EVORA Insights New York Roundtable

In September, together with Tishman Speyer, we co-hosted a Roundtable lunch and discussion at the Rainbow Room in the Rockefeller Center. The food and the view were fantastic! It was an invite-only affair for eight real estate investors and investment managers. The topic of conversation was climate risk and how it can effectively be integrated into investment decision making; looking at the differences between the European and the American markets.

“Looking at Europe is like a glimpse of the future – what is happening there now will come to the USA in 5 years or less.”

For any US investment manager raising capital from Europe, they are being faced with ESG questions from investors and sustainable finance regulators. There is an expectation in the US that ESG is here to stay. The US market is having to learn fast, but there is a big gap between the leaders and the laggards. Some ESG themes are seeing greater adoption than others, like Net Zero Carbon and transition risk. This is flowing down from corporate and fund strategies into individual asset plans. It has placed an unprecedented demand on the relevant technical expertise. Diversity, Equity & Inclusion (DEI) has been a priority for the US for a long time and has required a more sophisticated and integrated response than it in Europe.

“We’d never not do a deal because of climate risk.”

There is still a gap between acting on ESG and an acceptance that it will materially affect transactions. However, there is anecdotal evidence that US deals have been stopped and prices have been chipped as a result of European investor concerns about climate risks. One European Core+ fund factored in the transition capex over 20 years and used that to reduce the price paid. Another pulled out of deal during the final stages of DD because the power grid feeding the property was not decarbonising at a fast enough rate.

No-one is monitoring this impact on the real estate market in a systematic way so there is a lot of speculation about which local markets will be affected. Some high risk markets, like flood-prone Miami, do not seem to be seeing demand or prices decline, although there is some evidence that transactions are taking longer. In other US seafront locations, there are other indicators that a future price correction or increased illiquidity might occur, such as increased mortgage and loan default rates.

“Two hold periods: nine years is today.”

Investment managers are thinking ahead in terms of what a Core fund might be looking for when acquiring an asset from a Added Value fund: Will they tolerate increasing climate risk, such as high operational energy costs and carbon emissions due to poor building fabric and inefficient equipment? If more climate change has occurred, will flood, fires and storms become more frequent or more extreme?

That perspective of two hold periods and different attitudes to risk can bring future climate risk considerations back to the present day. Getting the right information from risk models has proved difficult, with multiple vendors providing different answers for the same assets and locations.

“If you’re serious about ESG, it shouldn’t be in an appendix in the IC memo, it should be upfront.”

ESG and climate risk is being integrated into DD and into IC memos. This is occurring in different ways, both quantitative and qualitative. With some firms factoring climate risk into financial models by adjusting the cap rate, as a proxy for increased risk, or adjusting the cash flow to factor in increased transition costs. There is no standard approach, making it difficult to price climate risk into real estate transactions. However, if exit prices are getting chipped then more leverage is required on the buy-side if the required risk-adjusted returns are to be achieved.

Not all of the guests saw climate change as a risk, they also saw accretive opportunities for some assets. If you know what needs to be achieved, then risk-adjusting your under-writing can be more impactful. Instead of a divestment strategy.

“We’re not worried about how much insurance will cost, but whether there will be insurance.”

One developer-operator was concerned about the direction that the insurance industry is taking. In some locations, policies are not being written, even when the location has a high economic resilience and the wealth to adapt to some change. The problem was seen as the insurance sector being backwards looking using historic models. Others felt that these policies couldn’t be packaged for re-insurance. There was a desire for more nuance, particularly for unique assets like data centers.

“The question of whether there should be a carbon price has been overtaken by energy prices.”

Opinions were split on the value of having a carbon price, which could be introduced through fines, like in NY Local Law 97 or through carbon taxes like the new one in Demark. An internal carbon price could also be adopted. There was a view that the Ukraine war, and historic underinvestment in energy security through renewable energy and energy efficiency, has precipitated a very high energy prices which is already driving different decisions without needing a carbon price. Making it easier to justify investment in assets to decarbonise portfolios. Some owners have wanted to help tenants who are struggling to pay by aggregating their demand and using collectively buying power, but the aggregation has proved too hard.

“An empty building is an unsustainable building, so who’s measuring whether climate risk is making a building empty?”

