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A Summary Guide to The CRREM and SBTi Update

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The Carbon Risk Real Estate Monitor (CRREM) & Science Based Target initiatives (SBTi) have recently published updates to the decarbonisation pathways. The recently released version is 1.5⁰C aligned and affects the tool’s underlying data in three important areas: carbon intensity, energy intensity, and SBTi-alignment. The new version addresses updated global emission budgets as well as CRREM-SBTi aligned decarbonization pathways at property level.  CRREM- SBTi pathways cover the residential and commercial real estate sector across North America, Asia-Pacific, and Europe. To help understand how the pathways have been updated and the potential impact, EVORA’s Net Zero Carbon team has developed a CRREM Update Summary Guide. The following guide focuses on where the changes are most significant, what high level information is relevant and what is the impact of the changes.

Introduction

In January 2022, SBTi and CRREM announced that they would join forces to provide fully aligned 1.5°C decarbonization pathways for the real estate sector. This partnership combines previous work by both organizations and creates a global standard for operational decarbonization of buildings, providing companies in this sector with the clarity and confidence that their decarbonization plans are aligned with climate science.

The pathways are now called “CRREM SBTi pathways” for existing buildings. CRREM-SBTi pathways cover residential and commercial real estate sectors across North America, Asia-Pacific, and Europe.

Key Updates Summary

Decarbonisation Pathways

  • The baseline year of the CRREM operational decarbonization pathways was updated from 2018 to 2020.
  • Due to exceedance of existing carbon budgets between CRREM v1 and v2, the baseline for most v2 pathways is lower than previous version (for e.g. German office target v1 value for 2020 was 86 kgCO2/m2 and v2 value is 54 kgCO2/m2). There are a few countries (mainly non-EU) with higher 2020 baselines, but all these pathways continue to show a steeper reduction in the pathways.

Energy targets now plateau after 2035 once a predetermined percentage reduction from the 2020 starting point is achieved (ref. figure on the right), rather than continuing to decrease as in the previous version, since most energy sources will be fully decarbonized in 2050 the allocation of available renewable energy will define the limitation of energy use per sqm.

Methodology and new functionality

  • The CRREM Energy Use Intensity (EUI) pathways now refer to a building’s energy consumption (gross), which includes all direct combustion, electricity consumed from the grid, district heat purchased, as well as renewable energy produced and consumed on-site (also known as ‘site-energy’), rather than the net energy demand from v2, which excluded energy produced on site. The gross energy consumption of a building approach is to promote efficiency-first strategies. Note that energy generated and consumed on site is still reducing CO2 intensity of an asset as the on-site renewable energy has an emissions factor of zero.
  • To differentiate between carbon (CO₂ /m2) and Greenhouse Gas (GHG) (CO₂e/m2) targets, a new pathway has been added that incorporates fluorinated gases emissions (F-gases) – human made gases used in industrial activity.
  • A new pathway for “Industrial Distribution Warehouse Cooled” has been published to account for increased electricity consumption from refrigeration and space cooling.
  • New sub-regional pathways covering the 15 largest cities in the United States and the six climate zones in Australia have been published.

