Last week, my colleague Paul Sutcliffe penned a blog briefly setting out the headline changes to the GRESB 2018 Real Estate Survey. Having had a bit more time to digest these updates, below I provide a detailed look at how the survey has changed this year. I also outline some key practical considerations.
Unlike Paul’s blog, this one is very much aimed at those working closely with the GRESB RE survey. For those that fit this bill (btw, lucky you/us!), please do read on and don’t hesitate to get in touch if you would like to discuss any of these changes further.
Entity and reporting characteristics – Composition of the entity’s standing investments during the reporting period (RC5.1)
Change: It will no longer be possible to report in units. Rather all property types will need to report in sq. ft. or m2.
EVORA comment: This may present a challenge to many respondents as for certain property types, floor area surveys are often not available (e.g. hotels, student accommodation and car parks). In some instances, there may be other sources of information that can be used. For buildings (i.e. not car parks), this can include the EPC certificate. In most cases an area is also likely to be stated on insurance documents. Where necessary, entities may need to make assumptions to convert units into areas. For this, we suggest looking to country-specific planning regulations, which may have minimum space requirements – e.g. for car parks.
Management – Inclusion of ESG factors in annual performance targets of employees (2017: Q6)
Change: An additional sub-question has been added to this indicator, asking whether performance against these targets have ‘financial’ and or ‘non-financial consequences’. The list of possible ‘employee’ types has also been reduced from nine down to four (remaining options: ‘All employees’; ’Board of Directors’; ‘Senior Management Team’; and, ‘Other’). A requirement for a supporting evidence upload has been added.
EVORA comment: According to the pre-release, the scoring of this question has not changed, suggesting that the new ‘financial’ / ‘non-financial consequences’ differentiation is for information only. Therefore, we do not anticipate this question causing additional stress for respondents compared with last year. However, this change does hint at a wider trend seen across the ESG industry towards favouring a link between sustainability performance and financial incentives. Perhaps this is something we will see GRESB adopt in future versions of the survey.
Policy and Disclosure – Policies in place that address governance issues (2017: Q9)
Change: The list of governance issues that could be covered by an entity’s policies has been expanded; new options include data protection & privacy, fiduciary duty, fraud, political contributions, and whistleblower protection. The number of points awarded to this question has increased, from 1 to 2 points.
EVORA comment: Our expectation is that for larger reporting organisations few if any of these options will present a significant challenge. However, for smaller investment houses we wonder if for one or more of these new selections it may be difficult to provide the necessary documentary evidence to demonstrate that such issues are covered by a formal policy. We note that the full question includes an extensive list of options and it is not necessary to select all in order to obtain full marks. For anyone with particular concerns, we suggest doing a gap analysis against the full question.
Policy and Disclosure – *NEW INDICATOR* – Monitoring diversity (i.e. C-suite, Board, Management Committee)
Change: A new indicator has been added that asks if and how respondents monitor diversity amongst its governance bodies. The indicator will not be scored and will be for reporting purposes only in 2018.
EVORA comment: As with the previous indicator, we anticipate that larger (particularly listed) respondents will already be doing some or all of this – e.g. for certain countries / organisations this may already be a legislative requirement (e.g. EU non-financial reporting directive). For other, likely smaller, entities this indicator may require additional work and raise questions around the sensitivity of this information. We recommend engaging the relevant stakeholders (e.g. C-suite, HR department) as early as possible to work through any sensitivities and, if determined appropriate, a strategy for collecting this information. It is worth noting that for GRESB the pattern is often that new questions are introduced as ‘optional’ or for ‘reporting purposes only’ in year one, but from year two or three, they often become scored.
Policy and Disclosure – *NEW INDICATOR* – Commitments to ESG leadership initiatives
Change: A new indicator has been added that asks which third-party standards or groups respondents are members of / signatories to (e.g. IIGCC, PRI, RE 100, science based targets, TCFD, UNGC). The indicator will not be scored and will be for reporting purposes only in 2018.
EVORA comment: We have mixed feelings about this indicator because as worthy as these initiatives are, we feel that many are more appropriate for larger organisations that typically have more resources available to manage membership/alignment to these schemes. As mentioned above, ‘reporting purposes only’ questions often become scored in subsequent years.
Please note: We have experience support client’s alignment to various such initiatives and would be very happy to provide you with a complementary briefing on the opportunities and challenges presented by each of these initiatives. Contact us.
Policy and Disclosure – *NEW INDICATOR* – Process for communicating ESG-related misconduct, penalties, incidents or accidents
Change: A new indicator has been added that asks if respondents have a process for communicating ESG-related misconduct, penalties, incidents or accidents and if so, which stakeholders are included in the process. The indicator will not be scored and will be for reporting purposes only in 2018. However, according to GRESB this information may be used “as criteria for the recognition of 2018 Sector Leaders”.
EVORA comment: We anticipate that this indicator will be acceptable to most respondents.
Risk and Opportunities – Asset-level environmental and/or social risk assessments of standing investments during the last three years (2017: Q15.2)
Change: This indicator now requires reporting of ‘percentage (%) portfolio covered’ for each type of risk assessment. This indicator also now requires reporting of the third-party standard to which risk assessments are aligned (e.g. ISO 31000). Responses will be scored according to the issues selected and their respective % portfolio coverage. The open text box will no longer be scored and alignment to a third-party standard will not be scored (only required for reporting purposes).
EVORA comment: We can understand the rationale for this change, however, we have concerns over the additional reporting burden this will present for entities with larger portfolios. We note that some options are likely to be easy to determine a % coverage e.g. ‘GHG emissions’ and ‘regulatory risk’. Conversely, other options may require asset-by-asset consideration, such as ‘contamination’ and ‘flood risk’.
