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EVORA Global announces partnership with Moody’s ESG Solutions to drive physical climate risk transparency for real asset investors

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EVORA Global today announces the launch of a new Physical Climate Risk (PCR) module and the integration of Moody’s ESG Solutions’ Climate on Demand risk analytics into its ESG data management platform, SIERA. This partnership offers EVORA clients more granular insights to better inform their financial decisions across their portfolios.

Climate change is noticeably affecting the world around us, including substantial impacts to real estate and infrastructure from floods, storms and wildfires. These risks can have significant financial implications. Coupled with a rapidly changing legislative landscape, including expected mandatory climate risk disclosure in 2022 as a result of new legislation in Europe, and the introduction of reporting frameworks such as the Taskforce on Climate Related Financial Disclosure (TCFD), the pressure is mounting for investment managers to understand their climate risk exposure and disclose appropriately.

Assessing climate risks across a multitude of portfolios and geographies can be daunting. Investment professionals need good quality data to measure their exposure to hazards like heat stress and flood today and in the future in order to understand the potential impacts to their assets and investment performance.

SIERA’s Physical Climate Risk module, powered by Moody’s ESG Solutions, provides asset- and fund-level insights into hazard exposure and risk scores for climate change-related hazards including flood, hurricane & typhoon, sea level rise, wildfire, heat stress, and water stress

“We are delighted to partner with EVORA to help their customers assess how their real estate investments may be exposed to the physical impacts of climate change.”

Emilie Mazzacurati, Global Head of Climate Solutions in Moody’s ESG Solutions Group

Moody’s Climate on Demand tool can score any location in the world on its exposure to climate hazards out to the 2030-2040 decade. It allows users to drill down into risk drivers, exploring the underlying indicators capturing different dimensions of risk for each hazard.

Analysing physical climate risk data alongside other automatically collated ESG data in SIERA, such as carbon emissions, enables users to clearly understand an asset’s risks and opportunities in one centralised platform, build resilience across their portfolio, and make informed, data-driven investment decisions. EVORA Global’s team of expert consultants help clients interpret their results and develop strategies to become more resilient to climate risks.

“At EVORA Global, we help clients better understand their exposure to changing climate hazards, the vulnerability of their assets to those hazards, and what steps they can take to become more resilient. Access to high-quality, decision-useful climate risk data is a crucial foundation to building climate resilience, so we are excited to introduce the new SIERA physical climate risk module and Moody’s partnership to our clients.”

Meghan Johnson, Associate Director of Climate Resilience Services, EVORA Global

About Moody’s ESG Solutions
Moody’s ESG Solutions Group is a business unit of Moody’s Corporation serving the growing global demand for ESG and climate insights. The group leverages Moody’s data and expertise across ESG, climate risk, and sustainable finance, and aligns with Moody’s Investors Service and Moody’s Analytics to deliver a comprehensive, integrated suite of ESG and climate risk solutions including ESG scores, analytics, Sustainability Ratings and Sustainable Finance Reviewer/certifier services. For more information visit Moody’s ESG hub at www.moodys.com/esg.

Simon Clouston joins EVORA as Director

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EVORA Global is delighted to announce that Simon Clouston has joined the business as Director. He brings with him 30 years’ experience of advising organisations on environmental and sustainability strategy, having joined EVORA from WSP.  In recent years Simon has focussed on providing sustainability services to real assets investors. His wealth of experience and the relationships he has developed will be of huge benefit to both EVORA and our clients as together we seek to deliver on our mission to make buildings productive, profitable, and resilient to change.

Simon joins during a period of significant growth for EVORA and will support the next stage of our journey. Simon will lead a number of our key client relationships as well as providing leadership and mentoring for our client delivery teams. In particular, his experience of both developing strategy and implementation programmes for the net zero carbon transition will be invaluable in helping us address this number one priority for many of EVORA’s clients.