Drivers and Considerations Behind the Changes

  1. The remaining global anthropogenic budget slightly reduced: On a global scale, we do not see significant changes regarding the remaining carbon budget compared to CRREM’s first version (468 vs. 519 GtCO₂ – only). This 10% decrease regarding the remaining budget from 2020 onwards until 2050 causes the decarbonization curves to be steeper (stricter) as seen in the image below. Leaving all other aspects unchanged this will of course imply lower intensities per m² floorspace in the future.
  • Sector overshoot: At this time, almost every sector in the world is performing below the level required for achieving the 1.5c pathway. The result is updated budgets with more severe pathways and earlier stranding risk dates than those predicted by the previous model. The pathways have become stricter (steeper) because the real estate sector has shown more consumption than projected from the baseline year (since 2018). The overall remaining budget from 2020 onwards is reduced due to this aspect, and energy/carbon intensities are currently on average higher than projected based on the first CRREM pathway release.
  • Building stock growth rate with largely unchanged projection: Global floorspace projections did not change significantly. New figures show an overall increase of 1.6% compared to the previous data from 2020 to 2050. This implies a slightly lower intensity per m² floorspace.
  • More ambitious grid decarbonization: The decarbonization of the electric grid has gained momentum in recent years and emission factors (EF) for electricity have decreased dramatically. This, in turn, reduces carbon intensities for the same energy consumption level. At the same time this implies lower intensities per m² floorspace since future projections for the energy sector show on average more ambitious grid decarbonization until 2050.
  • Changing energy-mix / electrification: Besides a move towards more renewables, we note that generally the electrification of the real estate sector is also gaining momentum. In countries with a lower emission factor for electricity compared to the remaining energy mix, this is decreasing the weighted EF already today. In some countries, a current relatively higher EF of the electric grid compared to the remaining energy mix is leading to increased carbon intensities of the sector. Regarding projections, we note that electrification combined with the decarbonization of an electric grid plays a major (indirect) role for the real estate sector to achieve climate targets.
  • Alterations of the applied methodology: Due to the alignment with the SBTi, CRREM has now applied the EF (for electricity) excluding transmission & distribution losses. In the first version of the CRREM pathways, the EF were including T&D-losses. The lower EFs are now reducing carbon intensities accordingly (within pathways but also when using the tool with updated and lower EF).

CRREM Pathways and The Impact of Changes

CRREM pathways have already influenced how decisions around decarbonisation are taken. As climate action accelerates and investors and asset owners begin to implement net zero strategies the revisions to targets will require a re-evaluation of previous findings and modifications of strategic approaches to assets in portfolios and potential acquisitions. The potential major impacts include:

  • Carbon and energy intensity targets have become stringent in many countries including USA, France, and Germany. Significant change is seen for France, where a steep trajectory down to the 2036 energy target is seen as compared to previous target.
  • The changes to the baseline for most pathways emphasise the need for short term carbon reductions to reduce the risk of asset stranding. This emphasis will require more immediate financial mobilisation may prove challenging in an uncertain economic environment.
  • Energy efficiency and demand reduction would be the most critical action to be taken in the short term for countries (e.g., the United States) where grid decarbonisation has declined while carbon and GHG reduction targets have become more rigorous.
  • Due to the fact that now – in contrast to the first CRREM version – some energy sources are actually completely decarbonized by 2050 according to forecasts, the existing method of deriving the energy paths was expanded. For this purpose, the concept of energy target values was introduced. With these target values, it should be noted that target achievement is only achieved if
  • The EUI corresponds to the stated energy-intensity figure, AND
  • The asset also meets the CO2-target for the respective year (which means in 2050 it must be completely decarbonized, renewable energy).
  • It is important to note that the baseline year of the operational (‘in use’) decarbonization pathways for CRREM has been changed from 2018 to 2020. This is because the real estate sector has demonstrated higher overall consumption since 2018 than what was anticipated in CRREM V1.

What next for CRE?

  • As the results of CRREM have influenced many CRE companies’ investment plans, the revisions to the targets will require you to re-evaluate your previous findings and modify your strategic approaches to assets in your portfolios and potential acquisitions.
  • Energy efficiency measures must be implemented quickly over the course of next eight years, and the impact (energy demand reduction) from the measures must be tracked and analysed on a regular basis.
  • Decarbonisation programmes that fail to meet their goals do so because they are not properly programmed and planned for. Net zero needs to move from strategy to implementation quickly – retrofitting high-emissions assets, making procurement decisions and proactive tenant engagement.
  • The emphasis on short term carbon reductions to reduce the risk of asset stranding will require more immediate financial mobilisation.
  • The consumption based EUI view stipulates that energy consumption reduction through efficiency strategies rather than addressing the entire energy demand with renewables produced on-site, as in the previous version, should be tackled first. Energy efficient buildings are therefore not just net-energy-efficient but rather low-energy-consumption properties – which in turn can contribute to an overall cleaner grid by producing more renewable energy on-site than they need to cover their own demand.
  • For assets with late lease expiration dates and RFI assets, tenant engagement is more important than ever.

The full new CRREM tool for EU is expected to be published later this month. Look out for further updates from EVORA.

