion on our list, although it is sometimes challenging to formulate questions addressing local needs when the scope of the questionnaire is global. This also applies to questions about certifications, which vary not only by region, but also by property type.

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Sunday, 3rd November 2013

Roxana Isaiu, Global Real Estate Sustainability Benchmark (GRESB)

The GRESB Survey is focusing on measuring the sustainability performance of participating property companies and funds, focusing on issues that are material to the market and to investors. After all, GRESB was founded by and for investors that believe insight into sustainability performance can enhance the risk-return profile of real estate investments. As a next step, we are looking into relating GRESB measures of sustainability performance, with financial measures of investment performance. There are multiple initiatives underway: 1) a collaboration with INREV (Europe), relating their fund performance database on European (core) property funds to GRESB data; 2) a collaboration with NCREIF/Townsend (US), creating a similar link; and 3) a link between return data on listed property companies (this data is publicly available). We anticipate that the results of these collaborations will be published in 2014.

When it comes to evaluating qualitative elements, such as a vision or objectives on sustainability, part of the GRESB verification process consists of reviewing all answers provided to open-end questions, which, as one can imagine, is no minor task for 543 respondents. However, we validated the answers provided based on a set of requirements that were previously made public in the Guidance document. These criteria, as well as the quality standards will be revised for next year. On a separate note, please note that the UK market is at the moment one of the most advanced markets worldwide when it comes to sustainability implementation and there are still big differences between UK or Europe and Asia, North America and emerging markets in Africa and South America.

We agree that it is crucial to measure the implementation of sustainability policies. For this reason, the GRESB Survey is divided into two dimensions - Management & Policy and Implementation & Measurement. In our scoring system greater weight is attached to Implementation & Measurement questions.

Collecting the data and all the information necessary to submit the Survey can be challenging at times, simply because the sections refer to different aspects at organizational level. We are mindful of comments regarding the time that it takes to complete the Survey. Our goal is to make the Survey as succinct and relevant as possible while encompassing GRESB’s global scope and wide-ranging approach to sustainability issues. The time and resources allocated to completing the Survey differ across respondents and they depend a lot on the structures and processes that are already in place (e.g. environmental management systems). What we have noticed is that by now, many respondents have their in-house systems in place to help them collect data, starting with the asset level and aggregating to portfolio level, as well as systems that help them keep track of the information they need from each particular department. In terms of communication with investors, we keep our investor and fund manager members regularly updated regarding developments in the Survey. For example, this year in advance of the opening of the 2013 Survey, we discussed the decision to request supporting evidence in the form of document uploads.

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Sunday, 3rd November 2013

Roxana Isaiu, Global Real Estate Sustainability Benchmark (GRESB)

GRESB values transparency and indeed, at its very core, is meant to encourage transparency in sustainability performance. GRESB thinks its own transparency is important in communication with investors and other stakeholders and it is something that we constantly review. We have been working with PwC this year with the goal of enhancing data integrity. This collaboration has involved a review by PwC of the GRESB Survey, data management, verification, scoring and analysis, and reporting processes. One of the outcomes has been the recent release of the updated Guidance document, which includes additional question-by-question scoring information. We also disclose the scoring weights allocated for each of GRESB’s seven Survey Aspects (plus the separate New Construction and Major Renovation Aspect) provide an overview of the question weights within each Aspect.

In addition to transparency in the GRESB Survey, in 2013 GRESB introduced a new service to support an accurate reporting process: the Response Check. This service is being reviewed as part of the Consultation Process and will be continued in 2014.

In 2013 we introduced a new element of verification: document uploads. This year, these were solely used for review and not for scoring. Verification and assurance of sustainability data is a complex issue that extends beyond real estate into all asset classes. For this reason GRESB constantly reviews its Survey questions that touch on verification, assurance and audit of participant data. In each Survey Year we think carefully about these questions and about the scoring of supporting evidence provided in document uploads. That said, investors and the industry are looking more closely at the integrity of sustainability data and there is demand for increasing rigor in sustainability data. In the coming years we intend to start using document uploads in the evaluation of questions.