“I am really excited to have joined EVORA Global as a Director in their Consulting business. It’s been a pleasure to start to get to know the hugely talented and passionate team here. We are doing fantastic work with fantastic clients who are challenging themselves and us to accelerate the adoption of sustainable real estate. And within that to prioritise the transition to net zero. I can’t wait to get stuck in!”

Simon Clouston, Director

“I have known Simon for some time now, we used to bump into each other at events and when working for mutual clients.  I am delighted that Simon agreed to join us. Simon brings that magical blend of technical knowledge, experience and, perhaps most importantly, the ability to articulate what can be a daunting and complex agenda clearly and simply.  The whole EVORA team look forward to working with Simon to progress our vision”

Paul Sutcliffe, Founder and Executive Director

Improving SECR Reporting

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Unprecedented inflows into sustainable investment funds, the looming threat of climate change, and societal pressure for businesses to better align their activities to public interests are all driving an agenda towards better disclosure of non-financial information.

Ultimately, the “alphabet soup” of ESG reporting acronyms and frameworks exists today because different people want different things from ESG reporting and that leads to a lot of confusion. 

What about SECR specifically?

The Streamlined Energy and Carbon Reporting (‘SECR’) rules set out certain required statutory disclosures about emissions and energy use. From 1 April 2019, the rules expanded the existing emissions disclosure requirements for quoted companies and required emissions reporting for the first time for large unquoted companies and limited liability partnerships (‘LLPs’).

The Financial Reporting Council (FRC) have released a Thematic Review on Streamlined Energy and Carbon Reporting this month considering how a sample of companies have complied with the new SECR requirements, highlighting where they saw examples of emerging good practice, and setting out expectations for reporting in future periods.

Whilst the FRC saw many examples of good disclosure in their sample review, they noted scope for improvement across many of the reports.

What does this mean for my company? 

Below, we highlight some of the key takeaways that companies should be looking to incorporate in their SECR reporting process:

  • Present all the required information in a format which is clear, understandable, and easy for users to navigate.
  • Provide an adequate explanation of the methodologies used to calculate emissions and energy use and also the scope of the disclosure.
  • Describe the extent of any due diligence or assurance over emissions and energy use metrics, including explain the level of assurance given and scope of coverage. Avoid implying a higher level of assurance than has been given, for instance by using terms such as ‘audited’ or ‘verified’ inappropriately.
  • Provide an adequate description of energy efficiency initiatives in the current and comparative period.
  • Consider whether disclosure of additional information, such as scope 3 emissions, would be helpful to investors or other users.
  • Provide clear explanations which help users to understand and compare major commitments, such as ‘net zero emissions’ targets or ‘Paris-aligned’ strategies.

How we can help 

The SECR was intended to not be overly cumbersome, however specialist advice can navigate your compliance effortlessly. Starting with your business fundamentals, your assets, your people and your culture, the team at EVORA helps to work through the strategic decisions needed to deliver a business-oriented ESG strategy, and to service all your reporting, investment, data and communications needs. Email contactus@evoraglobal.com to speak to a member of our team.

What did we learn from our first EVORA Insight’s lunch on the topic of how ESG is being integrated into investment decision-making?

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The gap in expectations between the leaders and the majority of investment managers is huge. Even the leaders don’t think they are doing anywhere near enough. To be honest, it’s a little disheartening.

Organisational change and capacity building is being hampered by structural changes, which cannot be solved by each firm on their own. For instance, the historically low price of gas as a common fossil fuel, compared to electricity which can be net zero carbon, presents an affordability challenge. Also, the lack of availability of standardised and simplified ESG data to inform investment decisions and to understand the underlying risks. To gather ESG data, particularly for a whole building, is still a time-intensive process requiring active engagement with tenants and other stakeholders, without regulatory support in many countries.