EVORA can support clients by reassessing and adjusting their strategic approaches to existing assets in their portfolios and future acquisitions.

Get in touch with our expert Net Zero Carbon team to find out how they can help you.

SIERA: the backbone of ESG reporting at EVORA

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Clarity and accuracy of data are vital when it comes to ESG reporting. It is the cornerstone across all sectors for understanding sustainability performance – this is no different within commercial real estate. Quality data is essential because if you cannot see how an asset is performing, you cannot see where improvements are needed. If these areas for improvement cannot be identified, it restricts the ability for a robust, strategic and measurable plan of action to be developed.

EVORA’s solution to this problem is SIERA, our in-house ESG and data management platform. It is designed specifically to streamline reporting and monitoring of commercial real estate investments and funds. SIERA is purpose-built for real estate professionals and, as such, is focused around providing as much added value to our clients and the industry as possible. The platform, along with EVORA’s consultants, enables our clients to make informed decisions which have significant, real-world, impacts on the performance and value of assets. These decisions can help to further drive the ESG agenda and work towards solving some of the most pressing issues currently facing the industry.

I am a Junior Consultant at EVORA and joined in March 2022. I work with multiple clients and funds, providing support across various aspects of their ESG and sustainability programmes including performance monitoring, INREV and EPRA reporting as well as GRESB submissions. Across many aspects of my work, I rely on SIERA, whether that is managing and exporting large data sets for GRESB or EPRA reporting; or creating Net-Zero Carbon pathways at the asset and fund level. Beyond its ability to store all this complex information at varying levels of granularity, it also has a clear user interface which allows for the easy navigation and visualisation of data. This is used to drive discussions with our clients while simultaneously allowing for the accurate completion of reporting requirements within the industry.

Last year, SIERA was highlighted by PwC as one of the top technology solutions within the ESG Reporting category in the Tech for Impact Top100 rankings. It is an excellent achievement and highlights the hard work which has gone into the platform over the last ten years. However, SIERA is continuously evolving, and SIERA+ is the next step in providing our clients with an intuitive tool that builds on the foundations of SIERA while simultaneously enabling a better user experience.

For more information on how EVORA and SIERA can help you, please book a demo or call +44 (0)20 3326 7333.

CSRD: Is your organisation ready for the new ESG reporting requirements in Europe?

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Further signs this week that the EU is seeking to strengthen environmental and social reporting requirements; Tuesday saw MEPs and EU national governments strike a provisional deal which would require major corporates to report on how their businesses impact on both people and the environment.

The Corporate Sustainability Reporting Directive (CSRD) will require that major businesses – defined as organisations with over 250 employees and a €40 million turnover – report their social and environmental impact against common standards. Tuesday’s move is an amendment to 2014’s Non-Financial Reporting Directive (NFRD) which set out its aim to encourage: “investors, civil society organisations, consumers, policymakers and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business”. The CSRD, if it can find agreement in the European Council and Parliament, will bolster the need for reporting on key social and environmental activities. These include requirements for:

  • The audit (assurance) of reported information
  • Detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards
  • Digital ‘tagging’ the reported information, so it is machine readable and feeds into the European single access point envisaged in the capital markets union action plan.

In his overview of the drivers behind the CSRD, Pascal Durand, who led negotiations was clear:

“The European extra-financial audit market will be standardised, much more rigorous and transparent. Parliament succeeded in securing an opening of the audit market by member states in order to make room for new certified players to become major players and not just leave it in the hands of the financial auditors, notably the big four”.

The agreement, which if enacted will apply equally to public and private companies meeting the Accounting Directive size threshold, will be required to report on environmental, human rights, social standards and work ethics issues. Likewise, major non-EU businesses will be subject to the same provisions. In a nod to the difficulties comprehensive reporting can represent to smaller businesses, the agreement lays out a provision to less rigorous reporting for qualifying SME businesses and subcontractors.

The drive towards common standards is a welcome one, although details on those standards is not yet available. However, this year’s launch of the Social Taxonomy consultation gives an early indicator of the EU’s planned direction.  

If you would like to discuss the above with our ESG experts, you can get in touch with them today.

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.

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.

