Reflecting on GRESB 2016 Results

The 2016 GRESB Results – published yesterday – show a record level of participation and a continuation of year-on-year growth in the quantum and value of real estate assets included in the Survey. With 759 entities across 63 countries participating in 2016, accounting for 66,000 assets with a combined GAV of $2.8 trillion, there’s little doubt that GRESB is tightening its hold on the market and is here for the long-haul. Resistance is futile, it seems!

Launched to a packed JLL house in London, the headlines of the Survey results were presented with the customary swagger and aplomb of GRESB CEO, Nils Kok.

We suspect that plenty will be written in the coming days about the results and what they mean, both for the reputation of individual entities in the responsible investment arena and their ability to attract capital from discerning investors, as well as on the extent to which the industry overall is addressing particular global challenges such as climate change and resource conservation. On this latter point, let us mention that the two percent reduction in carbon emissions reported this year on a like-for-like basis across the GRESB ‘universe’ falls a good way short of being sufficient to deliver the real estate sector’s fair contribution to the goals of the Paris Agreement. Let us not deny, however, that this is progress.

Market sentiment

Rather than focusing too heavily on the nuts and bolts of GRESB though, some of which we continue to believe are rather loose and ill-fitting, we thought we’d channel the mood music of those on the receiving end of the results. The real estate market is, after all, driven just as much by sentiment as it is by science.

Questions and challenges posed by members of the audience at the results launch were limited but somewhat perennial in nature. They were concerned with the efficacy of the approach to scoring performance on asset-level indicators for energy, water, waste and carbon, and to the new method of ascribing a GRESB Star rating to each participant depending on their score relative to the total GRESB universe (thereby ignoring geography, entity type or portfolio composition when arriving at a rating).

These questions, and others which crop up frequently when GRESB is a topic of discussion, are perfectly justified. And sure, GRESB still means that many sustainability professionals, whether working in-house for asset owners or externally as consultants, put much of their lives on hold for the three months or so leading up to the Survey deadline. This continues to be the subject of much eye-rolling when chatting with peers and there is, perhaps, an irony in the fact that the submission process can become an overbearing feature of a real estate sustainability professional’s workload, taking them away from the business of facilitating and delivering practical change within business and asset-level operations.

Heightened engagement

But we sense that attitudes to GRESB by many participants are changing; there’s a genuine acknowledgement of the fact that GRESB results now create a real point of engagement on ESG issues with the Executive Committees and Boards of property companies and fund managers. In this sense, rather than being seen simply as a burden, GRESB is actually becoming a catalyst for the empowerment of some heads of sustainability or responsible investment who have hitherto been peripheral to internal strategy conversations and the execution of core business.

The impact is not limited to internal engagement either. It remains clear from our discussions with investors that many of them view the Survey and its results with a dose of scepticism – its relevance to what they’re really interested in when it comes to the entities in which they are invested (and the governance of them in particular) is, by-and-large, limited. By the same token though, they’ll usually admit that it’s the best tool available to them for providing an indication of the rigour with which property companies and real estate fund managers attend to a range of ESG issues. Whilst imperfect, it provides a basis for structured engagement with their fiduciaries and some are taking a more sophisticated, proactive and discerning approach in this regard.

Market transformation?

Perhaps this is a sign of GRESB beginning to realise the ‘market transformation’ to which it aspires?

Admittedly, there is still some way to go; many (but by no means all) of our fund manager clients continue to find investor engagement quite weak. But as Nils Kok pointed out, the impending ratification of the Paris Agreement on Climate Change will almost certainly put a rocket up a good number of those who are only flirting with climate change – and ESG more broadly – in their real estate allocations.

In the meantime, we hope that GRESB will become more focused on matters of real importance to fund managers and their investors and, because of that, less burdensome on those having to spend so much time counting beans rather than sowing the seeds of change.  Goodness knows we need the change and at a faster rate than is evidenced in these results.