However, there are choices that companies can make to include ESG factors as standard practice. To include ESG representation in the IC and to decide on ESG “red lines”. More often than not, assets are being acquired with little or no considerations of ESG risks and opportunities pre-transition. For some funds, this is the only opportunity to incorporate these factors and budget accordingly, particularly when future income could be compromised. Notwithstanding the need for ESG data to be readily available at the time of the transaction, during a period in the market when there is an insufficient supply of properties to meet the demands of available capital allowing little time to consider non-financial considerations.

We ask our clients to think about ESG over the timeframe of two hold periods – to consider how ESG will be priced into the exit value. There is little room to do this effectively under present market conditions, in part due to the uncertainty of how to interpret financial impacts of climate projections, and because pricing in that risk may result in losing the deal. There is anecdotal evidence of buyers winning and losing deals with risk-adjusted pricing, which most often appears to be through the incorporation of the costs of decarbonisation/adaptation measures or an adjustment to the cap rate at exit as a proxy for perceived future risk. More observational data is needed to understand under what conditions these price adjustments are and are not resulting in winning deals.

Some companies know that the reliance on GRESB ratings and EPC data, which don’t measure actual performance, is insufficient to understand the underlying risks and opportunities. Making the right investment decisions requires technical and operational insights, when there is a shortage of these skills and to get the right experience it requires support from multiple consultancies. However, it seems inevitable that certifications and ratings will continue to be used as a short cut.

With the background of the environmental sciences telling us that we are running out of time to tackle the global issues of climate change, destruction of biodiversity, and pollution of the land, water and air. Social inequalities are generating unrest in our communities. It has left us wondering how do we change the philosophical principles on which real asset investment has been grown on over the last 50-60 years. Is the only way forward a ratcheting up of regulations to force change, which would require proactive involvement from investment managers in policy discussions for finance, sustainability and buildings to be successful?

Over the last couple of years there have been reasons for optimism that real estate investment and finance is starting to change for the better, these include market indicators like:

  • Investor pressure to explain ESG and climate risk policies is increasing and tougher questions are being asked, although how this information is used in unclear
  • More individuals throughout real estate investment firms, and outside of the traditional sustainability team, are being required to take responsibility for ESG
  • ESG and climate risk are showing up on performance objectives for more staff
  • Valuers are starting to query for data on EPC ratings to incorporate into valuations, and market analysts are using this information to review income projections. 

So, looking ahead to 2050. When people look back to this period of change happening today and see what an exciting time we have lived through, will you be one of those who can say that you joined us to push ESG integration forwards successfully or will the transition come too late given the scale of the changes we have to make?

Green Building Certification for Operational Buildings: which to choose?

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Since the first green building certification standard, BREEAM, was launched in the UK in 1990, the number of sustainability related certification initiatives for the built environment has grown. There are now hundreds operating around the world. While the early certification standards focused on the design and construction of new buildings, there are now a plethora of standards that assess the operational performance of existing buildings. Indeed, the 2021 GRESB Real Estate Reference Guide lists over 70 “operational green building certification schemes”.

From an asset owner’s perspective, there are various drivers for targeting green building certification. One of the most significant aspects is the increasing body of evidence that demonstrates the business case for and value of green buildings, including reduced operational costs, improved occupant productivity and increased asset value.  Results from a recent RICS Global Commercial Property Monitor survey showed that around 75% of global respondents believe that green certified buildings achieve a rent or price premium over comparable non-certified buildings, either through a green premium or a brown discount.

As the demand for green building certification continues to grow, asset owners and investors are now faced with an overwhelming choice of certification standards. The scope and applicability of certification can vary significantly between the different standards. Some can be applied internationally, while others are country or location specific; some provide a holistic consideration of sustainability issues, while others focus on a particular topic (e.g. energy or health and wellbeing); and some can assess a range of asset types, while others cover a single sector (e.g. housing).

To help the real estate sector navigate this diverse green building certification landscape, EVORA has recently published a new guide that provides an overview of four of the leading green building certification standards for operational buildings used in Europe:

While there are various similarities between the four certification standards, there are also considerable differences between the four approaches both in terms of the certification processes and the technical requirements. As such, it is very difficult to compare the merits and value of a specific certification rating for one standard against a rating from one of the other standards. Consequently, the selection of the most suitable certification standard will be project specific and should be informed by the project team’s sustainability aims and objectives for each asset. Location and local market factors may also steer the choice of certification.

