Demand from regulators, investors and occupiers means real estate managers cannot ignore sustainability, particularly with regard to energy use and greenhouse gas emissions from their portfolios. Emissions from the built environment represent around 40 percent of total greenhouse gas emissions, which has put the sector under pressure.
Real estate investment managers are increasingly turning to technology to collect and analyze environmental data for reporting to investors and lenders. However, there is a long way to go before data collection and processing is fully automated.
No two real estate investment managers are at the same stage of development with regard to ESG data collection. But Peter Holden, co-head of private real estate asset management at Swiss investment manager Partners Group, says: “The first priority for asset owners at the early stage of this journey is to be very clear about the data you want and what you want to do with it.”
For Partners, there are five key data points, he adds. These are “energy consumption, greenhouse gas and carbon footprint, water consumption, waste – and the fifth is snappily defined as ‘other’. This ‘other’ category is a bit more asset specific and includes topics such as customer experience.”
Asset owners also need to be aware that not all data are compatible, or useful. “It is not just a question of getting hold of data; we need to consider whether we are getting information. There is a lot of data which is non-comparable, or non-standard – which doesn’t sit comfortably alongside other data when you start to use it,” according to Holden.
Once a company knows what data it needs and what it wishes to do with it, there are two distinct challenges: data collection and data analysis. At present, it is the second of these two where technology offers more help, says Abigail Dean, head of strategic insights at Nuveen Real Assets.
“There are plenty of software platforms out there that enable better structuring and analysis of this data. They can also help with gap filling through estimation,” she says.
“However, the vast majority of these solutions focus on the organization and analysis of this data, not the data gathering itself. The real estate industry is often reliant on manual processes, and this makes data gathering challenging. Very few of the ‘solutions’ currently available to real estate investors offer answers to the data gathering challenge.”
Holden adds: “At the moment, most real estate investment managers have a data collection process which requires people and paper, but automating those processes is the future.”
Data collection can be automated using Internet of Things (IoT) connected devices, which send data about building performance to a central hub. However, some of the most important data for asset owners who are keen to measure the holistic sustainability of their portfolios is outside their hands.
“There is still lots of work to be done to clearly define what a ‘green’ building actually is”
Abigail Dean,
Nuveen Real Assets
Scope 3 emissions are the most significant source of emissions from real estate companies, accounting for 86 percent of overall emissions, according to research by investment manager Robeco. A significant part of this comes from the energy used in leased assets, or that used by tenants. However, this subset of emissions is under-reported and thus “obscures the path to net zero for the sector,” Robeco said in a report published in April.
“Scope 3 emissions is the tricky one and the one our industry really struggles with,” says Holden. Green leases are a partial solution, as they can require tenants to supply the information. However, automating these processes can be difficult, particularly with smaller tenants.
Achieving clarity
Artificial intelligence is predicted to be a game-changing technology for asset owners counting on smart technologies to deliver buildings with high sustainability performance. However, “with all generative AI applications, the key for real estate owners and users will be to create the right prompts to connect insights across essential elements such as sustainability to learn and address new opportunities,” says Albert Ovidi, chief operating officer, Asia-Pacific at JLL.
“Another key opportunity is to further integrate AI with existing technologies such as robotics and drones to ‘see’ different parts of a building and improve feedback and communication with the building and its users.”
Ovidi used the example of Swire Properties’ One Taikoo Place office building in Hong Kong, which uses AI to identify, interpret and integrate data from disparate building systems, equipment and devices. The Grade A office tower reaps energy savings through predictive maintenance and operational workflow improvements.
Real estate investment managers seeking technology solutions can take advantage of a growing number of real estate data platforms such as Yardi and Measurabl that offer bespoke and off-the-shelf solutions for sustainability data. However, Dean warns that investment managers cannot rely on outsourcing, because ESG is integral to real estate.
“If data gathering and processing are robust and well managed, then off-the-shelf outsourced solutions can play a valuable role in the analysis, visualization and reporting,” Dean says. “But it is unrealistic for real estate investors to expect to fully outsource this function. For this [sustainability] data to be meaningful, it must be combined with asset and portfolio data such as floor area and value and then further contextualized by information such as return expectations, business plan information and building usage.”
Dean argues that in order to incorporate the sophistication necessary for sustainability data to give meaningful insight to investors, managers will need a combination of an in-house capability and bespoke elements of data systems.
“Everyone in the real estate value chain needs to have a good working knowledge of environmental standards and data – in the same way that they have an understanding of the financial metrics,” she says. “Once this is considered a core competency for all those who work in real estate, the flow of environmental performance data will be much more robust.”
She also believes that environmental data gathering is only an effective and useful exercise if there is clarity on the expected performance standards. “There is still lots of work to be done to clearly define what a ‘green’ building actually is.”
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