GRESB analysis: How real estate is taking control of ESG

The 2021 GRESB results, released in October, show an asset class stepping up to the plate on sustainability, says its director, real estate, Charles van Thiel.

Looking just at participation numbers, this year saw the largest ever increase in the GRESB Real Estate Assessment – a 24 percent global jump in entities participating, despite the pandemic. This growth was relatively balanced between listed and non-listed entities – 20 percent and 25 percent, respectively – confirming a strong interest in the listed sector by institutional investors.

Better data

Although participation is important, it can only tell us so much on its own. A promising trend, not shown in the charts, is the significant shift that real estate managers have taken with data quality.

This year, an impressive proportion of real estate participants in the GRESB assessment moved from high-level checks to deeper data verification or data assurance by third parties. This means better data in the assessments and an important signal for capital markets that managers are tackling the persistent concerns around data quality. For entities operating in Europe, shifting toward deeper data verification now will likely mean a smoother experience with Sustainable Finance Disclosure Regulation reporting in the future, if data verification becomes required, which is expected.

On the investor side, members are taking advantage of this improved data, looking at specific ESG data points differently depending on the asset type. Sophisticated investors are digging into ESG frameworks like GRESB to find insights on the indicators they consider most relevant to their investing strategy, as opposed to relying solely on an overarching ESG score.

Valuable insights

When it comes to target setting on greenhouse gas emissions, the percentage of entities declaring a net-zero target almost doubled, from 8 percent to 15 percent this year. Most reduction targets are being set to a longer time horizon, falling in the 2031-50 range, and are a reflection of new alliances related to net-zero journeys, such as the UN-convened Net-Zero Asset Owner Alliance, for investors, and the Net-Zero Asset Managers Initiative, for asset managers.

“Managers are tackling the persistent concerns around data quality”

When target setting is combined with GRESB assessment data, managers and investors can gain valuable insights into how individual assets and entire portfolios map against GHG decarbonization pathways that are necessary to stay under the 1.5-2 degrees C scenarios put forward by the Paris Climate Agreement.

In December, GRESB will make these insights easily available to managers through the new Transition Risk Report, which benchmarks assets and portfolios against CRREM’s scientifically derived decarbonization pathways.

Social focus

Although climate change remains top of the agenda, we have also seen growing interest in the social component of ESG over the last year.

Likely driven by the effects of the global covid-19 pandemic, many participants from the real estate sector are starting to address new issues related to the human experience, such as thermal comfort, access to daylight and air quality.

On a final note, this year marks the establishment of the GRESB Foundation and the early stages of a multi-year engagement process with the industry to guide the future development of GRESB Assessments.