EVORA Global leads HECF to winning coveted ESG award

EVORA is delighted to have supported our long-standing client Hines European Core Fund (HECF) in helping them win the 2021 PREA Real Estate Investment Management ESG award, beating 59 other Funds to the prestigious title.

The awards recognise PREA members at the forefront of environmental, social, and governance (ESG) issues within real estate investing and provides the industry with examples of best practices.

EVORA works closely with HECF to define and develop their sustainability vision across a diverse range of buildings throughout Europe. With a current AUM of over €2 billion spanning 30 assets, HECF has investments in 15 cities across nine countries.

Testament to EVORA’s depth of knowledge and experience in ESG strategy development, complemented by HECF’s commitment to sustainable investing, the Fund was able to commit to the following ongoing actions.

  • Utility data collection program in order to understand, monitor and optimise building operations.
  • Maintain 100% green building certification coverage (many of which are BREEAM In Use assessments conducted by EVORA).
  • 100% landlord-procured renewable electricity (backed by guarantees of origin)
  • Science-based target to reduce greenhouse gas emissions by 42% by 2025, and 60% by 2030 across the portfolio, against a 2018 baseline.
  • Net Zero by 2030 for landlord-controlled emissions.
  • On-site renewable solar thermal panels providing hot water at two assets – Caleido in Stuttgart and Via Crespi in Milan.
  • Numerous tenant and community engagement programmes and initiatives.

“Yet another one for HECF’s trophy cabinet! And once again we are proud and grateful to have played a key role in both strategy and delivery. Particular thanks on the EVORA side go to programme lead and Managing Consultant Sarah Harvey who’s rock-solid project management and technical skills were both critical ingredients to this success. Also, thanks to our team of software developers – led by Sonny Masero and Nick Hogg – whose routine enhancements to SIERA keep extending our reach and impact”.

Oliver Pye, Director

Market Intelligence Report | January – March 2021

OPINION

Opinion: Attitudes to ESG is changing and rapidly, but is it resulting in quick enough action?

In short, no.  Although we are seeing some significant progress, the real assets and wider financial services sector needs to up its game if it wants to address climate change proactively – to protect and enhance value. Over the last year, we’ve seen lots of fanfare about financial institutions and intermediaries adopting ESG policies and practices. Over 500 new ESG funds have been launched. However, greenhouse gas emissions continue to rise in every sector. 

Public awareness of ESG has never been higher and there are no signs of it abating.  Furthermore, leading investment companies are making some significant commitments.  Many organisations have now either made net zero commitments are in the process of doing so.  Not just for their own operations, but for their portfolio of investments. We are witnessing a fundamental shift in capital, with Standard Chartered estimating that $1 in every $4 is now invested in ESG. Albeit in a wide spectrum of shades of green. 

However, we all have to recognise that this is just the start.  It’s all very well setting out goals to get to net zero by 2030, 2040 or even 2050, but as most know, this is just the beginning.  Progress must be addressed by action but, progress in this respect, is very slow. We don’t have a bottom-up understanding of the cost of this transition to net zero. These costs are hidden, and this could mean that assets are mispriced. 

So, what’s slowing us down? Below, we set out some key thoughts. 

Cost 

It is [relatively] straightforward, to set net zero targets, particularly if the time horizon is 30 years out. Far off in the future, distant from a typical CEO’s tenure and most business and investment cycles. For those of us that understand the science behind net zero, we know that we have to get over halfway there in the next 10 years.  That means that the next step can get expensive.   

To progress, real estate fund and asset managers need to understand what can be done to transition to net zero.  To collect this information, evaluations and audits need to be completed. Yes, sample checks can be completed across big portfolios and this is a good way to start.  However, sooner or later, comprehensive assessment is required.  It is possible for portfolios (high value) to spend £200k + on assessments before even progressing.   

It’s a significant cost, and as real estate sustainability professionals, we must recognise this and also support our clients to explain reasoning and provide value solutions.  In the medium term there is no getting around this because net zero policy and regulations is inevitable.  Assessment to evaluate feasibility for improvement need to be completed.  Once done, results show even more costs. 

 So, what is the answer?  Clear transparent reasoning and progress. 

 Expertise 

There is a lack of expertise.  At EVORA we recognise this. We are recruiting heavily and early.  However, there are a limited number of environmental engineers with real estate experience around – we, as an industry must upskill.  In simple terms, we need technically competent engineers and auditors who can find solutions, and real estate professionals who can understand enough to make informed decisions.  We also have to get over the professional language barrier.  Let’s face it ‘real estate professionals don’t understand the details of climate science and energy reduction and engineering professionals don’t understand real estate markets’. This is a barrier we need to recognise, accept and work together to overcome.  Open honesty is a good answer.   