Risk and Opportunities – Implementation of measures during the last four years to improve waste management (2017: Q19)
Change: This indicator remains the same as last year, however, it will be scored (whereas last year it was for reporting purposes only). This indicator will attract a maximum of one point.
EVORA comment: We agree with the principle behind this update, which increases the importance of and therefore focus on implementation of waste management improvement measures. This brings waste and resource management in line with the energy and water versions of this question and further shifts the overall balance of GRESB towards measuring / incentivising green ‘walk’, as well as ‘talk’.
Stakeholder Engagement – Employee and tenant satisfaction surveys (2017: Q34.1 & Q37.1)
Change: An additional sub-question has been added to this indicator, asking if and what ‘quantitative metrics’ were included in the surveys (e.g. overall satisfaction score). This new sub-question will not be scored and will be for reporting purposes only in 2018.
EVORA comment: This is a logical evolution to this question and should be borne in mind by anyone designing a satisfaction survey. Ultimately, it should improve quantification of what has historically been a largely qualitative issue.
Stakeholder Engagement – Monitoring of compliance with sustainability-specific requirements in lease contracts (2017: Q39.2)
Change: An open text box has been added to enable GRESB to further validate the approach taken by respondents to monitoring compliance with green lease clauses. Last year, this question was for reporting purposes only; however, this year it will attract a maximum of one point.
EVORA comment: In our view, this is another logical evolution to the survey. However, we do note that the process behind tracking green leases may not provide sufficient information on the number, depth and strength of green clauses in place.
Stakeholder Engagement – *NEW INDICATOR* – Engaging with supply chains to ensure ESG requirements are met
Change: A new indicator has been added that asks if respondents engage with supply chains to ensure ESG requirements are met. If ‘yes’ is selected, respondents are asked to describe the process in an open text box. The indicator will not be scored and will be for reporting purposes only in 2018.
EVORA comment: We anticipate that this indicator will be acceptable to most respondents and note an overlap with a subsequent question on monitoring supply chain compliance with ESG requirements.
Stakeholder Engagement – *NEW INDICATOR* – Stakeholder grievance mechanism
Change: A new indicator has been added that asks if respondents have a formal process for stakeholders to communicate grievances. If ‘yes’ is selected, respondents are asked to select from a list of ‘characteristics’ of the grievance process (e.g. rights compatible, transparent) and stakeholders that the process applies to (e.g. community, contractors). The indicator will not be scored and will be for reporting purposes only in 2018.
EVORA comment: As with most of the other new indicators, we anticipate that larger respondents will already be doing some or all of this. For other, likely smaller, entities these processes are less likely to be formalised and therefore demonstrating compliance may require additional work.
Performance indicators – Landlord versus tenant data collection and coverage (2017: Q25.1 & 27.1)
Change: Although tenant energy/water consumption data is still requested, GRESB have committed to reducing the weighting it receives within the scoring and benchmarking of the ‘data coverage’ element of responses. Correspondingly, they will shift the emphasis onto data coverage of the landlord-controlled energy and water supplies.
EVORA comment: We fully support this update and have been lobbying GRESB on the issue for a while. For us it makes complete sense to focus scoring on what the landlord has control over, rather than their tenant activities, which they often have little ability to influence (particularly for certain property/portfolio types – e.g. industrial/logistics, FRIs).
Performance indicators – Like for like data coverage area (2017: Q25.1 & 27.1)
Change: Respondents will now have to report on the size of the ‘like for like’ portfolio reported within the energy and water consumption data tables.
EVORA comment: We support this update and note that this should not add additional reporting burden for those using a good asset-level data collection and validation software tool, such as SIERA.
Performance indicators – Like for like consumption trends (2017: Q25.1 & 27.1)
Change: The scoring of reported energy and water consumption trends for the ‘like for like’ portfolio has changed. Last year all three points available for this indicator were attributed to the direction and scale of the consumption trends. From this year, one point will be awarded for data availability and only two points attributed to the consumption trend.
EVORA comment: This change should provide investors with greater clarity on the proportion of the portfolio that is driving change. However, as the like-for-like consumption trend is the only truly ‘performance based’ indicator, in our view, stealing points from the consumption trend aspect and giving them to data coverage is not entirely progressive.
Performance indicators – Scope 3 emissions (2017: Q26.1)
Change: Reporting of Scope 3 greenhouse gas (GHG) emissions has become mandatory. In the context of GRESB, Scope 3 emissions include those associated with energy consumption in tenant areas and/or indirectly managed assets. From this year, Scope 3 emissions will be included in the scoring and benchmarking of responses, both in terms of data coverage and the ‘like for like’ consumption trend.
EVORA comment: We understand the principle behind this update, however we question the intention to score the Scope 3 like for like consumption trend, as well as data coverage. This is because, as mentioned above, generally tenant energy consumption and therefore GHG footprint is beyond the landlord’s control. As above, we note that this should not add additional reporting burden for those using a good asset-level data collection and validation software tool, such as SIERA.
Building Certifications – Green building certificates during design/construction/renovation or operation (2017: Q30.1 & 30.2)
Change: There is an expansion to the scope of these questions to include a requirement to provide certification levels/scores achieved (in addition to the overall schemes applied). This element will not be scored in 2018; it will be for reporting purposes only.
EVORA comment: We are supportive of this update and again, note that this should not add additional reporting burden for anyone using a good asset-level data collection and validation software tool, such as SIERA.
To find out how EVORA can help you to navigate GRESB, whether you are a first timer or an experienced respondent, then please get in touch.