The State of Corporate Sustainability Reporting in the EU

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The legislation for sustainability disclosures in Europe will be reformed in 2021, as part of a major overhaul of financial market regulation. Importantly, these reforms include plans to create accompanying reporting standards.

Similar to financial accounting, sustainability reporting is essential for improved corporate management of risks and opportunities. Focusing on relevant and meaningful disclosures is key to produce high-quality and decision-useful reporting for organisations and investors alike. Using information reported on risks and impacts connected to climate change and broader sustainability matters, investors can best understand an organisation’s activities and strategies.

The European Commission will present a proposal for a reform in early 2021, while the EU Parliament will vote on the issue in Autumn.

EU Commissioner for Financial Services Mairead McGuinness clearly stated in December 2020 that “the rules of the game must be transformed to fully integrate sustainability at every step of the financial value chain” and identified the reform of the EU Non-Financial Reporting Directive as “one of the priorities to strengthen the foundations for sustainable investment”. 

Other reporting proposals have also recently stirred the reporting landscape, including:

  • A Statement of Intent to Work Together from five reporting framework and standard-setting organisations that emphasises alignment and harmonisation;
  • A proposal from the International Financial Reporting Standards (IFRS) Foundation to create a new Sustainability Standards Board (SSB) that would develop global sustainability standards;
  • The World Economic Forum International Business Council white paper that puts forth a common metrics for consistent reporting disclosure, building on existing sustainability reporting standards and frameworks.

These developments imply future changes to an organisation’s reporting structure and process. They lay the groundwork for framework that has close linkage to financial reporting, ultimately meaning that companies will need to treat sustainability information with a higher level of rigor, akin to information included in financial reporting.

EVORA works with companies all along the reporting journey, from those working on their first sustainability report to expert reporters who need help developing a long-term reporting strategy. By reporting, they capture numerous external and internal benefits, including meeting regulatory requirements, improving relationships with stakeholders, enhancing trustworthiness and reputation, clarifying on ESG performance, and identifying sustainability risks and opportunities.

Getting ready for GRESB season – Reporting tips and tricks

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GRESB is imminently approaching! Which for a lot of us in the ESG (Environmental, Social & Governance) industry, it means getting ready to report all the relevant activities that have been undertaken by funds over the course of the past year. In order to smoothen your reporting process and evidence collection, I have looked to outline some tips and tricks which will hopefully help you successfully deliver this year’s submission.

Establishing what’s new

GRESB, as you would suspect, is not a static survey, with improvements and updates added each year which seek to adapt to and follow the rapidly changing ESG market. As such, the first tip I can give you is to start with the basics and review what has changed. Once you have identified high-level changes both in evidence requirements and topics covered, you can then begin to look at establishing the evidence available in order to answer each of the questions. If you are unable to sufficiently support your answer with available evidence on current practices or perhaps are not achieving the marks you would expect, then you can begin to plan ahead for next year. Remember, if you are reporting on calendar year, we are already a few months into the GRESB 2021 reporting period, so you might have limited time to establish and develop new policies and practices!

Getting organized

Good organization is the epitome of so many things in life, and GRESB is no exception. It’s very easy to have a quick skim read of the GRESB survey and think that you send out a couple of emails and all will be rosy. That’s not the case I can assure you! An approach I have found successful is to identify at an early stage who your key stakeholders are and set out the information that each stakeholder will be required to provide. Early engagement will be helpful for your colleagues, as they will have oversight of information that will need to be provided further down the line, it also helps you avoid that last-minute panic over missing information. Using project management techniques, such as Gantt charts or online systems such as Microsoft Project can also help you get organized and keep track of everyone’s tasks and deadlines.

Gathering asset information

The performance section of the 2020 GRESB submission is worth a whopping 70% of the total marks, and therefore deserves plenty of attention. A key element is the coverage questions focusing on, asset-specific energy, water and waste efficiency measures, technical audits and Green Building Certificates, that have been implemented and carried out in the past three years (Note that Green Building Certificates are not time-bound). Logically, the smaller the portfolio the easier it will be to keep track of asset-level activities, but for those with high asset numbers it becomes increasingly difficult. Gathering asset information is often conducted by sending out spreadsheets, although this can result in multiple versions of spreadsheets floating about, which is something to be careful about. An alternative approach is utilizing online surveys that mitigate the risks associated with multiple spreadsheets.

