GRESB Resilience Module: will you survive and thrive in the face of systems disruption?

When you hear the word resilience you might think of an activist like Martin Luther King, an explorer such as Ranulph Fiennes, or an athlete akin to Mo Farah.

In all walks of life it is an admirable and desirable quality, but the meaning it carries in the field of commercial property is perhaps not as well defined or understood as it needs to be given the increasing role it is expected to play in securing long-term success.


GRESB is recognising the importance of resilience in real estate portfolios by introducing a brand new module for the 2018 GRESB survey. Much like the Health & Wellbeing module that came before it, the GRESB Resilience module will standalone and evolve over the next 3 years with the intention of subsequently integrating it into the main GRESB survey.

But what is it that makes real estate resilient?

What is it that makes companies and funds resilient?

And what is it that will make you GRESB resilient?


What is resilience?

The exact definition of resilience in a sustainability context is not yet fully agreed, however the IPCC defines it as:

“The ability of a system and its component parts to anticipate, absorb, accommodate, or recover from the effects of a hazardous event in a timely and efficient manner, including through ensuring the preservation, restoration, or improvement of its essential basic structures and functions”.

Meanwhile, GRESB defines it as:

“The capacity of companies and funds to survive and thrive in the face of social and environmental shocks and stressors”.

In short, how well equipped is your organisation to deal with big events that disrupt systems (floods, fires, earthquakes, terrorist attacks etc.), and the stressors that make you more susceptible to harm when events do occur (poverty, environmental degradation, aging infrastructure etc.)?


The GRESB resilience module

The GRESB Resilience module has been kept fairly simple this year, asking basic-level questions on the involvement of management and stakeholders in resilience-related decisions, on asset and business operational risk reporting, on strategies for the management of risk, and, interestingly, to “describe your response to three illustrative, disruptive, extreme, or catastrophic events or near misses during the reporting period”. I am intrigued to see what kind of responses come in for this last one.

I am confident that the Resilience module will follow the projected path of the Health & Wellbeing and ultimately become a part of the main survey. Firstly, because the probability of these system shocks is indisputably growing for many issues (e.g. climate change, terrorism, I.T. security) and secondly, because of the potentially huge environmental, social, and financial consequences that could result from failing to invest in resilience.

Exactly how the module will look in a few years’ time is hard to say, with GRESB using this year to gauge the current state of play in the industry. I doubt it will progress to any kind of individual asset-level evaluation any time soon given the multitude of uncertainties in resilience modelling and the unique situation every asset is in with regards to external shocks and stresses. Instead, I expect it will likely remain procedural, focussing on how organisations go about identifying, assessing, and mitigating risks in their portfolio, and how they are communicating these risks to different parties. However, we wait with intrigue to see how this new reporting element develops.


GRESB Premier PartnerAs a GRESB Real Estate Premier Partner, we are perfectly positioned to provide GRESB support. View our official Premier Partner profile.

We can work with you to complete the submission and understand your scoring, as well as develop a sustainability plan that will improve your future GRESB performance and align with your organisation’s key environmental objectives.

Contact us about GRESB support.

GRESB Verification: Why it’s important our Top Tips for success

One of the more notable changes that GRESB has introduced for the 2018 survey is their approach for verifying participant’s answers.

Starting in 2018, GRESB (or more accurately, their parent company GBCI), will perform a deep dive (termed Validation Plus) on all participants for a subset of questions and indicators. Previously, the approach was to select 25% of participants for a detailed review of an entire response.


GRESB Verification – why do we need it?

The rationale for validating responses is simple to comprehend. If unchecked, there is a risk that some respondents may stretch the truth and overplay an entities performance and/or practices for ESG management. Checking all participants on the same subset of indicators creates a more level playing field, which should be to the benefit of sustainability leaders who can easily demonstrate and disclosure their performance. However, the check is still very light touch as, typically speaking, only one document needs to be uploaded to indicate how ESG is implemented / managed across a fund; one example of good practice may be the exception and not the rule for some.

[clickToTweet tweet=”Validation is not in place to trip people up or create unnecessary burden. It is an action that GRESB must take to ensure the ratings it gives to participants are credible.” quote=”Validation is not in place to trip people up or create unnecessary burden. It is an action that GRESB must take to ensure the ratings it gives to participants are credible.”]