Looking back to the UK, properties are laying empty as businesses have to close down because they can’t afford their energy bill. It is going to cost the UK government about £170bn this year to help those who can’t pay. This is a transition risk because it has been partly caused by conditions created historic underinvested in building energy efficiency and renewables, with the invasion of Ukraine tipping the balance. For real estate investors, these voids compounds the challenge of re-upping leases following the pandemic and sustained hybrid working.

In the US, better data does exist on energy consumption, in some locations where there are legal requirements to disclose annually through Energy Star. This makes it possible to benchmark properties and understand relatively efficiencies. It can show which ones are more exposed, requiring greater capex, and whether it could effect rental income and yield.

If you would like to find out more about EVORA Insights, please contact us today.

Investor demand drives US launch for EVORA Global

EVORA Global opens in New York to help fund managers keep investment flowing amid rising concerns about ESG regulations and sustainability

With pension funds and portfolio holders in the United States increasingly under the spotlight for their ESG performance, EVORA has been experiencing high demand for our services. There is huge untapped demand in the US and opportunity for growth.

As a result, we are delighted to announce the opening of EVORA Global offices in New York after repeated requests from our global client base.

The launch comes during New York climate week (September 19-25).

EVORA has acquired offices on 42nd Street, New York and plans to create up to 100 jobs over the next five years. It has also hired sustainability veteran Yetsuh Frank, formerly of the Building Energy Exchange and the Urban Green Council, as its Executive Vice President. Heading the US office is EVORA’s co-founder Ed Gabbitas, while Net Zero specialist Ryan Sit will operate as global head of carbon strategy.

“We have fund managers urging us to move into the US market because they are struggling to access funds based in Europe. European investors want to be sure what they are backing is strong from an ESG approach and also complies with environmental legislation. Sustainability and climate risk are on everyone’s agenda right now and investment managers need ESG information about their assets. Our clients want us there to keep their investment flowing and to ensure they have information on climate risk. Our potential for both growth and impact here is huge.”

Chris Bennett, EVORA Executive Director and Co-Founder

“EVORA is just the sort of company the US needs right now. We may be behind Europe in terms of legislation, but the demand for better data and advisory on sustainability and climate risk is very high. New laws are coming into force and investors are under pressure to demonstrate they can become more sustainable.”

Yetsuh Frank, Executive Vice President

“It’s an opportunity too good to miss. The US real estate market is three times the size of Europe’s. But it is behind in terms of environmental legislation. We believe we can benefit both clients and the planet by being here.”

Ryan Sit, Senior Vice President, Global Head of Carbon Strategy

“Public expectations of companies are increasing all the time. Sustainability has to be part of the plan. The next few years are going to be incredibly exciting as real estate undergoes a major transition.”

Ed Gabbitas, Principal

Social Reporting – Where to start?

Although ESG has by now been around for some time, in truth businesses have only been taking the S seriously for a few years. The social sector is very much environmental’s little sister.

And, as with any emerging sector, the quality of metrics can vary and this can be a challenge for any organisation looking to get serious on reporting. How then, should you approach the task of finding a reliable standard against which you can report your social metrics?

There are a number of nationally and internationally recognised social measurement frameworks. Understanding what makes most sense for your business is an industry-specific one. In general, businesses should look for independently verified social reporting tools. For example, GRESB has a number of social metrics within its standards, and the UN Sustainable Development Goals naturally need to be considered. The World Green Building Council’s Health and Wellbeing framework is a central plank in the way we do all things social here at EVORA and it is favoured because it offers the flexibility to meet the needs of funds across different geographies while relying on a well-respected overarching framework. Likewise, standards should require evidence for certification against them – the market will no longer tolerate businesses marking their own homework. With the principles of evidence-led and third-party assurance alongside recognised standards, businesses can report in confidence.

The metrics within the frameworks can vary quite broadly from one geography to another. This is a great strength in social reporting. Insofar as it is possible to compare the two, environmental targets should typically be science-based targets (SBT) which tie in with global climate resilience parameters, and have a strong compliance component. Social metrics, meanwhile, don’t fit into quite such a neat box. Because social metrics are about doing what is right for specific people in specific places, the metrics should vary from place to place.

