ESG foundations: Data quality in commercial real estate

Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.

In today’s rapidly evolving economic landscape, Environmental, Social, and Governance (ESG) factors play a crucial role in evaluating the present and future performance of a firm and analyzing this performance against comparable industry peers. Within the Commercial Real Estate (CRE) sector, ESG data coverage, data quality, and data management represent essential practices toward informed decision-making and optimizing sustainability initiatives at the asset and portfolio level. This article details the importance of data quality in CRE and explores obstacles, opportunities, and industry standards. 

Historically, asset performance data in the CRE sector has been extremely opaque; with the help of organizations like GRESB alongside growing demand from stakeholders, the concept of asset and portfolio level performance data has transformed the industry. Routinely, top performers find a competitive edge through ESG data tracking and measurement. From corporate strategy and risk management to investment decisions and regulatory compliance, actionable performance data has moved from a nice-to-have to an essential business strategy. Some terminology: 

• Data coverage involves ensuring that all accessible, necessary, and relevant data is collected and included, leaving no significant gaps that could hinder analysis or decision-making. For GRESB, accessible data coverage involves corporate and asset-level characteristics and specific data measurements, including utility performance (energy, water, and waste), greenhouse gas (GHG) emissions, building certifications, occupancy, tenant and employee health and well-being indicators, diversity metrics, community impact, and stakeholder engagement practices. 
• Data quality refers to the accuracy, completeness, consistency, and decision-usefulness of data. 
• Data management includes the processes, policies, structures, and practices involved in acquiring, organizing, storing, protecting, and maintaining data throughout its lifecycle. 

By leveraging established internal collection structures and creating new processes to track and measure non-financial data, firms are advancing performance, realizing previously unmet value, and enhancing ESG reporting. GRESB and other leading frameworks and standards have increased the appetite from stakeholders and regulatory bodies alike for transparent, comparable, and materially relevant performance metrics, and firms that invest in maximizing the quality and coverage of their data have uncovered a distinct advantage. In response to this demand, GRESB launched two new products in 2022; the Transition Risk Report and the TCFD Alignment Report. 

While the real estate sector provides a seemingly in-the-box measurement opportunity in the form of physical and tangible buildings with which to measure from, unique industry challenges limit coverage and quality and can create costly barriers. Primary obstacles include difficulty in collecting and verifying performance data and a lack of standardized reporting framework alignment. 

Various stakeholders can create challenges for asset owners to effectively assess and communicate utility, ESG performance, and even building characteristic data. Additionally, unclear data collection responsibilities at the property level paired with occasionally competing priorities can create interest misalignments. Illustrating this, if utility data access has not been previously negotiated, and an owner is attempting to calculate their GHG emissions, gaining access to critical emissions data may require negotiations with tenants, communications with utility providers, and updates to contractual terms, such as green leases. Further contributing to this data complexity, CRE decision-makers tasked with sourcing accurate and timely data from involved stakeholders including tenants, property managers, vendors, and corporate investment teams must do so through routine acquisitions and dispositions that can regularly occur within the portfolios that make up the CRE sector. 

In addition, the lack of data standardization across globally recognized reporting frameworks requires firms to invest heavily in data cleanliness to verify and package relevant data into the requirements prescribed by the standard or framework they are seeking to align with. Firms reporting to GRESB recognize yearly reporting efficiencies and benefit from GRESB’s comparability and alignment with other leading global frameworks. 