Regardless of the differences between the standards, all set requirements that aim to reward performance above standard practice for existing buildings. Therefore, any rating achieved against any of the standards would demonstrate a level of sustainability performance beyond that of an average building of a similar type. Achieving any of the higher ratings would demonstrate projects as being high performing buildings with excellent sustainability credentials.

In a post-pandemic world and with the urgent need for the built environment to decarbonise to meet net zero carbon trajectories, there will be an increasing demand for asset owners and investors to demonstrate the value of their assets, with an asset’s sustainability performance a key factor in this. As such, third party assessed green building certification will continue to be regarded as good evidence that an asset’s sustainability impacts are being appropriately considered as part of its operations and management.

EVORA can advise clients on the most appropriate green building certification for their individual assets or wider portfolios and has in-house experts that are able to deliver BREEAM, DGNB and LEED certification for operational buildings across Europe. If you would like to know more, please contact our experts at contactus@evoraglobal.com.

10 Years of EVORA

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It started out as a table on a spreadsheet. A handful of prospects with some numbers against them that added up to £360k. It was September 2010 and I was 44. It was a now or never moment. I’d always wanted to run my own business from a young age, but doing what? For the first time in my life I knew exactly what, there was no doubt in my mind.

I’d trained as an accountant with PWC, left to travel the world with Schlumberger, an oil and gas contractor, dabbled briefly in telecoms and then emersed myself in property for nine years at DTZ. And it was at DTZ that two independent events occurred, which together lit the touch paper and set me off on my journey.

The first event was pure irony. DTZ had invested in a professional coach for me and after a few sessions, my coach said “You don’t fit in the corporate world. I suggest you leave and set up your own business”!

The second event was a Dragons Den type competition where a number of us were asked to pitch to the DTZ Board and management team, an idea or project to invest in. Having been a keen advocate of DTZ’s small sustainability team, I pitched to significantly expand the team and develop a sustainability software platform for the real estate industry. I came last with one vote.

Less than a year later I had left DTZ with my £360k prospect list and a sketchy business plan to create a market-leading sustainability business for the real estate investment market. I just needed some help.

A quick trip to Bolton and Paul Sutcliffe was on board once I’d persuaded his wife Eleanor what a great opportunity it was. Paul was sustainability Director at DTZ and had fantastic technical knowledge.

Evora Siera ESG reporting team

One down one to go. Ed Gabbitas, another great technical consultant, signed up shortly afterwards who jumped at the opportunity. Job done. Three is never a crowd for a new business, it’s the magic number. It provided just the right mix of skills, lots of ideas to bounce off one another and most importantly, a level of resilience. Evora was formed – well, not quite. We started off as Sustainable Commercial Solutions but that’s quite a mouthful. The EVORA name came later.

That was ten years ago. If the strapline back then was “Sounds interesting but maybe next year”, now it’s more like “I need an ESG strategy, can you start Monday”! A lot has changed over those ten years and we’ve been very fortunate with the way market sentiment has changed towards climate change. But it’s also been tough at times and a lot of hard work. When I told Mandy, my wife, my plans, her first comment was, ”Can’t you just get a job like a normal person” but her support has been unwavering. As for Paul and Ed, I marvel at just how amazing they are – no more to be said.

If 3 was the magic number back then, 10 years on it feels like 100 is the magic number now. Having recently employed our 100th employee and gained our 100th client, we’re set to achieve 100% growth this year. If that wasn’t enough we are also bringing a number of highly innovative software products to the market this year through our SIERA ESG platform.

Are we the market-leading sustainability business for the real estate investment market? Maybe, maybe not, it depends who you ask, but I don’t think that’s important anymore. As a business we have a bigger purpose, ‘To accelerate the evolution of real estate sustainability for the planet and its people’, and that is an ambition that needs the whole industry to get behind and collaborate on.

