The Global Real Estate Sustainability Benchmark (GRESB) is a platform that allows large real estate portfolios such as real estate investment trusts (REITs) and funds to voluntarily self-report sustainability policies, practices, and portfolio-wide utility data performance metrics. The reported information is evaluated by GRESB and ranked against other portfolios reporting through the program.
The GRESB benchmark is intended to provide meaningful, actionable results to allow participants to strategically improve performance in future reporting cycles.
Rankings are increasingly being used in investor-facing reports to communicate sustainability thought leadership along with energy, water, and waste reduction efforts. Financial analysts use the score as another data point to measure the investment caliber of the portfolio; it is not the most significant data point they use by any means, but it does indicate whether the portfolio owners are aware of material risks (volatile utility prices, environmental legislation) and if they are able to affect year-on-year portfolio performance. For REITs, the value in GRESB above many other reporting systems is that it is industry-specific and addresses multiple asset classes.
Growing Trend
Since its inception in 2009, participation in GRESB has increased steadily, but still, only about 21% of publicly listed North American REITs are completing the annual GRESB survey. Many of these were the early adopters, and qualify as GRESB ‘Green Stars’, representing top-of-class in sustainability efforts and policies.
We have observed a number of industry trends that we believe will soon motivate the majority of the REIT industry to participate in GRESB:
Investors are demanding transparency.
- As evidenced by the uptake in GRI reporting, which has seen a 2.5-fold participation increase in the past five years, investors are demanding a commitment to disclosure and transparency. GRESB is built on the building-specific elements of GRI, but is designed specifically for REITs and other real estate portfolio investment funds. It shows investors whether the company is walking the talk on sustainability.
- Analysts are looking for companies who report to benchmarks such as GRESB. GRESB participation is currently seen as a plus; in a few years, lack of GRESB credentials may be considered a minus.
- Institutional real estate investors who are members of GRESB have access to GRESB survey information for funds in which they invest.
REITs are focused on risk management.
- An increasing number of US municipalities and states implementing mandatory benchmarking regulations, and energy and water pricing is volatile globally. Connection to, comprehension of, and responsiveness to portfolio-wide building performance data is essential.
- GRESB shows performance improvement over time. An average 6.8% energy use reduction was reported from US REITs participating in GRESB between 2011 and 2012, with a 4.8% global average reduction.
Within the North American REIT community, there is peer pressure along with opportunity for recognition.
- NAREIT’s Leader in the Light award is now aligned to GRESB reporting, with a brief set of optional, supplemental questions specific to the NAREIT award integrated into the GRESB Survey platform in 2012.
Tenants are demanding accountability.
- Major government tenants such as the US General Service Administration (GSA) require their landlords to provide third-party verification that the spaces they lease are green. Major corporate tenants are increasingly requiring supply chain transparency, which extends to their real estate. In the future, GRESB reporting could become a vendor requirement for REITs seeking to attract leading corporations or the government as tenants, like we see with LEED® and similar third-party verification programs today.
GRESB collaborates with participants for continuous improvement.
- Early adopters have a voice in the development of the program, which is guiding its evolution for the whole industry.
Reporting Challenges
While there is no direct cost to participate and the survey is easy to access online, submitting survey results is not without challenges. One reason that the adoption rate for GRESB hasn’t been more rapid may be that preparing the required utility data for a whole fund or portfolio—which often includes multiple fund or regional managers, hundreds of assets and potentially thousands of utility meters—represents a significant logistical effort.
Paladino is asking the industry to identify their challenges with reporting. We will use the results of this research for an upcoming blog post that will discuss common issues and solutions to make GRESB reporting easier for the 2014 reporting cycle.
Watch this blog in early April for more information about the newest release of the GRESB survey questions, and a summary of what you need to know. Subscribe to receive our blog via email so you don’t miss a post! In the meantime, if you have questions about GRESB, please leave a comment below.