Last month we ran a thought leadership event on ‘Real Estate Sustainability: Planning for 2018 & Beyond’ kindly hosted by our client Schroders.
Two key themes were raised by the speakers and the panellists, which are certainly not mutually exclusive. The first was setting out the business case for ESG in Real Estate and the second was the issue of transparency.
Evolution of GRESB for 2018
Sander Paul van Tongeren, Managing Director of GRESB kicked off with 2018 updates for GRESB. Increased transparency is being introduced through ‘Validation Plus’ applied to a sample of indicators for all participants (as opposed to a sample of participants). Ensuring quality of submissions through greater transparency is essential for the ongoing credibility of the survey.
Sander Paul made it clear that GRESB is increasingly focussing on the asset level. The GRESB Assessment at the fund level will be strengthened by adding asset level data.
In addition, Sander Paul made it clear that GRESB is increasingly focussing on the asset level. The GRESB Assessment at the fund level will be strengthened by adding asset level data. This will necessitate the collection of asset level data where the transparency of that data has been evaluated, i.e. has it come from a trusted source, and its quality identified through adequate validation. This is where sophisticated software systems such as SIERA will become fundamental in receiving asset & meter level data with automated validation functionality to ensure the completeness and quality of the data, which will support high scores in GRESB.
Transparency through public disclosure
Ed Gabbitas of EVORA presented the findings of a recent research paper identifying that strong sustainability practices combined with public disclosure are associated with superior investment returns. The award-winning research found that “sustainable” Real Estate Investment Trusts (REITs) benefited from higher rental income and lower interest expenses, resulting in increased cash distribution to shareholders. A lower risk profile was also identified attracting higher premiums to Net Asset Value (NAV). Transparency through public disclosure was found to be a key facilitator of driving improvement.
Overall, a 3% fund return uplift was observed between the lowest and highest GRESB scoring funds.
Ed went on to highlight research to evaluate if strong GRESB performance correlates to enhanced fund returns for non-listed funds. Overall, a 3% fund return uplift was observed between the lowest and highest GRESB scoring funds. These finding are clearly helpful enabling the capital markets to use GRESB as a broad indicator of fund quality in their evaluation.
ESG ratings lead to better financial performance
Murray Birt, Senior ESG Strategist at Deutsche Bank advised there had been more than 2000 academic studies since 1970, seeking to identify if there is a link between ESG and financial performance – clearly not a new endeavour! The findings demonstrated high ESG ratings correlated to better financial performance across multiple asset classes and regions.
Neither this, or the immediate impact of global physical climate change, which Murray also highlighted, have had a major impact on the uptake by the real estate industry, to accelerate energy efficiency in buildings. The answer – improved and increased European wide policy requiring corporate disclosure and greater transparency to promote the setting and delivery of long term objectives to address climate risk.
Social Value and Impact Investing
Finally, Debbie Hobbs, Head of Sustainability at L&G Real Assets presented on the importance of Social Value and Impact Investing, ensuring investments generate a beneficial social impact as well as a financial return. Debbie presented research highlighting that nine out of ten millennials believe the success of a business should be measured by more than just financial performance and 60% of millennials want to join companies that have a societal purpose. Fundamentally transparency of impacts and social engagement is becoming a necessity, both in the way funds invest and corporates run their businesses.
60% of millennials want to join companies that have a societal purpose.
Anecdotally, we have recently been recruiting for a number of positions at EVORA, and remarkably, so far, every candidate interviewed has highlighted EVORA Giving, which focusses on our social side of sustainability, as a key element that has attracted them to apply to EVORA.
Transparency and the business case for ESG
So, going back to our two key themes. Firstly, transparency is clearly the new buzz word and for many good reasons it should help bring quality, clarity and progression of the ESG agenda.A decade ago I saw sustainability almost as a leap of faith for many - now I see it as a leap of common sense. Click To Tweet
And what about the link between ESG and fund performance? – well research, which has been ongoing since the 1970s, has shown that there is direct correlation. Will that put the debate to bed? I doubt it. But as I said in my closing remarks at the event, a decade ago I saw sustainability almost as a leap of faith for many – now I see it as a leap of common sense. So let’s stop putting our energies into trying to prove its worth and instead make our buildings and the world we live in more sustainable.