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Sunday, 3rd November 2013

Mohamed Abdel Rahim, European Public Real Estate Association (EPRA)

GRESB’s initiative to try and improve sustainability transparency and comparability within the sector is commendable and EPRA, as a founding member of GRESB and member of its Advisory board, supports this.

EPRA has developed sustainability reporting Best Practices Recommendations (sBPR) based on legal and voluntary initiatives (mainly GRI, GHG Protocol). In two years these have been adopted by more than 40 of the largest listed property companies representing 75% of FTSE/EPRA NAREIT Developed Europe index market cap (index of leading listed property companies). Listed property companies and non listed companies are making great strides to improve sustainability reporting as a necessary first step towards better practices. It seems logical to give more credit for using publicly available information than information which may not be made public, as this would seem to be a ‘step up’ in terms of assurance and reliability. It could also encourage companies that aren’t making information available to the public and key stakeholders to do so.

I understand that GRESB is finalizing a process review (performed by PWC) in Q4 2013 and we would certainly encourage consideration of this point. Wishing the best of luck.

The EPRA sBPR focus on reporting absolute and intensity measures on Water, Waste, Energy and GHG emissions as well as overarching recommendations such as like for like reporting and coverage. They were also adopted by INREV (association of investors in unlisted real estate funds) in almost identical form in their respective guidance and used in GRESB. http://www.epra.com/media/GRESB_Report_2013_1378386339662.pdf

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Sunday, 3rd November 2013

Debbie Hobbs, Legal & General Property

Transparency - it would be really good if the survey was transparent to both participants and investors. It would be really useful if the scoring mechanism and weighting of each question was published, in advance of the survey commencing. This would allow the industry to debate the different weightings given to each sustainability aspect. I think this would help enhance the industries understanding of the survey and allow different investors to compare the emphasis they give to each aspect, with how the GRESB survey weights it.

Survey completion time - the other question we are being asked by investors is how much time does it take to collate the information required in the GRESB survey, in comparison to how we hold and manage the data as part of our standard systems and processes. I think some guidance from the GRESB team on how much time they think it takes per fund to collate the relevant data, into the format required for the survey in addition to how it is currently held, would be very useful for us to pass onto our investors i.e.: collating tenants data annually across a fund per GRESB sector, the various measurements of floor area required to relate to the split of energy use within the common parts of a multi-tenanted building and calculating the percentage of EPC's by GRESB category within each fund etc.

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Sunday, 3rd November 2013

Sarah Ratcliffe, Cass Business School

In my opinion, any initiative that gets the attention of investors in real estate, must be a good thing. GRESB is clearly gaining significant momentum and this can only be positive in terms of raising awareness of the importance of sustainability issues in investment decision-making. Indeed, we are beginning to see anecdotal evidence that real estate investors insisting on participation in GRESB and, in some cases, insisting that their assets or funds, must be working towards achieving specific levels of 'Green Talk' or 'Green Stars'. GRESB is clearly in the early phases of development and therefore many of the questions are associated with establishing whether or not appropriate procedures are in place to address sustainability issues. Having established this, my next question would be, so what does this mean and how (if at all) has this influenced decision making? It's all very well having procedures in place, but one always need to ask what they actually achieve and I am reminded of some the analysis of the ISO environmental standards undertaken some time ago which showed that accreditation did not necessarily lead to improvements in performance. To take a specific example, the first question of the survey, is ' Does your company/fund have a specific strategy on sustainability?', they might have a strategy, but is it any good?!

Also, I feel that some of the headlines of the GRESB survey were a little too positive and encouraging (for example, those concerning risk assessments for flood and extreme weather events - from reading the report it would seem to me that there are still a significant number of portfolios that are not assessing these risks and this is quite worrying). I know that the industry has made significant progress over recent years and I understand that one needs to be 'gentle' with members in initiatives such as this to encourage engagement and continuing participation, but I also believe that GRESB has an important role to challenge participants - there is still so much progress that needs to be made, one should not give investors the opportunity to rest on their laurels.