Validation is not in place to trip people up or create unnecessary burden. It is an action that GRESB must take to ensure the ratings it gives to participants are credible. Why is this important? From the outset, GRESB has stated it is an investor driven organisation. If investors are being fed inaccurate information, then they may not be able to accurately identify good ESG strategies from mediocre or non-existent ones. Investor confidence will suffer as a result and GRESB will fizzle out.

It was fascinating to learn about Danone’s (the yoghurt people) announcement in their Financial report issued last month. In it they stated an agreement for “tying financing cost and environmental and social performance”. The interest paid on their €2billlion credit facility, syndicated by 12 international banks no less, would be impacted upwards or downwards on the basis of ESG performances, as measured by independent third parties.  Additional factors other than ESG are also considered.

WOW! Wouldn’t this raise the bar for GRESB submissions if an entities credit rating and / or credit facility was linked to the number of Green Stars GRESB issued each year!


GRESB verification – Top Tips

So how can you ensure your GRESB response is accurate and that evidence submitted is accepted by GRESB?

We set out below, our six top-tips.

  1. Read the guidance document – GRESB is transparent on the scoring requirements for each indicator. Participants should familiarise themselves with the guidance document to ensure they understand what is required for each response.
  2. Get advice – if you don’t have the time or inclination to read the 264 page guidance book, get expert help from EVORA. We have had visibility of 98 assessments so far and as such have significant experience. I’m looking forward to passing the century mark this year (and most probably the double hundred!)
  3. Focus on data integrity – the Performance Indicator section now carries the highest weighting of any section (termed Aspect by GRESB) at 25.6%. Asset level data is at the heart of this section and data transparency and accuracy is key. Look out for my colleague Chris Bennett’s blog on how SIERA delivers on data integrity.
  4. Communicate early– GRESB is a comprehensive multi-disciplinary survey. It is highly unlikely that one person will have the answer to all questions. Participants should be aware of internal and external stakeholders they need to involve in the process and communicate requirements to them early.
  5. Take time over evidence – sourcing evidence, signposting content via the Upload Template, and preparing / splitting / merging pdfs takes time. It is worthwhile taking the time to keep accurate records, as this can help deliver efficiencies for future years. It is also worthwhile taking time to ensure that signposting GRESB to relevant evidence is accurate. This includes hyperlinks and ‘deep link’. Broken links are the responsibility of the participant and will be interpreted as the absence of evidence.
  6. A global benchmark? Finally, your assessment response must be submitted in English. For a Global benchmark this seems a little harsh for the many non-English speaking participants and I know from experience that it is a major frustration. Uploaded evidence does not need to be translated entirely. However, a thorough summary of the content, sufficient to convey that each requirement has been met, should be provided in English. This will add time and /or cost for many participants.

Following my advice will ensure your ESG strategies are assessed accurately by GRESB. I have seen many responses (not completed by EVORA!) marked down for not following guidance.


We are hosting a webinar on 19th April titled How to overcome GRESB challenges and achieve your best score.  Join us to hear insights on how to save time, reduce complexity and align GRESB ratings with your sustainability strategy.

Click here for more details.

 


GRESB Premier PartnerAs a GRESB Real Estate Premier Partner, we are perfectly positioned to provide GRESB support. View our official Premier Partner profile.

We can work with you to complete the submission and understand your scoring, as well as develop a sustainability plan that will improve your future GRESB performance and align with your organisation’s key environmental objectives.

Transparency and the business case for ESG in Real Estate

Last month we ran a thought leadership event on ‘Real Estate Sustainability: Planning for 2018 & Beyond’ kindly hosted by our client Schroders.

Two key themes were raised by the speakers and the panellists, which are certainly not mutually exclusive. The first was setting out the business case for ESG in Real Estate and the second was the issue of transparency.


Evolution of GRESB for 2018

Sander Paul van Tongeren, Managing Director of GRESB kicked off with 2018 updates for GRESB. Increased transparency is being introduced through ‘Validation Plus’ applied to a sample of indicators for all participants (as opposed to a sample of participants). Ensuring quality of submissions through greater transparency is essential for the ongoing credibility of the survey.