This is not to say that there are no commonalities between markets and geographies: high quality jobs, excellent training and education opportunities and strong local partnerships should always feature in social reporting. That said, understanding the challenges of individual communities, the goals of investors and the legislative requirements of the jurisdiction mean that the details should be considered and embedded into the framework too. For example, in Germany, limits around employee data protection mean that collecting information on protected characteristics is not possible. Hence, businesses need to think locally about what they can realistically deliver.

The differences between environmental reporting and social reporting are not so vast, however, when it comes to the rigour required to report what is being delivered. Both types of reporting require organisations to meet the highest standards of transparency and evidence. In some jurisdictions, as in the European Union, where the EU Social Taxonomy promises a new direction for social reporting within the member states, and will likely require third-party verification and audit processes for social data.

For investment managers, our advice is to find a reporting framework which meets the highest standards of external scrutiny, focusing on independently verified reporting above all else. The framework needs to be flexible to work across the fund and asset types to meet the different social needs in each place. Finally, understanding investors’ own objectives is crucial in ensuring a fund can meet expectations, and where this isn’t obvious – ask questions.

If an investment manager needs to guess, there’s a risk of running a generic programme which neither meets community needs nor the expectations of investors.

If you need help building up a social reporting framework for your business, please get in touch with Sarah Coughlan, EVORA Associate Director.

Visit our social wellbeing page for an introduction of our services.

Decreased productivity and increased health incidents? Poor indoor air quality is to blame

We’ve all had the feeling -we’re sitting in a full meeting room, doors closed, no windows; at first you don’t quite notice the feeling of sluggishness, the drifting focus, the rising tiredness. As the meeting proceeds the discussion feels as if it’s becoming steadily less relevant and constructive and the air starts to feel thick and damp. By the time the end of the meeting arrives, you’re left wondering what was even discussed in the last fifteen minutes and whether or not you’d fallen asleep for any of it.

This is a common occurrence across indoor spaces and is directly related to decreasing air quality in rooms over time. Each year roughly 100€ billion is lost in the EU alone due to decreased productivity and increased health incidents from poor air quality. These issues range from inhibited focus due to the CO2 build-up in offices to the immune-compromising effects of fine dust particulates (like those that smog up our cities) to the increased cancer risks from elevated formaldehyde and benzene levels in newly furnished units. There is a range of possible pollutant sources, driving these issues, and the WHO has attempted to set thresholds for a number of them. Unfortunately, few buildings check to verify their compliance with these standards and those that do often fall short [1]. As such, the topic warrants increased attention from building owners.

The damages from the different pollutants is as varied as the types of toxic air compounds. As its affects are the easiest to measure and understand, technical analysis have until now been heavily focused on CO2; specifically, the role it plays on our ability to focus. As CO2 levels in a room increase, the relative amount of available oxygen taken up by the body per breath is decreased, and the brain’s metabolism is steadily slowed as it loses access to oxygen. Many analyses have found a range of impacts, starting with CO2 levels easily achieved from typical office spaces containing one employee per 10 m2 of space. These effects tend to increase dramatically and can inhibit factors like decision-making and overall strategizing. [2] By keeping levels close to outdoor levels, studies have demonstrated office workers to work up to 60% faster and with 12% greater accuracy than those in improperly ventilated spaces. [3] This issue will likely worsen in coming years, as the baseline CO2 level continues to increase, requiring more measures to maintain the same standard of oxygen quality in the rooms.

These concerns are, unfortunately, generally not as easily resolved as ventilating a room, as the shape, furnishings, and use of the room, as well as the specific compounds responsible for the toxicity, may form pockets within the room and provide unintended high levels of exposure to employees. [5]

Particulate matter, for example, which covers a wide category of compounds and particulate sizes, has been attributed to causing inflammation, respiratory and cardiovascular issues, and even linked to several cancers.[4] These particulates in their various forms are not always removed with standard air filtration methods and tend to move within air columns in atypical fashions. 

Poor indoor air quality is likely not only worsening our health, but, in a business sense, it is measurably driving down our productivity and the quality of our work. EVORA’s Health and Wellbeing team can provide strategies and suggestions to make sure the residents of your buildings remain healthier and are operating 12% more efficaciously than those in traditionally ventilated buildings.  