And behind the numbers is an incredible bunch of people at EVORA who all really care – for one another, for the work they do, for their clients and for our planet. Here’s looking forward to the next 10 years.

Finally, for those wondering or vaguely interested, of the £360k of prospects on my sketchy business plan that I enticed Paul and Ed with, £11k came off. And why EVORA? EVOlution of Real Assets through sustainability – you know it makes sense 😊

Anticipating Actions and Metrics for the EU Social Impact Investment Taxonomy

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In partnership with the University of Leeds, EVORA have been conducting extensive research into how social impact can be measured, in anticipation of the EU Social Impact Investment Taxonomy due for release in September 2021.

The increased profile of the ‘S’ in ‘ESG’ is driving demand for a standardised and established set of key performance indicators (KPIs) and metrics, against which funds can evaluate the progress and success of their social impact policies.

The ‘S’ of ESG

Social sustainability is commonly thought of as an ambiguous topic. This has led to a considerable gap in understanding how social impact can be integrated into ESG strategy with the same clarity as its environmental and governance counterparts.

As a result of limited resources, such as a clear framework and material metrics, social impact in ESG programmes is often overlooked. The result of this, is limited engagement from organisations in how they plan for, deliver, measure and report social impact.

Since the implementation of the Public Services (Social Value) Act, 2012 in the UK, private-sector uptake of social sustainability in the built environment has been both rapid and largely voluntarily. The Act only required that local authorities consider social value in procurement. Simultaneously, UK real estate managers became leaders in the implementation and measurement of social impact programmes.

In September 2021, the EU Commission plans to publish their Social Impact Investment Taxonomy. It is fair to anticipate that uptake in social impact programmes will mirror that of the UK in 2012.

Europe, therefore, face a challenge due to a lack of practical European-focussed guidance on social sustainability.

EU Social Impact Taxonomy

The Social Impact Investment Taxonomy will provide an opportunity for European investment organisations to develop a commercial response to current socio-economic risks. By clearly considering their social impact, funds can build their sustainability profiles and attract potential further investment.

Social Impact Metrics

The EU Social Taxonomy does not currently provide a clear framework and metrics for implementing and measuring social impact. Therefore, in anticipation of the increased interest in social impact and the built environment across Europe, EVORA have worked with the University of Leeds to research how learnings from tried-and-tested social impact programmes and metrics in the UK can be applied in Europe. These may facilitate discussions within your ESG team on how to practically address interventions and reporting in areas such as:

  • Training and Education
  • Charitable Support
  • Health and Wellbeing
  • Community Safety and Security
  • Community Space
  • Tenant satisfaction
  • Sustainable Transport
  • Social Enterprise Partnering
  • Health and Wellbeing aspects such as indoor air quality

The most important aspect of these metrics is that they go beyond the use of quantifying inputs and aim to recognise people as the end users of social impact programmes themselves.

EVORA is grateful to Gemma Graham for her dedication to, and assistance with, this research.

It’s getting hot in here! Heat risk to buildings

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The recent heatwave in Canada has brought into focus the real and present dangers of extreme weather conditions. Record temperatures in British Columbia, reaching as high as 49.6°C, resulted in hundreds of excess deaths and heat-related hospital visits. As early analysis shows the heatwave would have been ‘virtually impossible’ without human-caused climate change, we know to expect an increase in the frequency of such events, presenting a global challenge for the buildings in which we live and work.

In the UK, the Climate Change Committee (CCC) have recently released their third assessment of the UK’s readiness for the impacts of climate change. The Climate Change Risk Assessment (CCRA3) paints a stark picture of the widening gap between the risks posed by the UK’s changing climate and the government’s policy response. Among the highest priority areas identified by the CCC, they highlight ‘risks to human health, wellbeing and productivity from increased exposure to heat in homes and other buildings’ as requiring urgent action before the next round of national adaptation policies due in two year’s time.

