The phrase “you can only manage what you measure” has become something of a business cliché. Nonetheless, it remains true, and is especially relevant to the sustainability ambitions of real estate investors and managers.
Once a business has set out its sustainability goals, tracking progress against them is critical to ensure it is making progress and that its business and portfolios are resilient to transition risk. Data measurement and analysis also support stakeholder alignment with those overarching strategic goals.
Real estate assets can generate an enormous amount of data, but collecting it can be a challenge. And once the data is collected, there is a new challenge: how to turn it into useful information that can be used for performance measurement and benchmarking, as well as to drive material actions.
Andy Haigh, director, climate positive solutions, at Grosvenor Property UK, says: “Access to data and its intelligent analysis is key to understanding your impact and where to focus attention. Often that data comes from third parties – such as tenant energy data,
or suppliers for waste and materials data.”
Given the significance of climate risk for real estate, data relevant to this topic should be the priority for collection, says Richard Hamilton-Grey, head of sustainability, Europe, at manager Nuveen Real Estate. The starting point for data collection is energy usage, which can be translated into greenhouse gas emissions and used to calculate energy use intensity, providing there is contextual data (ie, floor area).
“You can’t let the pursuit of perfect data impede progress”
Richard Hamilton-Grey
Nuveen Real Estate
Other data points might be the amount of waste produced (and what happens to it), water usage, biodiversity or – for a portfolio – the percentage of assets in locations that are highly exposed to physical climate risk.
While the industry’s focus is on the environment and decarbonization, investors and managers might also need to collect data on social sustainability factors, such as community impact and diversity, in order to measure the progress on other ESG targets.
“Gathering data to fulfill increased regulatory expectations around reporting and disclosure is key,” says Hamilton-Grey. “Therefore, in addition to gathering data to aid in investment decision-making, the focus should also be on collecting data to support the substantiation of any public claims regarding sustainability goals or performance.”
Right tool for the job
There are a number of tools that can help asset owners collect and analyze data, most significantly sustainability-related portfolio management tools, which provide investment teams with a view of sustainability performance across the portfolio and which can be integrated with traditional portfolio management and business planning tools.
Hamilton-Grey says: “This is a key change, as it elevates the decision-making process and oversight to the investment teams, when previously this data would have been held either by the sustainability team, or consultants or property managers.”
Smart building technologies can be used to gather asset-level data, such as energy and water usage or air quality data, thus automating the process. Real-time data can be much more useful than historical data for optimizing the management and energy efficiency of a building. AI building management systems can use this data to make a building run more efficiently, meaning actions toward climate goals are at least partially automated.
In practice, nonetheless, most asset owners presently rely on manual processes for data collection, which is labor-intensive and thus expensive. While monitoring data from landlord-controlled areas is relatively easy, key data is often in the hands of tenants, and accessing tenant data is one of the biggest challenges for asset owners.
Tenants tend not to be obliged to provide this information, except where there are green leases in place. Moreover, managers report that the quality of tenant data is variable. This means asset owners need to build relationships to ensure information sharing.
Larger asset owners are also investing in companies and platforms that collect and analyze ESG data for real estate. Haigh says: “We are investing in companies looking to disrupt in this market by collating and analyzing this data.
“This helps us progress to our net-zero goal by working smarter on the areas of greatest influence and reducing the administrative burden of data capture for ourselves and stakeholders. And by investing in these disruptive technologies, we are helping promote and expand this vital market segment.”
Bearing in mind the amount of data that could be generated, there is also a risk of getting bogged down in data and constantly trying to refine and improve it. Hamilton-Grey says: “You can’t let the pursuit of perfect data impede progress, especially with regard to the compressed timescales of net-zero carbon pathways.”
Peer pressure
Benchmarking is an important use of data as it allows asset owners to analyze performance across portfolios, peers, and against market and regulatory performance standards, says Hamilton-Grey. “If we believe there is a performance impact of not meeting benchmarks that the market expects, or through falling behind relative to your peer group, then this is critical information that can inform portfolio management and strategic business planning.”
The main benchmark for real estate portfolios is GRESB, which now covers the portfolios of more than 2,000 property companies, funds, developers and real estate investment trusts across the world. It covers more than 170,000 assets in 75 countries, worth $7.2 trillion.
Asset owners also continue to use certification regimes such as BREEAM or LEED, but more are now also using benchmarks such as the Carbon Risk Real Estate Monitor, which measures investment transition risk.
Most real estate managers and investors who collect ESG data do so for their own reporting, benchmarking and performance-measurement purposes. However, Ed Dixon,
head of responsible investment at Aviva Investors, the asset management business of insurer Aviva, suggests asset owners should do more with their data than simply using it for disclosure purposes or to decarbonize their own portfolio.
“I would hope clients gather data with a fundamental aspiration to reallocate capital into solutions and funds that go further, faster. There are myriad innovative solutions available that can help to channel global finance into local sustainable companies and assets.”
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