Institutional investors are eyeing the new GRESB Infrastructure Assessment and its potential to reduce risk and perhaps even improve financial value for infrastructure assets.
Last Thursday saw the Australian release of the GRESB Infrastructure Assessment, which offers a new global benchmark for the environmental, social and governance performance of infrastructure assets. About 40 asset owners, fund managers and other industry participants turned out to learn about the new assessment and to ask whether improved ESG performance will result in improved financial value. The Australian launch followed the global online release on 1 April 2016.
What is GRESB?
GRESB is a global, investor-driven organisation that has developed a number of performance rating and assessment tools to support its members (financiers and asset operators) to balance investment risk and return while optimising sustainability outcomes of infrastructure assets.
For the last six years the GRESB Real Estate Assessment has been gaining momentum as a global survey. Australian real estate businesses are leaders in this assessment, with a higher performance across the two central GRESB metrics of “Policy & Management” and “Implementation & Measurement.” Last year, 47 listed and private Australian funds participated in the survey.
How does the GRESB Infrastructure Assessment work?
This assessment has a similar methodology to the Real Estate Assessment, the key difference is the Infrastructure Assessment enables both funds and individual assets to participate, reflecting the largely different ownership structure to real estate. The Infrastructure Assessment surveys eight topic areas:
- Policy & Disclosure
- Risks & Opportunities
- Monitoring & EMS
- Stakeholder Engagement
- Performance Indicators
- Certifications & Awards
Assets are asked to provide responses through free text, references to internal documents and links to external documents. Responses are given a score based on the methodology provide by GRESB in their Assessment Reference Guide. The results provided depend on the audience:
- For investor members, the results for individual funds and assets are provided along with a peer comparison.
- For participants, the individual results are visible and charted to all recipients and peers. Participants can also see how their peer group responded to individual questions and topic areas, which enables a gap analysis of where they can improve.
The results from the GRESB Real Estate Assessment over the past six years show the improvement in broad sustainability performance of many funds and assets. While there were early adopters, many of the funds that have either improved significantly or started participating, have done so as a result of their investors asking them about their ESG performance and demanding better performance.
Will the infrastructure sector take up the survey?
In my opinion, we will see similar uptake for the GRESB Infrastructure Assessment as we saw in real estate. Just as Green Star paved the way for greater understanding of sustainability in the property sector, ISCA with the IS Rating tool has done a great job shifting sustainability in the infrastructure sector beyond discussion about energy, water and carbon. Most government agencies currently building significant infrastructure are introducing the IS Rating, with great results. Look at the example of the Sydney Metro Northwest (formerly the North West Rail Link), which is one of the biggest infrastructure construction projects currently underway in Australia.
Like Green Star is to the GRESB Real Estate Assessments, an IS Rating for your infrastructure project will be a great start towards a GRESB Infrastructure rating. Many elements of an IS Rating are common to the GRESB Infrastructure Assessment so these will be straightforward credit if they have been completed.
Until now there has been limited aggregation of ESD performance on infrastructure assets and funds. Some entities report under the PRI Framework or CDP, but GRESB brings all the participants together and provides a simple representation of your performance compared to your peers and the rest of the market.
What is the market saying?
Some listed funds already complain of reporting overload, even in the sustainability area. This is a very real issue and GRESB has already listened to the real estate sector and set up the assessment accordingly. Rather than writing a whole new report, GRESB asks participants to refer to other documents. In fact, if you have to create documents to respond to the survey this highlights the organisation is probably not adequately dealing with that element.
Some have seen the upside in the GRESB reporting – they hope it makes it easier to respond to existing and potential investors in regards to ESG issues. One fund manager believes the assessment will reduce the number of questions from investors and allow a greater focus instead on the one or two issues that are particularly important to individual investors. This is made possible via a global standard for ESG reporting, being able to provide the latest report and show a history of improved performance to an industry benchmark.
How do you measure up?
The first year will be very interesting for GRESB Infrastructure. Investor members have committed to the program for a minimum of three years and they are encouraging all their assets under ownership to participate. While the assessment will be useful for individual assets and funds, the greatest benefit will be derived when there is a few years of data available and there are multiple assets in each class responding. This will enable an ESG story to be told by individual assets and funds, and will enable comparisons across asset classes to be made.
To facilitate this, we are recommending to our clients to have a look at the GRESB Infrastructure Assessment and see how they measure up. In many cases assets and funds will see that they can respond in the affirmative to many questions. In addition, they can benefit from the experience of the real estate sector, where the early participants are now the better performing funds. This is important because the large investors, like the Canadian pension funds and the Australian superannuation funds, are looking at the assessment. One further benefit of early participation is that GRESB actively seeks feedback from participants, so the early adopters have the opportunity to improve the assessment for following years.
Will improved ESG performance result in increased values for infrastructure assets?
It is really difficult to say at this early stage whether improved ESG performance will result in improved financial value for infrastructure assets. Unlike property, there is still no evidence available in the infrastructure sector yet. However, better ESG performance helps reduce the risk for investors and many investors see it as a reflection of good management. The GRESB Infrastructure Assessment will bring ESG performance to the forefront and, for the first time, enable easy comparison of assets and funds. By making it easier to compare ESG performance, this is likely to increase the importance of ESG performance in an overall asset assessment. On this basis it should result in increased value for individual assets but this may take some time to confirm.
Tim Parker is director of sustainability at WSP | Parsons Brinckerhoff. He has over 20 years’ experience specialising in corporate and asset sustainability, including energy efficiency, sustainability, climate change risk, carbon management planning and strategies.