[1] https://www.eea.europa.eu/signals/signals-2020/articles/improving-air-quality-improves-people2019s

[2] https://www.smithsonianmag.com/science-nature/the-carbon-dioxide-in-a-crowded-room-can-make-you-dumber-180948052/

[3] https://airrated.co/rising-co2-levels-ruining-the-planet-and-our-productivity/

[4] https://www.eea.europa.eu/signals/signals-2020/articles/improving-air-quality-improves-people2019s

[5] https://www.researchgate.net/publication/260530137_CFD_study_of_the_effects_of_furniture_layout_on_indoor_air_quality_under_typical_office_ventilation_scheme

The importance of taking a break

We all had that feeling of being short of time and running after deadlines.

You can have it all planned, schedule all the things to do and try to be ahead of everything, however, you can never calculate the ‘human variable’.

This covers everything from missing data from clients to a colleague calling in sick… and what’s the result? Stress is added and you end up under even more pressure than before.

There is a lot of great advice out there which can help alleviate stress and provide relief while working.

One is to keep exercising and it is indeed very important. Sport increases your blood flow to the brain, which, in turn, helps you stay focused and allows you to be more productive. It’s also brilliant at reducing stress and anxiety.

For me, nothing is more powerful than taking a break and doing things that I wouldn’t normally do.

One example? I just spent the Bank Holiday weekend surfing at Fistral beach in Newquay, Cornwall, and meeting amazing people from everywhere in the world. I now feel full of energy and ready for the busy months ahead!

Tia, our lovely Office Manager, just came back from ten days in Belgrade, Serbia, and feels like a new woman! Having lived there in 2017 for two years, Tia loves the Serbian culture and food. She thinks “Belgrade is one of the best cities in Europe, the people are so friendly and the food is incredible!”.

Taking breaks is important in recovering from a stressful moment and they allow you to gain your energy back, both physically and mentally, which, in return, will improve your performance and productivity.

Having your energy back helps you also fight against the development of fatigue, sleep disorders and cardiovascular disease. In the long run, it brings benefits to both employees and employers as it helps to reduce ill-health, absenteeism and potential injuries; it boosts up our mental health and the ability to build healthier relationships.

Businesses need to emphasise the importance of taking breaks and remind employees to organise them throughout the year.

Time Off carried out a research project which showed that employees rate paid vacation as the No. 2 most-important benefit, after health care. However, Katie Denis, senior director and lead researcher, pointed out that many workers still do not take full advantage of this benefit.

The EVORA Health & Wellness Team took a well-deserved break in August after months planning great activities for the EVORA family. This is a summary of our holidays!

We are now ready to plan even more amazing events for our staff each month.

Stay tuned next month for the low down on how we got on with Perfume Month!

A brief history of materiality and ESG at the SEC

It is interesting reading the comments [1] to the proposed ruling by the US Securities and Exchange Commission (SEC) on The Enhancement and Standardization of Climate-Related Disclosures for Investors [2]. Points raised are diverse, but broadly fall within one of two camps; those vehemently opposed to the ruling, and those in support (often calling for more ambitious requirements over and above the proposal from the SEC). This binary grouping is neither surprising nor unexpected for the SEC, given the organization’s four-decade history of contests concerning environmental proposals. [3]

And now in 2022, the SEC is proposing extensive new disclosure requirements for publicly listed firms starting in the fiscal year 2023 (for filing in 2024) for the largest filers – those with a public float greater than $700m – with phased introduction for firms with smaller public floats.  The first compliance date will impact around 2,000 businesses and eventually impact approximately 7,000 in total. The requirements require registrants to include certain climate-related information in registration statements and periodic reports, such as on Form 10-K, including:

  • Climate-related risks and their actual or likely material impacts on the registrant’s business, strategy, and outlook
  • Climate-related risks and relevant risk management processes
  • Greenhouse gas (“GHG”) emissions
  • Climate-related financial statement metrics
  • Climate-related targets and goals, and transition plan, if any.

The disclosure requirements are centered around the recommendations from the Taskforce on Climate Related Disclosures (TCFD). The SEC joins eight jurisdictions that have TCFD-aligned official reporting requirements, (Brazil, European Union, Hong Kong, Japan, New Zealand, Singapore, Switzerland, and the United Kingdom). Additionally, the International Financial Reporting Standards (IFRS) Foundation announced a new International Sustainability Standards Board (ISSB) to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.

