Accurate data is essential for achieving sustainability goals

Good quality, accurate data is key to achieving transition goals on the road to net zero carbon, experts agreed at the Current Status and Challenges of the ESG Transformation session at MIPIM recently.

While clients often ask for a checklist to create an ESG strategy, every solution needs to be individual, explained session chair Christiane Conrads, global real estate ESG leader and director, PwC Germany, speaking from MIPIM’s Road to Net Zero stage.

“ESG strategy is really about individual solutions that fit your own needs, your own regulatory requirements, your stakeholder demands,” she said. “There’s no way around developing your own ESG strategy.”

At the outset, one key requirement is to obtain an understanding of the regulatory requirements as well as the group’s ESG agenda. But she said that to develop a strategy a starting point is “clarity about where the assets stand right now”.

Climate risk is a major preoccupation for insurers such as Zurich Insurance, as Roger Baumann, the company’s COO global real estate and head of product development explained.

“We have a double impact on our business: on our assets and also on the liability side,” he said. The company is striving for net zero by 2050, but clearly that is some way off. “We not only define the 2050 target, but we also define interim targets and our next target is 2025. Given that we have a broad portfolio, based on the potential analysis back in 2019 we set the target to reduce 30% of operational carbon by 2025.”

Zurich already made a 20% reduction over the last two years mainly by optimising the efficiency of its buildings and introducing green electricity worldwide.

“But we all know that’s not the end,” he added. “We have a lot of gas and oil heating in our Swiss portfolio which is about one third of the total portfolio. We therefore have a dedicated capex programme for our Swiss portfolio.”

Regulations are a moving target

Conrads pointed out that the regulatory environment around ESG is complex and challenging and many of the regulations are not harmonised. Regulation is also frequently changing. “For example, the taxonomy is going to be a dynamic regulation. It’s going be further developed in the coming years and the European Commission will review the existing regulation every five years to see if it’s sufficient to achieve the targets,” she said

“I think we can all see it’s not going to be enough, so we are going to see more and more regulation when looking at ESG strategies.”

Baumann pointed out that designating funds Article Six, Article Eight or Article Nine is not necessarily a static choice as a process of transition of assets is implied with each of these definitions. “You need somebody who can give you advice on how to set the standards and define your ambition level in the correct way and how to do this on an asset level.”

PwC has developed a relatively simple tool to assist with defining ESG strategy. PwC partner Dirk Kadel explained that this tool is based upon 50 questions which assist in the examination of portfolios, both collectively and at the individual asset level.

“It’s a user friendly tool that allows you to collect the data and answer the questions in a structured way and just say, ‘okay, here, I’m good’… ‘This is where I need improvement’,” he said.

“You can even do a mass upload if you have a large portfolio. Obviously, you can also monitor from the starting point to see how your portfolio develops, what measurements have which effects and what you can do.”

“It provides you with the basis to develop a roadmap to develop your strategy and then also bring your strategy, step-by-step, to life.”

Historic building not as bad as assumed

Daniel Schuster, head of real estate portfolio management at Zurich Insurance highlighted one example in the company’s portfolio, a historic building in the heart of Amsterdam. “When we first thought about the ESG profile of this asset we obviously thought it was a nightmare and one of the assets we might need to sell in the future. But when you look at the scoring, it’s actually not too bad.”

He explained that when comparing the ESG score in aggregate, rather than just the environmental score, the building is well connected within the city so is good in terms of accessibility and it has large, beautiful gardens to the rear and is a place where occupiers can thrive. “The energy performance score is relatively poor, but we also see opportunities for improvement here,” Schuster added. For instance, some PV panels are now allowed on the roofs of listed buildings in Amsterdam.

“It’s really about a broad understanding of the E and the S and the G,” he added. “When you buy a business, then you take over all the liabilities and looking at real estate, it’s the same.”

He said that during the strategy definition process it was important to have a broad understanding of the E, S and and the G and to look out for quick wins.

“Not all the measures need to be very expensive. There are many things you can do in the short and medium term, which don’t cost large sums of money.”

But he added that one of the biggest challenges after the dynamic regulatory environment is how data is obtained.

Marek Sacha, CEO of BuildingMinds concurred. “First of all, get your data in shape, because without data, you cannot navigate this dynamic world,” he said. “We need the technology to be smart about the future. Just doing it with Excel is not so easy these days. It’s too complex.”

Knowing the purpose of the data is vital, added Conrads. “It is really important to also know for what reason you need the data, you need to know who you need to report it to, and what the intention is.”

Sacha pointed out that although very granular levels of detail on energy use can be obtained when smart meters are installed in buildings, these are still relatively rare. “In my experience, the percentage of properties with smart meters, even on a tenant level, is quite small.

The alternative is inspecting electricity bills or to send people out to read meters, but this then demands much manual input and increases scope for error.

“You will need to check that people are just not inputting rubbish into the system. It comes with a lot of complexity and you need to have a proper process in terms of data collection,” he added.