Everyone should be prepared to explain.  ‘I am sorry, I don’t understand’.  What is simple to one person may not be to others. 

Administration 

Whilst action is needed, as is reporting.  We have to reflect on the plethora of reporting requirements and the fact that corporate and fund level reporting can, well, get in the way.   

At EVORA we complete well over 100 GRESB submissions a year.  GRESB is an important reporting mechanism but it, along with many other schemes, takes time.  We don’t advocate removal of these schemes, but we do think we need to consider how to streamline and align, so reporting of one scheme supports the requirements of another.  Ultimately data, and the time taken to collect data sits at the heart of this problem.   

There are important attempts to standardise reporting, like the IFRS working group to harmonise global sustainability reporting for corporations. This brings together the SASB, FSB-TCFD, Value Reporting Foundation (SASB/IIRC), CDSB, WEG, GRI and CDP. It intends to report back on COP26 in November. We need to extend an initiative like this to incorporate real assets. 

Whilst it is no easy fix, we must look to speed up data standardisation and automation. 

 A final word on legislative drivers. 

Legislation is important, particularly when regulations are enforced.  Initiatives, like the EU Action Plan for Sustainable Finance, is undoubtedly helping to raise profile.  However, not uniformly.  If we take SFDR for example.  This piece of legislation has been introduced by the European Union in an attempt to remove greenwashing.  All organisations we talk to and have advised are taking this legislation very seriously indeed.  As they should.  However, legal guidance can differ – this is understandable because guidance is limited and only available in draft form.  

In summary, we are moving forwards, but if we are to address climate change in a way that protects our way of life, we fear it is not quick enough.   

Action, transparency and collaboration are the words of the year. 

Paul Sutcliffe, Executive Director 

Sonny Masero, Chief Strategy Officer 

REGULATIONS, POLICY AND FRAMEWORKS

Section covers the updates related to regulations, policy, and frameworks released by Government organisation like ECB, BOE, etc and/or Global Organisations such as GRESB, TCFD, PRI, UN, World Bank  

1.   Government level regulations

European Regulators Publish Guidance for Taxonomy– Aligned Disclosure under NFRD

Europe’s three primary financial regulatory agencies, the European Supervisory Authorities (ESAs) announced the publication of advice covering information to be provided by asset managers, insurers, banks and other institutions in order to comply with their disclosure obligations under the Non-Financial Reporting Directive (NFRD). The ESAs include The European Banking Authority (EBA), The European Insurance and Occupational Pensions Authority (EIOPA), and The European Securities and Markets Authority (ESMA)

SEC Launches Climate Task Force

The U.S. Securities and Exchange Commission (SEC) announced the creation of a new Climate and ESG Task Force in the Division of Enforcement. The new task force will develop initiatives to proactively identify ESG-related misconduct, with an initial focus on identifying material gaps or misstatements in issuers’ disclosure of climate risks. The task force will also analyse disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.

RBC: Sets $500 Billion Sustainable finance target

Royal Bank of Canada (RBC) announced a series of new climate and sustainable finance commitments, launched at the bank’s inaugural Environment, Social and Governance (ESG) Conference. RBC will mobilize $500 billion in sustainable finance by 2025, after achieving its $100 billion target in 2020

The European Parliament adopts Invest EU Programme 2021-207

The EU Parliament, with €26 billion set aside in the EU budget as a guarantee, InvestEU is expected to mobilise €400 billion to be invested across the European Union from 2021 to 2027

  • Sustainable infrastructure: €9.9 billion
  • Research, innovation, and digitalisation: €6.6 billion
  • Small and medium-sized enterprises: €6.9 billion
  • Social investment and skills: €2.8 billion

SEC: Acting Director proposes framework for future ESG rulemaking

John Coates, the acting director of the SEC’s Division of Corporation Finance, announced a proposed framework for considering new ESG disclosure requirements, recognizing that while the scope of ESG issues is very broad, specific ESG issues affect particular companies differently based on industry, geography and other factors.

SEC is inviting Public Input on Climate Change Disclosures

UK Budget 2021: Key climate and energy announcements

The most significant parts of this year’s budget for climate action, Sunak announced that the UK’s net-zero goal will be added to the remit of the Bank of England, having become part of the government’s overall “economic policy objective”. The budget promises that the government will issue its first “sovereign green bond – or green gilt” in summer 2021, a move it had already announced last November. At least £15bn in government debt will be specifically earmarked for supporting “green objectives”, with further details of how it can be spent coming in June.

