Two new products for asset managers to navigate emerging sustainability-related business challenges are now available from the Global Real Estate Sustainability Benchmark (GRESB).
The products, launched on Monday, help real estate and infrastructure asset managers to meet targets and reduce risk without additional reporting burdens.
One offering is focused on net zero alignment, and the other on Task Force on Climate-Related Financial Disclosures (TCFD) requirements.
A quarter of real estate faces transition risk
In the real estate sector the most prominent sustainability risks stem from policy and regulatory changes, according to GRESB.
According to McKinsey & Co, real estate drives approximately 39 per cent of total global emissions. Assets deemed high risk are high emissions compared to local net zero pathways, which can mean that the asset cannot meet future regulatory requirements.
GRESB chief executive officer Sebastien Roussotte said that 25 per cent of global real estate is currently facing transition risk.
“As this number rises each year and portfolios are placed under increasing pressure to decarbonise, it’s vital that asset managers have the tools and insights necessary to navigate these risks and to take appropriate action.”
For this reason the first product is the Transition Risk Report, which shows real estate portfolio managers which assets are most exposed to climate-related transition risk and how this may affect their portfolio over time, at both a country and global level.
Asset data was taken from the organisation’s real estate assessment, benchmarking data against Carbon Risk Real Estate Monitor (CRREM)’s science-based decarbonisation pathways. It also uses the organisation’s Asset Estimation Model to provide estimations of emissions.
The resulting insights should allow asset managers to analyse their portfolio’s overall transition risk exposure, see where transition risk is concentrated within a given portfolio, and prioritise decarbonisation efforts at the asset level.
Less than 20 per cent of organisations able to satisfy the TCFD
The TCFD framework was introduced in 2017 as a voluntary measure to help public companies and other organisations disclose climate-related risks and opportunities.
Mr Roussotte said that the majority of organisations are not adequately prepared for TCFD, and need to translate strategies into risk management processes.
According to the most recent GRESB data, less than 20 percent of organisations participating in GRESB assessments have processes, strategies and data collections systems in place to satisfy TCFD.
For this reason the second new product is the GRESB TCFD Alignment Report, which helps participants tackle reporting challenges related to the TCFD.
The report identifies TCFD gaps where improvements can be made, benchmarks participants against peers, and highlights climate-related risk management processes. Information was taken from GRESB yearly assessments, and shows an organisation how well aligned it is to the TCFD requirements.
Benchmarks face criticisms
Established in 2009, Netherlands-based GRESB is a global environmental and social governance (ESG) benchmark for real estate and infrastructure investments.
In 2021 more than 1200 property companies, real estate investment trusts and funds participated in the real estate benchmark, as well as more than 120 investors.
The asset value covered by GRESB in 2021 was more than $US5.3 trillion.
The organisation describes itself as a member-led organisation “by industry, for industry.”
This method of self-governance by industry has faced criticism recently over its ability to be impartial.? It has also faced criticism around the notion that GRESB assessments favour portfolios containing new buildings, skewing the benchmark.
Over the past year, ESG investing has soared in popularity as investors flock to socially-responsible funds in response to rising public sentiment around climate and sustainability.
By 2025 investment in companies that show progress on ESG is expected to hit $US53 trillion, which would come to one third of assets under management.
GRESB is now owned by the private equity firm Summit Partners, which has invested in companies such as Brooklinen and Uber.
Under its new ownership, GRESB has split itself into two entities: a foundation responsible for setting standards, and a business that will do the grading. GRESB says this will help safeguard the standards.