Figure 1: Using a Data Management System to collate and store asset level initiatives

A hot tip is focus in on some key assets, for examples those that have recently undergone refurbishments, where a lot of asset initiatives are likely to have taken place. Remember to think ahead to next year’s submission and how you can utilize information collected for previous submissions.

Getting savvy with utility data

GRESB has a range of requirements in relation to how utility data is reported, and you can easily feel overwhelmed when dealing with large data sets where it’s vital that the outputs are accurate. Its good practice to review utility consumption at the most granular level time permits. I recommend reviewing utility data at a meter level, as it enables you to clearly identify gaps and inconsistencies and presents you with a clear picture of consumption patterns for each supply and building area. Automatically, this greater visibility will benefit you when having to provide a clear explanation to GRESB on sector-level variances and unusual intensities.

Figure 2: Using a Data Management System to automatically alert variances at meter and asset 

In light of all these observations, a data management system is proven to be able to simplify and demystify the whole utility reporting process and can help monitor, track and review consumption throughout the year. Why do the heavy lifting yourself when a computer can do it for you after all?

Hopefully, I have conveyed some useful tips for approaching GRESB this year and I will leave you with a parting quote to motivate you to get organized!

“Start where you are. Use what you have. Do what you can.”

Arthur Ashe

This article was originally published on GRESB Insights

Changes to GRESB 2018 Real Estate Survey Part 2 – The Detail

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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.

 

GRESB Premier PartnerAs a GRESB Real Estate Premier Partner, we are perfectly positioned to provide GRESB support. View our official Premier Partner profile.

We can work with you to complete the submission and understand your scoring, as well as develop a sustainability plan that will improve your future GRESB performance and align with your organisation’s key environmental objectives.

 

BEIS framework consultation: Streamlined Energy & Carbon Reporting

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Last month, the Department for Business, Energy & Industrial Strategy (BEIS) opened a consultation on their new proposed framework for energy and carbon reporting. This process has the potential to bring environmental data smoothly into the mainstream, but could also just create further tangles in the knot that is the current energy reporting landscape.

Between the CRC, ESOS, climate change agreements (CCAs), and mandatory greenhouse gas reporting (MGHG), there’s a lot of existing legislation that either encourages or coerces companies into monitoring, reporting, and acting upon energy and carbon data. It must be easy for companies to get lost in this complex legislative landscape so, with this in mind, the basic premise outlined in the BEIS framework consultation document of streamlining the reporting process makes a lot of sense.

The million-dollar question, however, is how exactly should this new framework be designed? In particular: who should report and what should be reported?

Firstly, who? There are different ways to scope the policy that fit into three broad categories: employee numbers, financial turnover, and energy consumption. Any one or a combination of these could be used to define what counts as a ‘large’ company and hence who will be required to report under the proposed scheme(s).

The consultation also asks whether Limited Liability Partnerships, which are not subject to the Companies Act (meaning they are not covered by the framework in its current form), should be made to report too. This would increase the burden of implementation, but would also greatly expand the coverage of the scheme and the volume of data being reported.

[clickToTweet tweet=”Ways to scope the policy fit into 3 broad categories: employee numbers, financial turnover, and energy consumption. ” quote=”There are different ways to scope the policy that fit into three broad categories: employee numbers, financial turnover, and energy consumption. “]

Secondly, what? There are also different things that companies could be made to report. Centrally, there is total energy use, which can be broken down into electricity, gas, transport, and potentially some other categories, and emissions, which can be broken down into scope I, II and III. There are also additional options such as intensity metrics, or listing opportunities identified in audits and whether they have been acted upon. This last one could be a channel to formally tie ESOS requirements into the framework.

This last one could be a channel to formally tie ESOS requirements into the framework.

Finally, another question that should be given more attention is: how? Specifically, how will these large companies manage the data collection process, and how will its quality and accuracy be assured. The presence of good data is integral for pursuing the far-reaching energy reduction goals of the UK Climate Change Act and the Paris Climate Agreement, but the consultation document only asks for recommendations of the guidance that might ease reporting burdens for companies towards the end, and offers even less on how the Government intends to ensure the quality of data.