UK government launches Decarbonisation Strategy

The Industrial Decarbonisation Strategy that will see £171 million put towards hydrogen and carbon capture and storage (CCS) projects. The dedicated £171 funding is part of a larger £1 billion investment, largely aimed towards decarbonising government owned buildings.

2. Framework/ Institute level regulations

IFRS Sets Strategic Direction for Sustainability Reporting Standard Board

The IFRS initiated a three-month consultation, launched with the release of a paper seeking feedback on the potential formation of global sustainability reporting standards, and its own place in that process. Based on the feedback, the new board would focus on information that is material to the decisions of investors, lenders and other creditors. Citing the urgent need for better information about climate-related matters, the IFRS said that new board would initially focus its efforts on climate-related reporting, while also working towards meeting the information needs of investors on other ESG matters

SFDR: New ESG Disclosure Obligations to take effect in March 2021

The EU regulation on Sustainability-Related Disclosures (“Disclosure Regulation”) will take effect on March 10, 2021. Its aim is to enhance transparency regarding integration of environmental, social and governance matters (“ESG”) into investment decisions and recommendations. Many of the requirements of the Disclosure Regulation will apply to investment managers that do not focus on ESG mandates.

PRI: New guidance on Investor’s approach to voting on  shareholder resolutions

The Principles for Responsible Investment (PRI) released a new report, Making Voting Count, which argues that investors should view voting on shareholder resolutions not necessarily as part of an escalation strategy, but rather as a tool for clear, effective and accountable investment stewardship. The report focused on Voting Principle’s careful determination, consistency, and public disclosure.

GRESB: GLIO and GRESB partner to launch ESG filtered Infrastructure Index

The index boosts the specialist offering of the parent GLIO Index, whose principles are to capture companies engaged in activities critical for the day-to-day functioning of society and the global economy. The index will

  • Expand parent GLIO Index.
  • Use GRESB assessment data for scoring.
  • Be managed by GPR, the global real assets index

SASB Opens 90-day public comment period on Asset Management and Custody activities standard

The Systemic Risk in Asset Management standard-setting project was first approved by the SASB Standards Board in December 2019. In June 2020, the Board made a preliminary decision to remove accounting metric FN-AC-550a.1 from the Asset Management & Custody Activities Standard, which calls for a breakdown of open-end fund assets by liquidity category. The Board is now proposing removing the Systemic Risk Management disclosure topic with all four associated accounting metrics. The proposed revision is intended to make the standard more cost-effective for companies to use without significantly reducing the provision of information that investors find decision-useful.

INDUSTRY UPDATES

Section covers the updates related to the developments in the real estate sector focused on Investment Managers, Developers, Service Providers, and Industry Reports

Larry Fink’s 2021 letter to CEOs

BlackRock Chairman and Chief Executive Officer Larry Fink published his annual letter to CEOs, highlighting the risks and opportunities to companies and investors from the global transition to a net zero economy, and outlining BlackRock’s own net zero initiatives and commitments.

DWS – Reporting Standard Commitment and need

DWS calls for Global Sustainability Reporting Standards Under IFRS, Emphasizes Double Materiality DWS, one of the largest asset managers in Europe, announced its support for the creation of a Sustainability Standards Board (SSB) under the IFRS Foundation, with the aim of developing a global sustainability reporting standard. DWS commits to Human Capital Reporting Standards – DWS has committed itself to the Human Capital Reporting Standards ISO30414.

Aviva Investors £47B Net Zero Carbon Pledge Makes Green Real Estate Goals Mainstream

Aviva and Canada’s PSP funded office developments in Cambridge. Aviva Investors has pledged that its entire £47.3B property portfolio will record net zero carbon emissions by 2040. Aviva further announced, a new set of climate goals and initiatives, including a commitment to targets net zero Scope 1, 2 and 3 carbon emissions by 2040, in a first for a major insurance company.

Schroders Fully Integrates ESG Into Financial Analysis

Global investment manager Schroders announced the completion of its process to integrate ESG factors into the decision-making across all investments that the firm manages, meaning that Schroders fund managers and analysts systematically consider ESG factors as part of their investment analysis.

Inaugural 2025 Target Setting Protocol

The Net Zero Asset Owners Alliance, formed by 33 of the world’s largest institutional investors, with $5.1 trillion assets under management. It recently published the 2025 Inaugural Target Setting Protocol, which lays out protocols for reductions from 2020 to 2025 through transparent five-year targets.