What is the risk?

Average annual temperatures in the UK have already increased by 1.2°C since pre-industrial levels, and are expected to rise further. Summers as hot as 2018 (the joint hottest on record) could occur every other year by 2050, with an increasing likelihood of exceeding 40°C, according to the Met Office’s UK Climate Projections.

Without suitable adaptation measures, cities will become increasingly uncomfortable places to live – the dense concentration of buildings and paved surfaces in urban areas causes an increase in temperature relative to the surrounding countryside, known as the urban heat island effect. This will increase the number of ‘tropical nights’, hot and humid evenings that are a significant contributing factor to heat-related deaths during heatwaves.

More than 2,500 people died during heatwaves in 2020, the most of any year since records began. Continued warming, and current adaptation measures could see this figure triple in coming decades.

In the five years since the previous report (CCRA2), 570,000 homes have been constructed in the UK and under current government targets another 1.5 million will be built by the time CCRA4 is published. If buildings are not designed to cope with the increasing temperatures, there is a real risk that climate vulnerability is ‘locked in’ to our infrastructure.

What are the implications?

Of the many risks discussed in the report, the CCC singled out the risk of heat in buildings as being particularly notable for the absence of adaptation policy.

There are two years until the next round of national adaptation policies must be submitted; two years that are vital for closing the adaptation deficit. With consultations taking place in England and Wales, it is likely that policy will follow. It is therefore essential that this risk must be considered now, for both standing and development assets.

At EVORA, we can work across the entire life cycle of a project, to help deliver on better building design and operation. As well as helping to reduce the embodied carbon in the materials used in construction, improving resilience to high temperatures can be worked into the building at the design stage to reduce climate vulnerability. This could include measures such as:

  • Passive cooling measures – better shading, more reflective surfaces, and improved ventilation are often the most cost effective ways of reducing the pressures of high heat;
  • Choice of materials – through well informed decisions around the choice of materials, it is possible to create a more comfortable internal environment, whilst also reducing the embodied carbon in construction;
  • Green roofs and rooftop gardens – as well as the obvious boosts to biodiversity, green roofs reduce heat by providing shade, and through the cooling effect of evapotranspiration.

Further to this, through our partnership with Moody’s 427, we are able to incorporate physical climate risks, including those posed by increasing temperatures, into our SIERA platform. This enables our consultants to analyse physical risks on an asset-level basis. This detailed information can then form the basis of best-practice climate resilience measures across a real estate portfolio.

If you would like to know more, speak to our experts today: info@evoraglobal.com

Is the sustainability report the right place for storytelling?

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Firstly, what is storytelling? 

Storytelling is how people naturally communicate. Within your sustainability report, it is a means of communication, using narrative techniques surrounding employees, the organisation, the past and visions for the future, social bonding and work itself, to build in the reader a new point-of-view or reinforce an opinion or behaviour. Storytelling tools include using anecdotes, case studies, typography, colour, illustration, data visualisation, photography, interactivity, video and even gamification.

Arguments for.

Reporting, by nature, is somewhat dull. Getting stakeholders to read your sustainability report is the biggest obstacle in reporting. Many companies keep packaging their reporting year-on-year in dense corporate documents, relying on stock templates, generic letters from the CEO, and pages and pages of text. Too often, large amounts of time, money and effort is spent on a report that very few people care to read.

These reports are not interesting to look at. They do not showcase a company’s brand and personality. And neither do they make the reader feel invested in the company or the work it does.

Why? Because they simply state numbers, charts, and straightforward facts; they don’t tell a story.

When companies are trying to advocate what they do through a report, data is integral to make convincing arguments. However, studies show that if you share a story, people are more likely to be persuaded. When data and stories are used together, audiences are moved both intellectually and emotionally.

And who doesn’t love listening to a good story? 

