On the 7th September Nils Kok, co-founder of GRESB, presented the GRESB 2016 Real Estate & Debt results for Europe. The results continued to demonstrate the insatiable appetite amongst real estate companies for an assessment which benchmarks ESG performance. The global gross asset value covered by the assessment increased by an even greater degree than the previous year; reaching a total of $2.8 trillion in 2016. Of the 759 global respondents, 152 were UK companies, making the UK the second largest contributor of data to the benchmark. This breadth of data assists in the thorough evaluation of the performance of participating assets and portfolios, especially considering the relative homogeneity of our climate. This will be valuable for clients as they look to digest their individual scores and compare that against the geographical area.
Developments in the scoring presentation by GRESB will assist in this respect. A new five-star rating system has been used for the first time, which awards stars relative to the assessment performance quintile which the respondents fall in to. Additionally, this system will assist investors in quickly analysing the ESG performance of real estate portfolios. This new system gives a new perspective from that of the quadrant system, which has been previously criticised for the number of ‘Green Stars’, the most prestigious GRESB rating, awarded to respondents.
The percentage scoring system also remains and the UK improved its average score from 58 to 63 in 2016. This exceeds the average global and European score of 60. The region that continued to outperform the UK was Australia and New Zealand, who’s average score rose from 70 to 74. Anita Mitchell, of Lendlease and on the panel at the event, attributed part of this disparity to the developer competitiveness. Nevertheless, the potential for renewable energy production in this geographic area is bound to give a competitive advantage to the sector as a whole.
The commendable performance of the UK is recognised by GRESB as a result of more developed legislation over energy performance and building certification. The ratification of the Paris Agreement and commitment to the Fifth Carbon Budget by the UK government are likely to act as platforms for increased developments in this area. The most notable figure of improvement presented for the UK was the 3.6% reduction in carbon emissions, equivalent to the removal of 7,023 passenger cars. Mr. Kok was quick to add that these are American passenger cars rather than the less polluting, more appropriately sized cars found in Europe. Across all four major performance indicators, namely energy usage, carbon emissions, water usage and waste diversion from landfill, year-on-year improvements were made in the UK.
Dan Grandage, Head of Responsible Property Investment at Aberdeen Asset Management, attended the global results launch event. He explained how GRESB is used as a part of the organisation’s ESG approach:
“We have used GRESB to report both internally and externally to the investment community for 5 years now. As the standard develops each year it sets new performance and process expectations. This is useful in supporting the case for ESG best practice and introduces a dialogue with our stakeholders about our performance. For example, as more real estate organisations disclose information to GRESB, our performance is benchmarked against an ever improving industry and we are challenged to continue improving each year.”
Positive feedback has been a key driver for the assessment, with many respondents realising the value in the key performance indicators and entity policies which GRESB demands. Those indicators, such as waste management, that have less clear evidence to support their return on investment are less likely to be disclosed. In the UK 28% of portfolios reported on waste indicators. Greengage’s experience with clients looking to manage this indicator have found that this lagging of data is as much a testament to current unsophisticated data collection methods as it is the lack of entity incentive. The EU Circular Economy directive and other political developments will facilitate this process and dictate the continued improvement in the average score of the region.
As expected, Health & Wellbeing featured prominently within the event. Whilst the number of respondents was much lower for this optional module, the UK demonstrated its well-established awareness for the topic through the performance of those which responded. It remains uncertain as to whether the module will remain optional in coming years. If practical data continues to support burgeoning scientific data indicating causation between healthier indoor environments and improved financial results, then it is likely that GRESB will want to integrate this module into the main assessment. This will enhance the appeal of the assessment for both investors and respondents who seek to maximise the financial value of the benchmark.