At EVORA, we recognise the frustrations and resourcing it can take to collate, analyse and report energy data on a national and international scale. It is why we developed SIERA to seamlessly collate, verify and report data to enable decisions to be made on portfolio and building optimisation programmes. Our clients are seeing the positive impact of SIERA, which has helped one portfolio achieve a 3% like for like reduction in one year and individual buildings save up to 26% through operational improvements.

Our clients are seeing the positive impact of SIERA, which has helped one portfolio achieve a 3% like for like reduction in one year and individual buildings save up to 26% through operational improvements.

The consultation also asks for recommendations on possible complementary policies that might help drive further emissions reductions. Currently, there is no additional incentive proposed to help reduce consumption beyond the fact that the published report will be available to third parties and therefore be subject to investor and public scrutiny.

Personally, the outcome I would like to see is a framework that requires large quoted companies & LLPs to report global energy use, total emissions and intensity, whilst requiring large unquoted companies & LLPs to report UK energy use, total emissions and intensity, with all of the above required to undertake ESOS-style audits every four years and then report the opportunities identified and whether they have acted upon them each year. I would align the definition of ‘large’ with the UK Companies Act definition to minimise confusion, and give it a stand-alone bespoke report in the annual report portfolio to exemplify its importance. Such a design would streamline the CRC, ESOS, and MGHG schemes all into one package, greatly simplifying the reporting landscape.

[clickToTweet tweet=”Such a design would streamline the CRC, ESOS, and MGHG schemes into one package, simplifying the reporting landscape.” quote=”Such a design would streamline the CRC, ESOS, and MGHG schemes all into one package, greatly simplifying the reporting landscape.”]

But the important takeaway here isn’t my opinion, it is that this consultation has the potential to radically change the environmental reporting landscape. Therefore, businesses need to make sure they are aware of the proposals and what it could mean for them. We here at EVORA are in the process of producing a company response to the consultation, and if you wish to do the same then the full consultation document as well as information on how to respond is available on the BEIS website.

This blog has done its best to summarise a 40-page document in a few hundred words, but if you need any additional information or assistance regarding the consultation, or any of the other policies mentioned in this blog, feel free to get in touch and our team of experts will be happy to help.

2017 GRESB Results: Future developments for enhanced portfolio sustainability performance

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I, like many others, will be excited to receive the 2017 GRESB results when they are released tomorrow, 6th September. The rating approach, often simplified by how many Green Stars have been achieved, veils the trials, tribulations and efforts undertaken over the past year (or longer in many cases) to prepare for and complete the survey.

Visit our GRESB support service page.

Whilst I eagerly await gratifying news on how our clients fared for their past efforts, I am certainly more enthusiastic about collaborating on future programmes that will deliver value to their portfolios through making buildings productive, profitable and resilient to change.

In a previous blog, I introduced how the framework of an Environmental Management System (EMS) structured according to ISO’s Plan-Do-Check-Act methodology, is central to implementing successful real estate sustainability strategies that also result in better than peer average GRESB results.

In this blog, I introduce how insights into future developments of the GRESB survey will also provide that same win-win result of enhanced portfolio sustainability performance and GRESB ratings.

The Performance Indicator – a three-layer approach

The Performance Indicator (PI) ‘aspect’ is one of seven aspects in the GRESB survey. It holds joint top weighting, at 25%, with the Stakeholder Engagement aspect. Arguably, it is the Performance Indicator aspect that can best portray (to investors) how portfolios are performing and, importantly, contributing towards meeting the ambitious international targets set in the Paris Agreement. The PI aspect allows participants to set out their long-term sustainability targets together with quantitative disclosures on data coverage, like-for-like change and intensity values (KPIs) for energy, water, waste and carbon impacts.

A concern, however, is that the current approach does not provide investors with sufficient comparability of portfolio performance. This concern is underpinned by the fact that the current GRESB scoring approach rewards data coverage more highly than like-for-like change (concerning only year-on-year change, which certainly has limitations), but moreover, that no points are awarded for long-term changes to portfolio intensity values, such as kilowatt hours per metre square of lettable space. Only the methodology used to calculate intensities is scored, rather than the change in intensity values over time. The reason for this is likely due to a lack of data transparency and potential accuracy issues that stem from portfolio level, rather than asset level, reporting.