Storytelling helps companies connect with their stakeholders, forming an emotional connection to increase brand loyalty. An essential part of content marketing, storytelling are useful techniques that craft communications in the most engaging way to capture the reader’s attention and make them excited about what you’re doing. Stories are even noted as being 22 more times more memorable than facts alone. 

Sustainability reports can be a great avenue for powerful storytelling; creating inspiring stories and sharing data in more creative and engaging ways, ultimately demonstrating that real, tangible efforts are being made to make a company’s operations and portfolios more sustainable.

“There have been great societies that did not use the wheel. But there have been no societies that did not tell stories.”

Ursula Le Guin, novelist

Arguments against.

A report acts to serve as a purpose for the communication of two key aspects:

  1. An explanation of how sustainability is being managed to create long-term value. 
  2. Data (evidence) to support these claims.

Do readers want to spend time ploughing through dense, formal corporate reports to get to this information? 

Storytelling techniques strike emotive chords, and it can be argued that reports utilising these could be misleading in that they may not necessarily fully reflect a sustainability record. The report might even be choreographed to deflect attention away from areas where a company isn’t succeeding.

There is sometimes a disconnect between the information that these readers are looking for and what companies actually provide (PWC and others have been looking at this for several years). Investors and analysts have a limited interest in the majority of the content that ends up in a sustainability report. 

The opposition would argue that there is no role for storytelling in sustainability reports, which should focus solely on the business case. Instead, storytelling should be confined to website content and social media streams.

Conclusion

Removal of storytelling in its entirety from the annual sustainability report seems extreme and unjustifiable. 

Successful sustainability communications should always provide specific audiences with information that focuses on what’s most important to them – and presents information in ways that resonate. This may mean shorter, more impactful reports using imagery to illustrate effectively. 

Some companies are also looking at taking a “modular” approach to reporting, with a centrepiece summary document supported by a variety of supplementary resources, including infographics, impact fact sheets or reports on specific themes. This approach could provide the required content in a clear bitesize manner, where the stakeholder can select material to meet their individual needs. EVORA advises caution in this approach of separating out sustainability information intended for different end-users in multiple reports and communications. Publishing information on a company’s ESG risks and opportunities and information on a company’s sustainability performance across separate reports may not serve investor needs and risks signalling that information on a company’s sustainability performance is not material for investors. In addition, multiple communications may hamper the ability for a company to present an overarching vision and strategy and could lead to inconsistent sustainability information.

The issues of materiality and external assurance are useful to give storytelling elements credibility and validity in accurately reflecting a company’s approach to sustainability. More specifically, stories employed in sustainability reports should reflect the concerns of a wide range of the company’s stakeholders and that the more general themes that such stories illustrate are externally assured. At the more everyday level, companies might also give consideration to selectively using such sustainability stories in social media posts.

Using storytelling in sustainability reporting doesn’t need a mega budget or substantial resources. There are many fantastic examples out there that are brilliant, bold and inspiring, but also quite simple. Align with an appropriate reporting framework to ensure transparency. And beyond this, be brave, be honest, share your brand story, demonstrate your impact and connect to your reader.

References

Jones, Peter ORCID: 0000-0002-9566-9393 and Comfort, Daphne (2018) Storytelling and Sustainability Reporting: An Exploratory Study of Leading US Retailers. Athens Journal of Business and Economics, 4 (2). pp. 147-162. doi:10.30958/ajbe.4.2.2

This article was originally published on GRESB Insights.

ESG Data is Growing Up

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We are entering a new era of ESG data. Historic market failures regarding our negative environmental and social impacts, and the resulting climate change, nature loss and social inequality, are starting to be corrected with structural changes to the market.

In the financial sector, we are seeing both dynamic and double materiality becoming an integral part of decision making. The WEF introduced the concept of dynamic materiality in 2020, where an ESG topic which is financial immaterial today can become material tomorrow. That is coupled with double materiality, which considers both the inside-out view of ESG, that is what impact does an asset have on the environment and society, as well as the outside-in view of what impact environmental, social and governance issues have on the asset.