Green bonds market summary Q3 2020

Q3 2020 issuance peaked at USD64.9bn. Cumulative issuance volume since inception reached USD948bn. 314 deals from 191 individual issuers. 52 benchmark issues of at least USD500m. Representation from 39 countries including 71 deals from the USA, 48 from Germany, 40 from Sweden, and 30 from Japan.73 debut green bond issuers from 29 countries

Sustainable Finance

  • Goldman Sachs Update on Sustainable finance – $ 750 billion Commitment – Read more
  • Luxembourg Green Exchange Launches Climate-Aligned Issuers Debt Section – Read More  
  • MUFG Launches Green Deposits, Enabling Clients to Direct Bank Deposits into ESG Projects – Read More
  • Goldman Sachs issues its first sustainability bond in $800 million offering – Read More
  • Moody’s Sees Sustainable Bond Issuance Soaring to $650B in 2021 – Read More

Nuveen Real Estate launches Net Zero Carbon strategy for $133 Billion Portfolio

The launch of a net zero carbon strategy for its entire global real estate portfolio, committing to achieve net zero carbon across its $133 billion of assets by 2040. Nuveen Real Estate and Real Assets, CEO, “Our net zero carbon pathway makes a bold, clear commitment to achieving net zero across our global real estate portfolio by 2040. We believe this is essential to create a better world for future generations, but it will also help mitigate climate risk across our real estate strategies and future-proof our investments.”

INDUSTRY REPORTS

Deutsche Bank ESG Advisory’s Outlook

Deutsche Bank’s ESG Advisory team, part of the Investment Bank, explain 5 Capital Markets ESG trends that will affect investor behaviour.

  • Impact of Pandemic and Regulations
  • Credible transition strategies
  • Disclosure obligations
  • Buy in from stakeholders and Double Materiality Approach
  • Growth of sustainability linked bonds

AIGCC SURVEY: Asian Investors Becoming More Sophisticated on Climate strategies

Survey’s Key findings

  • Approximately 90% of Asian frontier and emerging market investors, as well as developed market investors reporting actively deploying climate aligned or low climate investments, compared with fewer than 60% of emerging markets and slightly over 70% of developed market investors surveyed in 2019
  • Implementation of climate aligned strategies is growing rapidly, with nearly 70% of respondents using decarbonisation strategies, up from less than 30% in 2019, and almost half utilizing a portfolio tilting strategy, an increase of more than 35%
  • 79% of investors in listed equities and 74% in fixed income reporting conducting carbon footprint analysis on assets, compared with only 19% and 11% in 2019, respectively

MSCI: ESG Investor Survey

  • 31% of the largest institutional investors say climate change will have the biggest impact on the way their organization invests over the next three to five years
  • Nearly a third are regularly using climate data to manage risk

Handbook for decoding nature related Financial Risk

The University of Cambridge Institute for Sustainability Leadership (CISL) has published a handbook for understanding and identifying nature-related financial risks. Nature loss poses financial risks, with more than half of global GDP highly or moderately dependent on nature. Dutch financial institutions alone have around €510 billion of exposure

Review of the latest PRI Reporting Framework

The 2021 PRI reporting cycle for investor members went live on the 1st of February. There are some major changes to this year’s framework including a significant scoring recalibration and overhaul of the assessment methodology. So, with the deadline of the 29th of April looming, signatories may be asking: Why has the framework changed? What are the most significant changes to the reporting framework? And who must report during this year’s cycle?

Why has the framework changed?

The latest reporting framework comes as a result of the PRI’s 10-year blueprint for responsible investment following an extensive review of the reporting and assessment framework between 2018 and 2020. Perhaps most significantly the review highlighted that in 2018, 165 of its investor signatories did not meet the three minimum PRI requirements. This resulted in the public delisting of five of these signatories in 2020.

The blueprint acts to promote signatories accountability in upholding their PRI commitments and cannot merely use their membership status to amplify their public image, commencing with this release of a more evolved and challenging mandatory assessment.

Signatories may face de-listing in the long-term should they not complete the assessment in line with the blueprint.

What are the most significant changes to the reporting framework?

The new 2021 reporting framework has three core aims:

  1. To become more evolved and challenging;
  2. To ensure signatories gain an improved and more flexible output at the end of the reporting cycle;
  3. To relieve the reporting burden by making the framework simpler, shorter and less repetitive. The number of indicators has been cut by 50% since previous years assessments.

The scoring system has moved away from overall organisation alphabetical grading (A+ to E) and will be replaced by a new numerical grading system ranging from 1 to 5 stars, allocated per module.

In the new framework, most indicators have changed, and a number of new modules and indicator themes have been introduced, see below.

The new framework starts off with two mandatory initiation modules, the ‘Organisational Overview’ module and a new ‘Senior Leadership Statement’.  This leadership statement provides signatories with an opportunity to introduce themselves, their responsible investment approach and progress towards their objectives during the reporting year. 