Sander Paul made it clear that GRESB is increasingly focussing on the asset level.  The GRESB Assessment at the fund level will be strengthened by adding asset level data.

In addition, Sander Paul made it clear that GRESB is increasingly focussing on the asset level.  The GRESB Assessment at the fund level will be strengthened by adding asset level data. This will necessitate the collection of asset level data where the transparency of that data has been evaluated, i.e. has it come from a trusted source, and its quality identified through adequate validation. This is where sophisticated software systems such as SIERA will become fundamental in receiving asset & meter level data with automated validation functionality to ensure the completeness and quality of the data, which will support high scores in GRESB.


Transparency through public disclosure

Ed Gabbitas of EVORA presented the findings of a recent research paper identifying that strong sustainability practices combined with public disclosure are associated with superior investment returns. The award-winning research found that “sustainable” Real Estate Investment Trusts (REITs) benefited from higher rental income and lower interest expenses, resulting in increased cash distribution to shareholders. A lower risk profile was also identified attracting higher premiums to Net Asset Value (NAV). Transparency through public disclosure was found to be a key facilitator of driving improvement.

Overall, a 3% fund return uplift was observed between the lowest and highest GRESB scoring funds.

Ed went on to highlight research to evaluate if strong GRESB performance correlates to enhanced fund returns for non-listed funds. Overall, a 3% fund return uplift was observed between the lowest and highest GRESB scoring funds. These finding are clearly helpful enabling the capital markets to use GRESB as a broad indicator of fund quality in their evaluation.


ESG ratings lead to better financial performance

Murray Birt, Senior ESG Strategist at Deutsche Bank advised there had been more than 2000 academic studies since 1970, seeking to identify if there is a link between ESG and financial performance – clearly not a new endeavour! The findings demonstrated high ESG ratings correlated to better financial performance across multiple asset classes and regions.

Neither this, or the immediate impact of global physical climate change, which Murray also highlighted, have had a major impact on the uptake by the real estate industry, to accelerate energy efficiency in buildings. The answer – improved and increased European wide policy requiring corporate disclosure and greater transparency to promote the setting and delivery of long term objectives to address climate risk.


Social Value and Impact Investing

Finally, Debbie Hobbs, Head of Sustainability at L&G Real Assets presented on the importance of Social Value and Impact Investing, ensuring investments generate a beneficial social impact as well as a financial return. Debbie presented research highlighting that nine out of ten millennials believe the success of a business should be measured by more than just financial performance and 60% of millennials want to join companies that have a societal purpose. Fundamentally transparency of impacts and social engagement is becoming a necessity, both in the way funds invest and corporates run their businesses.

60% of millennials want to join companies that have a societal purpose.

Anecdotally, we have recently been recruiting for a number of positions at EVORA, and remarkably, so far, every candidate interviewed has highlighted EVORA Giving, which focusses on our social side of sustainability, as a key element that has attracted them to apply to EVORA.


Transparency and the business case for ESG

So, going back to our two key themes. Firstly, transparency is clearly the new buzz word and for many good reasons it should help bring quality, clarity and progression of the ESG agenda.

[clickToTweet tweet=”A decade ago I saw sustainability almost as a leap of faith for many – now I see it as a leap of common sense. ” quote=”A decade ago I saw sustainability almost as a leap of faith for many – now I see it as a leap of common sense. “]

And what about the link between ESG and fund performance? – well research, which has been ongoing since the 1970s, has shown that there is direct correlation. Will that put the debate to bed? I doubt it. But as I said in my closing remarks at the event, a decade ago I saw sustainability almost as a leap of faith for many – now I see it as a leap of common sense. So let’s stop putting our energies into trying to prove its worth and instead make our buildings and the world we live in more sustainable.


If you have any questions about the event or would like to speak to us about how we can support you with your GRESB submission for 2018, please get in touch with the team.

 


GRESB Premier PartnerAs a GRESB Real Estate Premier Partner, we are perfectly positioned to provide GRESB support. View our official Premier Partner profile.

We can work with you to complete the submission and understand your scoring, as well as develop a sustainability plan that will improve your future GRESB performance and align with your organisation’s key environmental objectives.