Data key to keeping up with ESG regulatory landscape
Technology can help building operators access data, as well as improve relationships with tenants. Roberta Romagnoli.
As ESG regulation continues apace, demand for better ESG-related data collection and reporting practices is also on the rise. However, questions still remain, of which three key ones are discussed below.
1. What impact do ESG considerations have on the valuation of real estate assets and how can this be measured?
Measuring ESG is imperative for real estate assets. ESG is not going away, and its factors are becoming as important as financial ones. By implementing ESG initiatives, companies profit from a range of benefits, including improving their brand reputation, attracting new business, greater regulatory compliance, and the increased long-term profitability of their assets.
Non-compliance has significant consequences. Assets that do not comply with ESG regulations may be classified as ‘brown assets’ and those with poor environmental performance are priced with an associated ‘brown discount’. This discount reflects the higher operating and maintenance costs that result in weaker rents and capital values of these unsustainable assets. Buildings with high sustainability credentials will lease for premium rents and sell for premium yields.
For an asset to become compliant, it’s vital to measure and report on its ESG performance. Measuring ESG data allows firms to understand base-case targets and improve performance. Data also helps firms evaluate the effectiveness and impact of certain measures and initiatives. This data allows a measurement of progress over time and whether companies are achieving their targets and creates transparency between investors and asset managers.
2. What are the biggest challenges to collecting accurate and reliable ESG data?
One of the biggest is actually accessing the data, particularly when it comes to long-income assets that are single let. The metering can often be archaic, for example water meters that are underground and impossible to find. Tenants also often don’t want to share the data.
Building relationships with tenants is a must. Once tenants consent to collaborating with utility providers it is possible to scrap the requisite data from their portals. And there are technology solutions to help with this. It is also important to consider the frameworks that you embed in tenant contracts and data-sharing in leases.
For an asset to become compliant, it’s vital to measure and report on its ESG performance. Measuring ESG data allows firms to understand base-case targets and improve performance.
Roberta Romagnoli
Regulation, such as Sustainability Disclosure Requirements (SDR), Sustainable Finance Disclosure Regulation (SFDR) and Taskforce on Climate-related Financial Disclosures (TCFD), must also be considered.
Another challenge is defining who is responsible for collecting, sharing, and reporting on the data. Who is responsible for accurate data – the energy supplier, the metering company, the data aggregator, the property manager, or the energy consultant? Hopefully, honesty and transparency for everyone involved to say ‘this is the data we do have’ is a culture that will continue to grow in the industry.
3. How can technology improve ESG measurement and reporting?
ESG technology comes in two categories. One is the technology that goes inside a building, such as equipment and sensors, which can help monitor environmental data and improve building performance.
The other is the technology used to analyse and visualise the data provided by the equipment in the building, to identify issues and trends and influence decision-making. The insights must be accessible and easily understandable to fund managers, investment managers, asset managers, property managers, facility managers and sustainability managers.
Data platforms such as Drooms offer a solution to gather, analyse and store ESG data. The data can be collated over time, shared with relevant stakeholders and easily accessed for reporting purposes. ESG reporting is becoming easier, especially as the parties involved become more engaged and willing to share data.
Roberta Romagnoli is inside sales specialist at Drooms