What is TCFD?

As a high-level summary, the TCFD recommendations provide a framework for businesses to identify, evaluate, manage and monitor climate related risks and opportunities. They are centered around four themes, with a total of 11 recommended disclosures.

  • Governance – what role do people play in managing and overseeing climate related issues?
  • Strategy – how will organizations change to manage future climate-risk?
  • Risk Management – what processes are in place to identify, manage and assess risk?
  • Metrics and Targets – how do you measure progress against climate-related goals?

Globally, there are over 3,400 TCFD supporters, although not all of these have disclosed in full yet. The TCFD 2021 Status Report [4] provides a breakdown of public reporting against each of the recommended disclosures; the Materials and Buildings sector captures commercial real estate, although the 404 firms reporting will not be exclusive to the buildings sector. 

The results suggest that:

  • Most firms are disclosing qualitative risks and opportunities – per Recommendation: Strategy a)
  • Materials and Buildings have highest level of Metrics and Targets disclosure
  • Scenario analysis is disclosed by only a small percentage of firms  – per Recommendation Strategy c)
  • Governance, including Board and Management oversight of climate risks and opportunities, is the next least well disclosed theme after scenario analysis – per Recommendation: Governance a) and b)

On the latter point, gaining Board buy-in and a commitment to climate-related topics is essential for strategies and risk management processes to be truly integrated. Without this, firms will be disclosing under the TCFD framework for compliance reasons only – a missed opportunity.

Disclosure rates against the 11 recommendations differ by region, with Europe leading over the period from 2018 to 2020.  Double digit increases over two years were seen across all regions, with the exception of North America, which also has the fewest percentage of firms disclosing against the 11 recommendations. The takeaway from these numbers is that the SEC is leap-frogging the comfort zone for many North American firms.

GHG data and data quality

The proposed SEC ruling requires registrant’s direct GHG emissions (Scope 1) and indirect GHG emissions from purchased electricity and other forms of energy (Scope 2) to be disclosed in absolute terms (by Scope) and as an intensity metric. Scope 3 emissions – of which there are 15 categories covering indirect upstream (i.e. related to goods or serviced purchased) and downstream (i.e. related to goods or service sold) – are, receiving a lot of attention due to the fact that Scope 3 emissions are out of direct control of landlords and data quality and coverage is often poor. Aside from small reporting companies, Scope 3 needs to be reported from FY 2024 (filing in 2025), if material.

Defining materiality is not an exact science and the lack of guidance from the SEC may result in reporting opt-outs where Boards deem the organization’s emissions to be immaterial to investor decision making. However, the quantity of emissions (tons CO2) is one method of determining materiality; the Science Based Targets Initiative (SBTi) sets a threshold for materiality as 40% of Scope 3 in relation to Scopes 1 and 2. Other factors influencing materiality need to be considered, such as:

  • Risk – considering relevant climate-related legislative and reputational risks
  • Influence – the registrant’s influence over emissions generation and reductions e.g. percentage ownership and / or a board representation within investee companies
  • Financial – emissions associated with a high level of spend or those generating a high level of revenue.

Many of these factors will need to be considered on a case by case basis, particularly legislative risks, which will need to be considered country by country and at the city level in many instances. For large-accelerated and accelerated registrants there are additional requirements, which will have ramifications for the entire real estate industry, for limited assurance (phased introduction from 2024 for filings in 2025) and the more stringent reasonable assurance (phased introduction from 2026 for filings in 2027).  While public REITs [5] are clearly in the SEC’s crosshairs, so too are others in the real estate value chain. For example, lenders (of both debt and equity investments) will need to report their share of Scope 3 financed emissions – most likely following PCAF [6] guidance.  Similarly, corporate tenants will want to understand their upstream GHG impacts where energy is provided as part of a service e.g. where a landlord procures energy in a building and recharges costs to tenants. The proposed rules will surely impact both contractual lending and leasing agreements on data provision and, importantly, the underlying quality of that data.