The former ‘Strategy and Governance’ module, now named ‘Investment and Stewardship policy’, is where the most significant changes to the framework have occurred. The new module has fully integrated the concept of stewardship, supporting PRI’s latest guidance on active ownership.

The climate change module has been fully integrated into the main investment and stewardship policy question set. For the first time several of these indicators, aligned to the Task Force on Climate-related Financial Disclosures (TCFD), will be publicly disclosed and contribute towards the signatories rating.

Finally, a new set of core ‘Sustainability Outcomes’ indicators has been implemented. These indicators focus on organisation-wide guidelines and processes that enable the achievement of real-world sustainability outcomes.

If signatories have greater than 10% or $10bn AUM in a certain asset class, that module should be responded to.

The 2021 framework involves only two indicator styles. ‘Core’ indicators are mandatory, publicly disclosed and assessed. ‘Plus’ indicators are voluntary, will not be publicly disclosed and do not contribute towards the signatories score.

Who must report during this years cycle?

Annual reporting is compulsory for all PRI signatories to maintain signatory status unless they are within their 1st year grace period. Within this one-year grace period, the first reporting cycle is voluntary and reports are not publicly available. EVORA advise that new signatories take advantage of this opportunity to improve understanding of the reporting process, identify gaps in the present strategy and inform decision-making processes.

The new framework will no doubt prove to be a challenge for many new and old signatories, but as the PRI strives to act as a driving force for change within the industry, this uplift in expectations will surely provide an incentive many organisations need to further integrate responsible-investment best practise into their own approach.

EVORA can provide the support required to guide signatories through this latest framework. We can also advise those interested in becoming a PRI signatory.

Designing Buildings with Women in Mind

Gender perspectives on building design and operation; what does ‘designing a building with women in mind’ actually look like?

March 8th is a special day for everyone – not just for women – to acknowledge the incredible strides being made and highlight the continued hinderances to gender equality. This International Women’s Day, I’d like to consider the practical ways in which we can bring gender into the conversation about our sustainable built environment.

It can be an uncomfortable conversation, because we’d like to think we are conscious of gender bias and the days of inequality are in the past. But still, there is little in our fast-changing world that is not linked to gender. And on the flip side, there is little in our world that is not linked to our built environment.

Our cities, towns and buildings within them are broadly shaped by our experiences attached to gender. People of different genders may experience a late-night commute home down poorly lit streets differently due to disparities in vulnerability. Gender also plays a factor in how we choose to travel through our cities. For example, use of cycling routes in the UK is hugely gender-skewed towards men, with studies1 showing that women prefer to cycle on safer cycle paths that are protected from the road. Despite London’s Cycleways2 transforming bike routes in the capital, many cycle lanes in the UK are still deemed ‘unsafe’, are used less by women and are therefore exacerbating existing access and health inequalities. Experiences are of course different for every person identifying as a woman. But still, gender imbalance in the built environment sector has meant our cities were designed through a male lens.

While the prospect of being treated equally dangles in the foreground, what lies behind it is being mindful of the differences. Catering for these differences allows for equity and inclusivity to be created. When it comes to buildings, designing for inclusivity is not a new concept and many aspects can be found in national building codes. Inclusive design is also featured as a component of the World Green Building Council’s (WGBC) Health & Wellbeing Building Framework3, which suggests we should plan for access and use by as many people as possible, considering disability, age, and also gender.

In that case, considering gender perspectives, what does ‘designing a building with women in mind’ actually look like?

  1. Safe spaces – lighting at entrances and in outdoor spaces around buildings after dark contributes both to the increased perception of safety and the actual reduction of crime. Designing more open outdoor spaces, with fewer dark places and corners, also increases visibility. In a world where women are advised to cover their drink on the dancefloor, safety plays a consistent part in the average woman’s choice of behaviours. Studies4 show this is a main contributor to the reason why women globally walk disproportionately fewer steps each day than men. Light up building fronts, remove the dark hiding spots and help to create safer spaces.
  2. Accessible routes – from entering a site to arriving at a building’s top floor, the ease at which people can move around depends on how accessibility has been designed in. Routes designed for people with limited physical ability should also be mindful of carers who may be walking with a pram or with someone who is in a wheelchair. Around the world today, socially assigned gender roles means that women are typically more likely to be in caring positions for children and adults5, causing them to be disproportionally affected by buildings with inaccessible features. Issues can be avoided by thinking about access plans throughout the entire visitor experience6, integrating design features like ramps at every level change, automatic doors, designated car park spaces for those with pushchairs or with mobility issues, and clear and even pedestrian pathways.
  3. Equitable loos – for many physiological and cultural reasons, women spend more time and take more frequent visits to the bathroom than men. Reasons for this include pregnancy, menstruation, breastfeeding, or requiring nappy-changing facilities. It also takes longer when using a cubicle, and even more so for the elderly, who are disproportionately female. Allocation of toilet facilities in buildings should be proportioned with this in mind. Accessible facilities should also include upgrades to the Changing Places7 standard, incorporating adult changing tables, screens and more space for carers.
  4. Lactation rooms – the highest scoring point on the scorecard of the healthy building certification Fitwel8 is the inclusion of dedicated lactation rooms. These dedicated spaces, incorporating an electrical outlet, seating, a table, a sink and a fridge, allow breastfeeding mothers to have a private, comfortable and hygienic space to pump, which can contribute to improved mental and physical health outcomes for mothers. It is arguably the most equitable feature within a building, giving breastfeeding women the option to return to the workplace with one less thing to worry about.