[clickToTweet tweet=”GRESB is willing to introduce an additional scoring element for accurate asset level data.” quote=”Current discussions indicate that GRESB is willing to introduce an additional scoring element for participants that can disclosure transparent and accurate asset level data.”]

GRESB recognises these issues and has set out to address them through a series of benchmarking committees, which EVORA participants in. Current discussions indicate that GRESB is willing to introduce an additional scoring element for participants that can disclose transparent and accurate asset level data. I expect GRESB to introduce their three-layer approach to Performance Indicator scoring in the 2018 or 2019 survey. This approach is set out below:

  1. All assets are evaluated on Transparency, based on data availability
  2. Only assets with high transparency levels can be evaluated on data Quality, given the external forms of data assurance or internal capabilities of data analysis (asset level data checks)
  3. Only assets with high data quality can be evaluated on Performance, most likely driven by like-for-like and intensities values.

Enhanced scoring methodology

GRESB is seeking to enhance its scoring methodology with the objective that only assets with high quality data are benchmarked to ensure fairness. This strategic change may assist in providing investors with more certainty on sustainability performance and comparability between portfolios.

[clickToTweet tweet=”GRESB is seeking to enhance scoring methodology with objective that assets with high quality data are benchmarked” quote=”GRESB is seeking to enhance their scoring methodology with the objective that only assets with high quality data are benchmarked to ensure fairness”]

Requesting asset level data will undoubtedly increase the reporting burden for a number of participants – most notably those who painstakingly enter portfolio level data directly into the portal.

Data can already be submitted at the asset level, either via an API link or the Asset Level Interface. However, this function is not used by all participants and furthermore, if you do not have the benefit of a sustainability software platform, such as SIERA  (which seamlessly updates the PI sections using the Asset Level Interface), then data collection and analysis will remain a manual, laborious task.

So why bother?

As mentioned above, the reward of additional points will be a sufficient driver for many. However, GRESB aside, let’s not forget that to make any notable impact on the performance of a portfolio, it is essential to have asset level data (or preferably meter level data) available in a format that can be easily accessed, interpreted and communicated to Asset and Property Management Teams in order to effectively manage sustainability impacts across a portfolio.

For more information on using data management systems to enhance portfolio performance see here.

Whilst some may see this change as GRESB introducing additional challenges and reporting burdens, I applaud their ambition in seeking to drive change in the real estate industry through promoting the availability and disclosure of investment grade asset-level data.

I applaud their ambition in seeking to drive change in the real estate industry through promoting the availability and disclosure of investment grade asset-level data.

It is important to reiterate that reporting asset, or even meter level data, doesn’t have to be a burden. Many participants, including all our clients benefitted from using the direct interface provided by SIERA to seamlessly update the required field in the Performance Indicator section and additionally, to review opportunities to make their buildings productive, profitable and resilient to change.

What’s next?  Plan-Do-Check-Act

Reverting to the Plan-Do-Check-Act methodology, I recommend that Fund, Asset and/or Property Managers review if they can effectively understand and manage sustainability impacts at asset and meter level using existing programmes. Where there is any doubt, I encourage stakeholders to:

  • Plan – start early and identify what you can meter already and what you would like to meter
  • Do – implement an appropriate metering strategy according to the value proposition of doing so
  • Check – utilise the powerful Monitoring & Targeting, and reporting tools provided by SEIRA
  • Act – use the investment grade data obtained through SIERA to drive improvements across your portfolio(s)

If you’d like to talk to us about your GRESB results, or about SIERA, we will be at the London results launch on 13th September. Please don’t hesitate to get in touch to arrange a meeting or a demo.

GRESB Premier PartnerAs a GRESB Real Estate Premier Partner, we are perfectly positioned to provide GRESB support. View our official Premier Partner profile.

We can work with you to complete the submission and understand your scoring, as well as develop a sustainability plan that will improve your future GRESB performance and align with your organisation’s key environmental objectives.