Overall, I think GRESB has made a good start in framing specific questions, this is a very difficult task when you consider the questions must be relevant to many different geographies and portfolios. My main comment stems from the fact that many surveys of investors when asked about what drives investment performance regularly refer to issues of importance to occupiers and, indeed, this is where their most significant costs lie. Therefore, I think GRESB should develop questions that seek to address this - indoor air quality is incorporated - but what about issues such as occupier health and productivity, which are key to certain types of occupiers? I think it is important not to lose sight of what drives investment performance - energy costs, regulation, waste management etc etc are all important, but lets not forget the other important drivers of occupier demand.

Sustainability is a subjective issue (partly due to the lack of a common understanding and definition of what it actually means for real estate). However, wherever the drivers are in place and it is possible and practical to do so, performance metrics are important and at some point, we must be able to establish what is good and poor performance. We may not be there yet, and it is certainly difficult to do this on a global basis, but lets not shy away from this, otherwise we run the risk of bad performance always being caveated with the excuse of subjectivity. I certainly think that GRESB has an important role in this regard, but that it should not try to create its own performance metric, it should draw on other initiatives to develop performance metrics and that, in doing so, it will need to reflect the different metrics used in relation to different asset types in geographies. Indeed, it may even have a role to comment on the effectiveness of these.

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Sunday, 3rd November 2013

John Davies, Derwent London

It’s great that there is benchmark that is trying to encompass a range of issues, not just carbon/GHG emissions, and trying to give a rounded indication of the relative ‘quality’ of a company’s sustainability performance. However, to my mind it needs further moulding before it can really call itself a sustainability benchmark as it doesn’t cover a wide enough range of issues e.g. community matters and local procurement.

On a practical note, as someone who actually fills these things out I can tell you it is less intensive then others e.g. CDP, but is still a genuine labour to get it completed, and questions do get asked as to whether the time, money and effort is worthwhile. Personally I think it is, as do others in my organisation, recognising that we are unlikely to get to a space where we have the super-quick 30mins survey!

It does have a number of niggles/difficulties in terms of question specifics. An immediate headline issue that springs to mind would be the continual referencing to LEED. I understand from the 2013 results launch that it is the most widely quoted assessment method in the survey, but it isn’t universal enough across territories and it makes it hard to answer some of the questions. Moreover its applicability to non-US property management and construction is sometimes tenuous. Therefore, in our case (UK centric) we had to say no to some things, which meant we couldn’t score. Is a reliance on an environmental assessment method really needed? If it is thought that it is can it be made a little fairer by including more country specific ones – perhaps some sort of screening can be done?

GRESB could give further consideration to community, local procurement (excluding property acquisition). Socio-economic impact assessment is becoming a very important tool for property companies – here in the UK at least, couldn’t comment for further afield.

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Sunday, 3rd November 2013

Alex Hill, Aviva Investors

By definition, I would argue ‘sustainability performance’ is a relative concept and therefore GRESB is playing a very important ‘arbiter role’ in defining best practice. I think the way you judge sustainability performance is always going to be subjective and therefore transparency, and specifically GRESB’s consultation process, responding to the responses from the consultation, getting a third party review (audit?) from PwC, the publishing of the scoring methodology, the question guidance etc, are all essential in being a fair arbiter. For the same reasons, greater verification and assurance of the information being submitted is an obvious next step in GRESB’s evolution.

On a separate note, can GRESB really call itself a ‘sustainability’ benchmark in the true meaning of the word, without considering financial performance and without considering the likelihood of a fund’s investment strategy becoming obsolete?

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UK Green Building Council (UK-GBC) logo

Thursday, 10th October 2013

Natalia Ford, UK Green Building Council (UK-GBC)

GRESB 2013 Report and Survey available here: http://pinpoint.ukgbc.org/resource.php?item=8131

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