Climate change and carbon pricing is a good example. In terms of dynamic materiality, an increasing number of companies are adopting an evolutionary internal carbon price to drive low carbon investment in real assets and to mitigate the risks of cost increases as climate change externalities are corrected in the economy – this price will increase over time making financial materiality more likely across all sectors. There is an obvious point of connection here with double materiality, which is that real assets create emissions and will inevitably face more regulations over time – see the PRI Inevitable Policy Response Forecast Report. As our climate changes we will see an increase in severity and/or frequency of extreme weather events which can damage and disrupt real assets. All of these aspects of potential materiality have to be considered in financial appraisals and investment-grade ESG data can provide insight on trends and relative performance of assets.

Investment and Asset Managers are using ESG data from assets to make investment decisions: choosing the right assets to acquire and dispose of; deciding how to finance improvements to those assets; and investment & credit risk management processes are now incorporating ESG data. 

Those processes and decisions are becoming more transparent to the providers of capital, so the quality of ESG data has to become investment grade.

The expectations from investors, and their asset managers, of ESG data is closing the gap with the financial and commercial data captured in asset management software, but the budgets invested in ESG data management software and processes is vastly different. ESG data is now more valuable than it has ever been before and financial regulations are going to increase that value. 

The EU Action Plan for Sustainable Finance, and similar changes to UK financial regulations, means that the duties of asset managers & lenders and the decision they take about ESG risks and opportunities are no longer optional.

Without investment-grade data about ESG performance and sustainability actions then it is not possible to understand the full impact on asset value. ESG risk, in particular climate risk, is a financial risk and this data should be incorporated into every financial decision. 

That wasn’t the case last year, so this change is happening quickly. 

ESG data was being used in-house to monitor performance, as it has been for the last decade or so. It was used for annual reporting and for voluntary disclosure. There was a small minority of investors asking about ESG at the start of 2020, but throughout the pandemic this has changed quickly. Last year, there was not a fiduciary duty to be discharged based on ESG data. Nor staff incentive programmes based on ESG measurements. That has all changed as the market has grown up to take a more sophisticated view of how our economy relies on natural and social capital, not just financial and manufactured capital. The materiality of ESG has been recognised across the financial sector.

The financial markets are undergoing a structural change. Sustainable finance, and particularly climate-related finance, is now a global priority. This has led to changing investor requirements and regulatory changes for banks, institutions and fund managers, such as SFDR, MiFID ii and mandatory TCFD reporting are all combining to bring about structural change. We now have to consider dynamic and double materiality and make financial decisions accordingly.

It is slowly, but surely cascading down to real assets: real estate, infrastructure and land.

For those experts in sustainable real estate and infrastructure, it is clear that assets are likely to be mispriced and that the transparency provided by these regulatory requirements for ESG data will make that clear. Without ESG data on performance and actions, it is not possible to assess the cost of transition. For real assets, there is not a trading solution to disperse all of these liabilities by disposing of them to others. There is a need to retain, rethink, invest and dispose based on early knowledge of ESG risks. The later this happens the most likely it is that asset owners will see value erosion through reduced income, defaults, decreasing exit values and cap rate compression.

ESG transparency will also influence tenants and the users of real assets. There is a reputational risk of not taking sustainability performance seriously enough. Now that people have more choice about where they work and live, this risk could be more material to income and asset value than ever before.

At EVORA Global, with our SIERA and SIERA+ software, we are making these risks more visible and manageable. This is enabling our clients to make proactive decisions about their assets and funds, and to effectively engage with investors and other stakeholders.

It is time to approach ESG data in a new way. The historic policies, processes and procedures may no longer be fit for purpose. Most of them are only backwards-looking and there is now mandatory requirements to be forward-looking, which has its risks and uncertainties. In choosing an ESG data management platform ensure that it is future-proof, aware of this rapidly changing financial landscape.

If you would like to get in touch with the EVORA team, you can do so by filling in our form or by emailing contactus@evoraglobal.com