An Overview of the Global Real Estate Sustainability Benchmark (GRESB)
- May 10, 2023
The Global Real Estate Sustainability Benchmark (“GRESB”) is an international membership organization that assesses the environmental, social and governance (“ESG”) performance of real asset portfolios. It is the leading global ESG benchmark specifically designed for the real estate industry to help investors and managers understand and measure a company’s performance on its ESG and sustainability initiatives within its portfolio. It provides standardized and validated ESG data to the capital markets, including institutional investors in real estate. GRESB investor members use the ESG data and GRESB’s analytical tools to monitor their investments, engage with their managers, and make decisions that will lead to a more sustainable and resilient world.
The goal of the GRESB Assessments is to capture the most material ESG data related to the sustainability performance of real estate, infrastructure companies and assets. This data, and the insights derived from it, is then used by investors to assess organizational exposure to various risks, identify new opportunities, and invest in strong-performing companies.
Participant members—including listed property companies, developers and non-listed fund managers— receive comparative business intelligence on where they stand against their peers, a roadmap with the actions they can take to improve their sustainability performance, and a communication platform to engage with their investors.
GRESB Real Estate Assessment
The GRESG real estate assessment is an essential benchmarking tool for real estate funds, property companies, Real Estate Investment Trusts (“REITs”), real estate developers, infrastructure fund managers and asset managers. It includes a data validation process, scoring model and peer comparison.
Managers can use this highly relevant ESG data, along with its powerful analytical tools, to benchmark their ESG performance, identify areas for improvement, set measurable goals, and engage with investors. All GRESB participants receive an overall rating, and its scoring is then compared to all other GRESB participants.
GRESB also provides a rating among peer groups based on structure (public or private), property type, geography, and it ranks participants within their respective peer groups. Participants also receive a benchmark report and an online tool that provides an analysis of the company’s sustainability performance.
By presenting a GRESB assessment, investors can better determine the risks versus the rewards as well as potential growth areas. Additionally, investors can use a variety of tools to determine future opportunities, with reviewing a company’s ESG policies becoming higher on their due diligence checklists. Investors today believe the more proactive a company is with its ESG initiatives, the more attentive and responsive the company will be in mitigating risks. Therefore, by utilizing assessments, such as GRESB, investors will view the company as defensive and stronger with higher returns. ESG data can translate into more compelling, absolute, safer and less-volatile returns for investors.
The growing participation of GRESB Assessments:
- A total of 1,229 property companies worldwide consisting of REITs, funds and developers across 64 countries.
- Representing more than USD $4.8 trillion in gross asset value.
- More than 1,520 property companies worldwide consisting of REITs, funds and developers across 69 countries.
- Representing more than USD $5.7 trillion in gross asset value.
- More than 1,820 companies worldwide consisting of REITs, funds and developers across 74 countries.
- Representing more than USD $6.9 trillion in gross asset value.
GRESB data is now used by 170-plus institutional and financial investors representing more than USD $51 trillion in assets under management.
Why Asset Managers Participate in GRESB Assessments
Asset managers participate in GRESB assessments because they find it a crucial tool to help them identify areas of risk and opportunities, set measurable goals, and limit the negative impact on their portfolio and assets. The GRESB assessment can attract new investors who are seeking more comprehensive risks, opportunities and impact analyses. A GRESB assessment can systematically improve your current investor engagements because it helps investors gain a clearer picture of the real estate’s ESG performance, how it compares against peers, and improvement areas.
The Real Estate Assessment generates two benchmarks: (1) The GRESB Real Estate Benchmark, which considers management and performance factors used for existing and operating real estate (“Standing Investments”); and (2) The GRESB Development Benchmark, which considers management and development factors used for new construction or properties undergoing major renovations.
The assessment has three components: Management Component (30%), and either the Performance Component (70%) or Development Component (70%):
- The Management Component measures an entity’s strategy, policies and leadership.
- The Performance Component on Standing Investments measures portfolio performance, including information on performance indicators such as energy consumption, GHG emissions, water consumption and waste management.
- The Development Component measures an entity’s efforts to address ESG during a building’s design, construction and/or renovation.
The assessment is performed over a three-step process: step 1 is validation; step 2 is objective scoring; and step 3 is peer benchmarking. The assessment can be completed by either a company’s designated Sustainability Manager or by utilizing an ESG consultant. GRESB collaborates with leading ESG consultants to support members in their reporting efforts. These ESG consultants help companies collect, report and manage their ESG data as well as complete the GRESB assessment on the company’s behalf. They also help the real estate companies analyze their GRESB results in efforts to help them improve their overall sustainability performance.
Each October, assessment participants receive the results of their assessment and relevant benchmarking reports based on which assessment components they completed. Each component (Management and either Performance or Development) carries its own score, which is then factored into the entity’s overall GRESB score and GRESB rating.
*Image from this website: ESG Data & Metrics - GRESB
GRESB SFDR Reporting Solution
Starting January 2023, Sustainable Finance Disclosure Regulation (“SFDR”) reporting is now mandatory, and real assets managers are expected to provide financial disclosures in 2023 from their 2022 data. For many asset managers, the main challenge will be to report on detailed product-level ESG characteristics, specifically Principal Adverse Impacts (“PAIs”). The GRESB SFDR Reporting Solution, available for both real estate and infrastructure, can help companies comply with the regulation by helping them collect more accurate PAI statements from the beginning. Additionally, the GRESB Assessment aligns well with Measurable, GRI, SASB, WELL and other ESG reporting frameworks, thus future-validating their reports.
Real estate managers missing critical energy and greenhouse gas (“GHG”) data can also take advantage of the GRESB Estimation Model (“GEM”) to get highly accurate estimations based on real data within the GRESB database.
Why GRESB’s Assessment Is Important to Real Estate CFOs
GRESB assesses and benchmarks the ESG performance of thousands of real estate companies and funds worldwide. But why does this matter to a real estate company’s CFO?
By utilizing GRESB benchmarking, it allows CFOs and management to provide actionable data and identify ESG-related risks and opportunities to get their company on par with its peers and determine a growth strategy. Benchmarking is an essential tool to help analyze and determine a company’s quality, performance and growth. By determining what competitors are doing successfully, management can set measurable goals and develop plans to boost their own performance and take advantage of opportunities.
GRESB’s benchmark report will outline for management:
- Where you’re outperforming and underperforming compared to your peers.
- Your portfolio’s efficiency and environmental footprint on key factors including energy, carbon, water and waste.
- How your company has performed year over year.
- Data validation and trend analysis.
Through use of GRESB, CFOs and managers will optimize opportunities, demonstrate their commitment to managing risks, and pursue effective ESG strategies. It will help them understand how the climate-related risks will impact their financial health and determine resilience on a long-term basis. This is particularly important because the new SEC climate change rule will have a profound impact on the real estate industry. GRESG lets real estate companies gather, verify, and analyze massive amounts of data, including GHG emissions, so they can meet the new SEC requirements to disclose their risk management practices related to climate-related risks.
Incorporating ESG into core business practices has proven to increase value, improve investor confidence, and decrease long-term risk. Companies that successfully factor ESG in their decision-making processes tend to prosper and experience long-term sustainable growth and higher returns. With the implementation of SFDR and the proposed SEC reporting regulations, the need to collect and report on real estate ESG and sustainability is crucial. GRESB offers real estate managers an opportunity to systematically improve investor engagement, while benchmarking performance against competitors within the industry. Through use of GRESB, real estate companies can develop a strategy for reporting around ESG and sustainability to gain a competitive advantage, mitigate risks and exposure, improve the financial performance, and attract investors.
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