The WGBC’s Health & Wellbeing Building Framework recommends how we, as built environment professionals, should ensure inclusivity is integrated throughout the building lifecycle. Design strategies should incorporate dedicated populations (e.g. women, elderly, disabled), and potential users should be involved and consulted as early as possible to help identify barriers to inclusion. Throughout operation, a culture of accessibility should be created through physical environments, as well as social and attitudinal factors that can result from well-integrated company policies to support diversity.


References

  1. https://www.sustrans.org.uk/media/2930/2930.pdf
  2. https://tfl.gov.uk/modes/cycling/routes-and-maps/cycleways
  3. https://worldgbc.org/sites/default/files/WorldGBC%20Health%20%26%20Wellbeing%20Framework_Exec%20Report_FINAL.pdf
  4. http://activityinequality.stanford.edu/
  5. https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/ageing/articles/livinglongerhowourpopulationischangingandwhyitmatters/2019-03-15#who-is-providing-unpaid-care
  6. https://www.sensorytrust.org.uk/resources/guidance/access-chain-an-inclusive-design-tool
  7. http://www.changing-places.org/
  8. https://fitwel.org/

Insights into the GRESB Infrastructure Assessment and Key Changes for 2021

By Matthew Brundle and Natalie Sinha.

Globally, the demand for public and private sector investment into infrastructure is growing, alongside increased demand for investors to have robust environmental, social and governance (ESG) information for managing risk and opportunities within their portfolios.  Whilst Real Estate investments have benefited from a number of reporting frameworks and guidelines, historically, there has been an information gap for investors on the ESG performance of infrastructure assets.  

The GRESB Infrastructure survey was first launched in 2016, 5 years after its Real Estate counterpart. It provides a globally established tool to benchmark the ESG performance of infrastructure asset portfolios. The survey allows participation from a huge variety of sectors, including Utilities, Power Generation, Social Infrastructure and Transport amongst others.  The annual survey consists of individual Asset Assessments which can be reported individually or consolidated into a Fund Assessment with other portfolio assets.

Since its launch, participation in GRESB infrastructure has grown substantially. In 2020, participation in the Infrastructure Fund Assessment increased by 10% year on year to cover 118 funds while the Infrastructure Asset Assessment grew by 8% to include 426 assets (2019: 393) with total AUM £579billion (see figure 1). Transport, Renewable Power and the Social Infrastructure sectors have the highest representation as these sectors historically attract greater public scrutiny. Data Infrastructure had the highest growth increasing from 21% to 38%, likely reflecting the growing importance of this sector in modernizing society and economies. Energy and Water Resources also grew significantly while most other sectors were stable.

For the past three years GRESB has been trialling voluntary reporting in its new Climate Resilience module, recognising the importance of this topic.  Reporting to the Resilience Module has steadily increased with 126 funds and assets participating in 2020.  From 2021 onward it will become a mandatory scored module as GRESB seeks to align the scheme with both UN PRI requirements and the recommendations of TCFD.

Figure 1 – growth of GRESB Infrastructure participation 2016- 2020

GRESB Infrastructure Overview

Figure 2 – GRESB overview showing how the scheme is structured

The GRESB Infrastructure Asset Assessment is split into two components: Management and Performance. In contrast to Real Estate, the scoring of the survey is largely determined by an initial ‘Materiality Survey’ which uses 17 questions to rank 46 ESG issues according to how relevant they are to the asset: high, medium, low or no relevance. Focusing on the materially relevant ESG areas is necessary to create peer groups for comparative assessment in such a broad investment category.  In parallel to the Real Estate Survey, the Management section covers areas such as Leadership, Policies, Reporting, Risk Management and Stakeholder Engagement. The Performance component awards points for data reporting of metrics which are determined as relevant issues through the materiality survey.