Transition plans

Scope 3 emissions also need to be disclosed in a filing if a registrant has made a transition plan (decarbonization target) public that includes Scope 3. For real estate, it is common to see leaders in ESG set net zero carbon targets that include Scope 3, but this is often ringfenced as tenant energy use. As the table below indicates, there are other Scope 3 emissions that may be materially relevant beyond tenant energy use, including embodied carbon of new construction and refurbishments. How the industry responds to this requirement will be interesting to watch. REITs that understand their full Scope 3 position will be able to retain existing climate goals. Those who do not will need to get to grips with Scope 3 accounting, or be forced to take down public goals, or walk back their scope accordingly – neither action is likely to be viewed as favorable to investors that see climate risk as an investment risk.  

Source: Adapted from UKGBC: Guide to Scope 3 Reporting in Commercial Real Estate [7]

A transition plan is used to lay out actions and targets that demonstrate an entity’s pathway toward a low-carbon economy, through reducing its absolute and / or intensity-based GHG emissions or concerning exposure. There are many frameworks that set out characteristics of an effective transition plan. This includes broad industry frameworks such as UN Asset Owners Alliance, through to more sector specific guidance used by signatories of the Net Zero Asset Managers Initiative issued by the IIGCC, and more besides. 

Unlike the frameworks named above, the SEC proposed rule does not provide sufficient guidance on the characteristics of an effective transition plan. For example, this may include disclosure of:

  • Base year, target end year and importantly, interim target year(s)
  • Climate scenario considered (e.g. 1.5C, 2C, 3C)
  • Type of target (e.g. absolute or intensity based)
  • Coverage and scope of the target, including narrative on any carve-outs
  • Alignment with recognized and suitable frameworks

Without specific disclosure requirements, there is a risk that transition plans may not be comparable nor decision-useful for investors – a concern raised by many commentators.

Lastly, but certainly not least, a new Article 14 to Regulation S-X would require a registrant to disclose climate-related financial metrics relating to severe weather events and other natural conditions and / or transition activities.

These financial metrics must be presented on an aggregated line-by-line basis for all negative impacts, and separately, all positive impacts where the impact is greater than 1% of the line item. If collecting Scope 3 data appears challenging, collating these financial metrics will present a gargantuan task for many registrants. Once the data is held, registrants will then face the effort of contextualizing the metrics so they don’t unduly scare investors.

Final thoughts

Overall, the SEC has moved from zero to one hundred in some incredibly far reaching, and challenging, requirements. The proposed rules lack clarity in a number of areas and will surely be revised before final issue. However, I do expect the rules to be materially similar when the final form is issued, with my prediction being year end.

Once introduced, the challenge for registrants is to view the rules “beyond compliance” and embrace the TCFD framework as a pragmatic methodology for climate change preparedness and resiliency. This mindset is essential if the US (and the world) are to achieve a just and orderly transition to a net zero economy. 


[1] https://www.sec.gov/comments/s7-10-22/s71022.htm

[2] https://www.sec.gov/rules/proposed/2022/33-11042.pdf

[3] The Commission first addressed disclosure of material costs and other effects on business resulting from compliance with environmental law in a 1971 Interpretive Release.

  • The 1971 position took two years to codify and reached the final and current form in 1982, after a decade of evaluation.
  • In 1975, the Commission also concluded that it would require disclosure relating to social and environmental performance “when the information in question is material to inform investment”.
  • In 2010 SEC guidance specifically emphasized that climate change disclosure might, depending on the circumstances, be required in a company’s Description of Business, Risk Factors, Legal Proceedings, and Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).
  • In 2016, the SEC issued a Concept Release regarding the modernization of regulation S-K including on climate change, noting the growing interest in ESG disclosure among investors and also the often inconsistent and incomplete discourse due to the voluntary nature of corporate sustainability reporting.
  • Finally in 2021, input was sought by the SEC on whether current disclosures adequately inform investors. This was made at the same time the federal Financial Stability Oversight Council (FSOC) listed climate change as an emerging threat to the financial stability of the US.

[4] https://assets.bbhub.io/company/sites/60/2021/07/2021-TCFD-Status_Report.pdf

[5] https://www.reit.com/what-reit#:~:text=REITs%2C%20or%20real%20estate%20investment,number%20of%20benefits%20to%20investors

[6] https://carbonaccountingfinancials.com/

[7] https://www.ukgbc.org/wp-content/uploads/2019/07/Scope-3-guide-for-commercial-real-estate.pdf