‘You are probably not a sustainability professional unless you have complained about lack of high-quality, easily accessible ESG data,” quips Allison Binns, head of ESG and sustainable investing strategy at alternative investment manager Angelo Gordon. “Unless data is accurate and complete, it will not be decision-useful or of sufficient quality for external reporting purposes.”
This conundrum is at the heart of the ESG mission. Designing the most relevant KPIs might be the first stage of any sustainability strategy but generating and storing accurate data is the only way that fund managers can take action and improve their ESG credentials.
The problem is that depending on the operating mode, it may be difficult to even begin collecting that data. “The biggest challenge is that you have a lot of individuals involved in the process, and there is also a level of education required to help people understand how to collect the data,” says Meredith Balenske, senior vice-president, global head of sustainability and ESG at GLP.
One of the main data collection hurdles is the level of effort it takes to source whole building data when tenants control and pay for their utilities. There are legitimate privacy concerns with sourcing information and from a logistical perspective the effort to ask every tenant for their utility data on a regular basis and then ensure quality and completeness is time-intensive.
“The challenges of accurately collecting wholesale data from assets and portfolios can hinge on tenant willingness to share data, the modernity of different energy systems, as well as access to the right technology to correctly capture and report this information,” says Cristina Garcia-Peri, managing partner and head of corporate development and strategy at Spanish investor Azora Group.
“Unless data is accurate and complete, it will not be decision-useful”
Shane Caldwell, sustainability lead at Ireland-based real estate firm IPUT, adds that “one of the most impactful clauses is on data sharing and we see this as a way to align landlord and occupier interests for the mutual benefit of both parties.”
Collecting timely data can also be a challenge. Due to varying billing periods, there can be as much as a month and a half delay to collect full coverage portfolio data and even longer if using utility-provided data, which requires regular follow-up if their systems are delayed. Depending on the complexity of the asset and portfolio, it may not be clear whether the data that is being collected accounts for whole-building usage or only a portion of the building that is being metered separately.
“Even data provided on an automate basis from the utility directly or from a third-party is at risk of gaps, overlaps and errors,” points out a spokesperson for US real estate firm Shorenstein. “For utilities that do not have online utility accounts, data will need to be entered manually from monthly invoices, which introduces the risk of human error.”
Capturing and processing sustainability data might have its hiccups, but the industry is definitively accelerating in that direction. Earlier this year, a Patrizia survey showed that 76 percent of investors captured and used ESG data across their real estate investments, up from 58 percent the previous year.
“The ability to analyze large data sets is a competitive advantage; investors want to know what the data looks like and what conclusions can be drawn from it – for instance, the impact of certain socioeconomic indicators or greenhouse gas emissions on their investments risk profile,” says Ailey Roberts, vice-president, sustainable investing for BentallGreenOak.
A full 69 percent of those surveyed by Patrizia said that they planned to measure the energy consumption of their real estate investments within the next five years; this included a rise across all types of CO2 emissions. Meanwhile, 66 percent of investors said they would track Scope 1 direct emissions, against 39 percent for Scope 2 and 32 percent for Scope 3.
Indirect emissions might have been the lowest, and the most difficult to accurately disclose, but the figure has doubled over the past year and considering its importance for meeting net-zero targets, demand will only grow.
“If you look at industrial assets where tenants are often directly contracting with utilities, it can be difficult as an investment manager to get significant data coverage for operational Scope 3 greenhouse gas data, which limits your ability to drive change,” adds Daren Moss, ESG principal at Ares Management.
Laying the groundwork
Capturing and processing data might have its challenges, but there are some best practices that managers attest to. “The most effective way is to develop a data collection tool that captures consumption data by monitoring a multitude of different systems across buildings,” says Garcia-Peri.
“The tool that we use at Azora can create automized visualizations to accurately present our data and analyze different scenarios relating to climate change depending on the location of the assets.”
Regarding environmental data, “a robust data management system that relies on smart technologies and collects continuous data on the performance of each building could be considered as a best practice,” adds Christina Djambazca, associate, real estate at GRESB.
A cottage industry of service providers has emerged to address these data challenges and Binns points to the US Environmental Protection Agency’s Energy Star Portfolio Manager as a great place to start. “Not only is it a free repository for data collection, but it provides benchmarking tools.”
At CBRE, the manager uses a data management system to collect critical ESG data, often via tenant engagement and property management systems. For indirect real estate strategies, the manager uses a proprietary sustainability assessment framework to collect data and assist with the due diligence and monitoring of underlying funds and operating partners. The framework includes an ESG questionnaire sent to managers and operating partners.
“Our investment teams use the Carbon Risk Real Estate Monitor tool and Moody’s Physical Risk Tool to collect climate risk data to identify and manage transition and physical climate change risks respectively,” says Helen Gurfel, head of sustainability and innovation for CBRE Investment Management. “The CRREM tool estimates exposure to climate transition risk using country/city and asset type specific decarbonization pathways, while Moody’s Physical Risk Tool assesses exposure to critical physical risks including floods, heat stress, hurricanes and storm surges.”
Proptech companies increasingly work with utility companies and managers to more easily source, aggregate and analyze utility consumption data. Agile technologies like AI also allow managers to grapple with the dizzying volume of data produced daily. Olivier Terrenoire, global head of asset, property management and sustainability investing at Generali Real Estate, adds that “the size of the portfolio at a company like ours requires a level of artificial intelligence.”
Digging into granular data is crucial to achieving ESG success as it allows managers to make better informed investment decisions and measure progress relative to goals and industry benchmarks. Achieving progress is about being able to collect standardized, accurate and actionable metrics through a structured framework that unlocks the ability of fund managers and investors to directly take action.