Changes to GRESB Infrastructure 2021 and the Integration of the Resilience Module

GRESB have pre-released the questions for the 2021 Infrastructure survey, for both the Fund and Asset level assessments as well as an overview of the key indicators. For 2021, the Infrastructure Assessments have been kept stable with relatively few changes. The scoring mechanisms for the Fund and Asset surveys have now been released, ahead of the reporting window opening in early April 2021. Initially, GRESB intended to add a Development Component into the Asset Assessment, to enable better reporting and benchmarking for assets (projects) in development (in design or construction). However, this is no longer going to be incorporated into this year’s survey but may be introduced in 2022.

The most substantial change is that the Resilience Module, which was optional in previous years, has been integrated into the Assessments and is now mandatory. These questions have been incorporated into both the Fund and Asset level assessments. This change helps facilitate Taskforce on Climate Related Financial Disclosures (TCFD) aligned reporting for all participants. Although these questions are not currently scored, this is likely to change in future years. The following five new indicators on Resilience have been added to the Risk Management section:

IndicatorQuestion – Climate-related Risk Management
RM3  Resilience of strategy to climate-related risks Does the entity’s strategy incorporate resilience to climate-related risks? If yes: Does the process of evaluating the resilience of the entity’s strategy involve the use of scenario analysis?
RM4.1  Transition risk identification   Does the entity have a systematic process for identifying material transition risks? (Policy and Legal, Technology, Market, Reputation)
RM4.2Transition risk impact assessment

Does the entity have a systematic process to assess the impact of material risks on the business and/or financials of the entity?
RM4.3Physical Risk Identification   Does the entity have a systematic process for identifying material physical risks?
RM4.4Physical risk impact assessment   Does the entity have a systematic process for the assessment of impact from material physical climate risks on the business and/or financials of the entity?
Table 1: GRESB resilience mandatory questions 2021

These questions will mean that Infrastructure assets and funds need to begin to understand how they will be impacted by physical and transitional climate change risk. In GRESB 2020, there was a 60% growth rate in assets and funds reporting under the voluntary Resilience module (figure 4, below). However, there was a reduction in the average scores achieved (figure 5). GRESB analysis concluded that this was due to increased reporting, but it signals that respondents found the questions challenging. This is likely to be the case in the GRESB 2021 reporting window when the questions are made mandatory.

Figure 4: GRESB data showing increasing participation in the Resilience module by fund and asset 2018-2020
Figure 5: GRESB data showing decreasing scoring in the Resilience module by fund and asset 2018-2020

EVORA considers it is likely that further climate resilience questions will be incorporated into the GRESB Infrastructure survey in future years, and therefore it is imperative that Infrastructure investors and operators start by carrying out a gap analysis of their existing funds and assets in line with TCFD requirements. This requires engaging all areas of the business to understand the implications of climate risk and opportunities, followed by the development of a roadmap towards full TCFD alignment. In terms of full TCFD disclosure, GRESB submissions in themselves will not suffice: a separate risk appraisal and forward-looking analysis is required.

Key challenges for participants

A core component of successful environmental management involves having structured Management Systems. Figure 3, below, shows that the GRESB performance of funds which have active Environmental Management System programmes score consistently higher across the performance themes. This highlights the importance of applying EMS principles to infrastructure assets and funds.

One observation we have made from working with infrastructure assets is that, due to complex investment structures, assets tend not to have asset specific Management Systems, with a tendency to rely on corporate level commitments and documentation to drive ESG issues.  This potentially leaves assets passively managing ESG and not proactively driving forward improvement plans.  Historically GRESB has simply encouraged assets and funds to acknowledge ESG as an issue and awarded points accordingly.  However, each year the scheme progressively tightens its requirements by awarding points for demonstrable improvements in performance and having long term improvement targets. Therefore, having a dedicated ESG programme active at asset level will soon become the essential for GRESB success.

EVORA has been providing GRESB support since its inception and we are proud to be GRESB Global Partners.  Our experience has shown us that clients who proactively engage with the process of GRESB each year, by using it to continually drive ESG improvements over time, do the best.  EVORA therefore encourage all participants to consider GRESB as ‘a journey, not an event’.

Performance data for Infrastructure assets

GRESB are making strides in the right direction by beginning to incorporate questions on climate resilience aligned to TCFD, but the existing survey is not infallible. The current Infrastructure survey is particularly strong on the Management section, however the Performance section, which tracks numerical data, does not currently require evidence to be submitted or data assurance. At EVORA, we advocate a further drive towards assured performance data to ensure the data is reliable, accurate and externally verified. This will add extra credibility to the overall survey.  

