Developing and implementing an ESG strategy can be a daunting process but help is at hand, delegates heard at Real Asset Media’s European Real Estate in Transformation – ESG, Digitisation, Proptech & Investment briefing, which took place recently at Schroders’ offices in London.
“The ESG jigsaw puzzle has many pieces,” said Christiane Conrads, partner, global real estate ESG leader, PwC. “It’s a complex reporting landscape and it will get worse before it gets better. You need a methodology, like a compass to help you find your way.”
She presented the results of PwC’s ESG Mapping Study, jointly managed by the Urban Land Institute, PRI and INREV. The study, which is focused on the EU and UK markets, as well as the US and Canada, Hong Kong, Singapore, Japan and Australia, “is helpful to anyone who wants to implement an ESG strategy,” she said.
The study provides technical research as well as market research and it looks at four key areas: frameworks and scoring; reporting standards; accounting standards and certifications. The goal is to provide transparency on the suitability of the instruments for individual ESG strategies and stakeholder demands.
The technical research identified 10 key findings. First, the evolving ESG regulatory and reporting landscape is complex and can be overwhelming, so the sector must work together to successfully navigate the road ahead. Secondly, there is no one-size-fits-all standard and it is important to understand the purpose of the different ESG frameworks and standards.
There are five main categories of ESG frameworks and standards: core corporate standards, thematic, sustainability regulation, RE industry specific and principle-based commitments. The materiality approach defines the main characteristics of the ESG standards. “I like the principle of double materiality, not just looking at risks for your investment but also the impact the investment has on society and the environment,” said Conrads. “This kind of assessment will become more of a requirement.”
Credible data are fundamental to science-based metrics and targets, because “you cannot manage what you cannot measure”. Building certifications can complement a successful ESG strategy, but they need to stay ahead of fast-evolving regulatory landscape.
Social targets are more difficult to measure, but across the world legislation and regulation are seeking to harmonise social standards for organisations and their supply chains. Good governance is fundamental for effective implementation and current requirements are aligned on a global level.
Best practice means being able to determine what is within an organisation’s control. Finally, the tenth and final finding is that for a sustainability strategy to be successful, resources must be focused on the ESG frameworks and standards most relevant to stakeholders.
The ESG Mapping Study also recognises that the big challenge is collecting, managing and sharing meaningful data. It provides market research, identifying five examples of best practice from industry leaders to provide thought leadership on solving the operational challenges of reporting.
CBRE IM is putting sustainability into action: the global content team manages all content across all ESG communication and provides analysis for improving ESG targets. The sustainability team works closely with investment and asset management to achieve those targets. ESG governance is fully integrated into the organisation.
Azora has pioneered the contribution of portfolio data into GRESB for two asset classes where there are still few contributors: rented-residential and resort hotels. To improve its GRESB score and to answer the performance questions in a more standardised and reliable way, Azora has built its own data collection tool.
Manulife IM’s in-house governance tool with 15 standards to benchmark all assets globally has reduced the metrics down to four standards after target achievement. Building certifications complement the in-house assessment.
For Hines, the ESG strategy focuses on green leases and smart metering and engagement with tenants is key to reach commonly agreed ESG targets. The fifth case study is AXA IM, which uses CRREM, a science-based tool for calculating the risk of stranded assets, an increasingly important instrument for developing a decarbonisation strategy.
“Sharing best practice is crucial, and you should also share what hasn’t worked for you so that other people can learn from your mistakes as well as your successes,” said Conrads. “Collaboration is the new competition.”