In contrast, the Real Estate survey requires tools for data management to ensure integrity and quality.  Data management is so important that EVORA developed its own software platform, SIERA, to help dynamically manage data collection, and provide quality checks and validation. We envisage data within the infrastructure survey requiring a similar data intelligence tool to manage data flows which will bring parity between the two schemes.

A further point of note is the subtle but necessary move from simple retrospective data reporting to predictive scenario analysis. This switch is most notable for forecasting pathways to Net Zero, which has become essential for forward-looking investors seeking to align to Paris Climate Change Agreement.  But is also beginning to be applied to other ESG themes for those wishing to deliver against UN SDG’s as GRESB have introduced some new impact reporting questions into the 2021 survey. In respect of Net Zero Carbon pathway modelling, Real Estate can use the Carbon Risk Real Estate Monitor (CRREM) tool to assess asset stranding risk. However, there is currently no equivalent tool for Infrastructure, despite the fact significant decarbonisation will be required for Infrastructure assets and funds.

GRESB Infrastructure Public Disclosure

GRESB has recently partnered with the Global Listed Infrastructure Organisation (GLIO) and have launched a new ESG Index (January 2020) [1], which is being introduced this year.  The index is the first of its kind and intends to address ESG issues in the investment process to gain a deeper insight into the risks and opportunities that materially impact the value and performance of infrastructure investments. GRESB Infrastructure Public Disclosure is unique in its focus to measure only material ESG disclosures by listed infrastructure companies and vehicles. The evaluation is based on a set of indicators aligned with the GRESB Infrastructure Asset Assessment, allowing for a comparison of ESG disclosure performance between GRESB participants and select non-participants. It also provides investors with a resource hub to access ESG disclosure documents across their full investment portfolio.

With the index comes the need for increased transparency and information around listed infrastructure ESG performance, and it can be assumed the two schemes will progressively align to drive integrated financial and ESG reporting. GRESB have released guidance on the Infrastructure Public Disclosure, which explains how it works alongside the annual survey, with similar timelines for data collection, validation and results. 

GRESB Infrastructure Public Disclosure data is initially collected by the GRESB team for selected companies, including the entire GLIO Global Coverage Index as well as both 2020 GRESB Infrastructure Asset Assessment participants and non-participants. It consists of four Aspects: Governance of Sustainability, Implementation, Operational Performance and Stakeholder Engagement. Together, these Aspects contribute towards a Public Disclosure Level, expressed through an A to E sliding scale. The index includes 30 indicators, covering four Aspects. Each indicator is scored between zero and full points, depending on the availability of evidence and selected answer options. Combined, these indicators add up to a maximum of 100 points. Constituents receive a GRESB Infrastructure Public Disclosure Level, from A to E, based on the following scale:

GRESB Infrastructure Public Disclosure LevelNumber of points receivedGLIO/GRESB Index Band
A80-10090-100%
B60-7970-80%
C40-5950-60%
D20-3930-40%
E0-1910-20%

The scheme is brand new but marks an initiative in the market which will, in time, improve ESG data quality enabling investors to have greater surety of asset and fund performance.  The index is free to register and use for all GLIO or GRESB members.  Further information on the index can be obtained here.

Future directions for GRESB Infrastructure

GRESB have stated that they will continue to shift the emphasis and scoring from management and transparency to performance to meet the needs of the investors and society. The annual survey is expected to track and respond to the wider ESG landscape, which comprises legislative changes such as the latest EU regulations, including sustainable finance (SFDR). This also includes initiatives and global agreements such as the UN Sustainable Development Goals. These drivers of change are already embedded into GRESB and will continue to gain greater prominence within the future schemes. Impact and outcome reporting are also expected to become a future area of performance measurement and asset differentiation, for which many infrastructure assets are well placed to achieve good outcomes.

There is no doubt that the GRESB Infrastructure survey will continue to grow in importance and provide valuable ESG information to investors. The addition of the GRESB Infrastructure Public Disclosure adds a new dimension to the scheme, placing emphasis on publicly available information. Infrastructure Assets and Funds will be required as a minimum to have well-established Environmental Management Systems in place with targets for improving their performance, as well as looking towards more mature sustainability strategies which incorporate climate resilience and TCFD alongside the UN’s SDGs. GRESB reporting will continue to play a role in helping infrastructure assets in contributing to a more sustainable future, placing an increasingly high expectation on the sustainability approaches of participants. 

If you would like to discuss GRESB Infrastructure or wider sustainability support, contact the team at infrastructure@evoraglobal.com


[1] https://www.glio.org/esg