Industry and sector leaders recognize the bottom-line value that robust data collection processes, rigorous metric tracking, and transparent disclosure practices provide as it relates to generating and implementing durable and competitive strategies. Investing in data coverage, quality, and management provides immense value. Here’s how: 

• Decision-making: Effective data management allows for real-time ESG metrics measurements and reporting, providing leadership teams with reliable reports to support decision-making and strategic initiatives. Among other value generating judgement insights, ESG and performance-driven data can help guide response to asset and portfolio risk mitigation choices as well as serve as a deterministic element when evaluating and comparing like investments. 
• Stakeholder engagement: Transparent data management helps to build trust and foster engagement with essential stakeholders, including tenants, property teams, investors, regulators, employees, and communities. Communicating clear ESG performance helps demonstrate commitments, align varied stakeholder interests, and attract prospective investments. 
• Performance monitoring: Efficient data management facilitates timely tracking and performance monitoring. Consistent access to relevant data helps leaders proactively identify risks, address cost outliers, evaluate and measure impact, and make necessary adjustments to achieve sustainability and firm-wide goals. 
• Compliance & reporting: Data management helps to align performance with compliance against ESG reporting standards, regulations, and frameworks. Quality data systems and structures help to streamline the collection, analysis, and reporting of these metrics and serve to enhance the credibility of firms meeting investor expectations and stakeholder demands. 

Regardless of portfolio scope and scale, focusing on asset level performance data – including measuring and tracking both energy consumption data and building system level data – affords CRE leaders and portfolio fund managers invaluable insights to compare and communicate building level performance over time, as well as to align progress with investment key performance indicators (KPIs) and objectives and key results (OKRs). 

There is always opportunity for iterative data quality improvements. What is most important is taking inventory of the current state of data quality and processes, understanding overarching goals, then proactively identifying gaps in data and processes that will be critical to achieving these goals. With this, some best practices to consider: 

• Set process: Establish a process for sourcing, tracking, and consolidating relevant asset data, ideally in one location. Ensure that like data is consistent across databases, e.g. property names and floor area metrics. 
• Guidance & training: Regularly engage key stakeholders involved in the measurement and reporting process to reinforce the value and importance of timely and uniform tracking. Include key resources, guidance, and instruction where appropriate to remove obstacles to participation and incentivize active ownership and participation. Work with property managers and related stakeholders to share clear expectations for data completeness and uniformity. For example, share an ENERGY STAR Portfolio Manager Best Practices Update Guide, circulate regular expectation reminders, and host routine onboarding and asset acquisition trainings to promote a standard of performance. 
• Leadership buy-in: Identify an in-house champion to proactively manage, monitor, and drive impactful actions from the data and advocate for additional internal and external support where appropriate. Ideal champions report into the C-suite level and benefit from firm-wide strategic alignment and encouraging a culture of responsibility across involved parties.
• Start small: Whether new to the journey of effective data collection and management, or an industry vet, focus on small, scalable solutions with dynamic returns. Remember the adage, “what gets measured gets managed” and “what gets managed gets done.”  
• Storage & management: Document data collection, review, and validation processes and tools, including third-party software and internal platforms.  
• Tenant engagement: For leased assets, implement contractual language through green lease clauses or similar to gain access to tenant utility use data. 
• Inventory management: For GHG inventories of funds and/or portfolios, develop an inventory management plan (IMP) to institutionalize a process for collecting, calculating, and maintaining GHG data.
• Vendor considerations: When considering partnering with software providers or implementing software to support GHG inventories, be thoughtful about vetting potential providers and consider the best time for implementation and requisite needs. For companies new to data disclosure software implementation, consider what is wanted from the software—what metrics are required, how will the data be queried, and what decisions should it inform? Software is often best considered after a company has identified data inputs, processes, and challenges and can clearly articulate and prioritize desired software functionality. An experienced ESG consultant can support your company in navigating the ever-growing group of software providers, and in vetting these providers to ensure the best fit for your needs. Further, with increasing scrutiny on data and ESG claims, engaging a specialized consultant can help minimize greenwashing or other risks and streamline the tracking and reporting process.
• Harness the power of collaboration: The most important advice is to remember everyone in the industry is working through data challenges and working to address increasing demands for performance data and often data that the industry has not yet figured out how to collect or use. Reach out to peers and join industry groups to learn what others are doing. 

Within the world of CRE, data coverage, data quality, and overall data management are paramount for driving continued performance. 

By prioritizing accurate data, maximizing accessible data coverage, and applying robust data management policies, CRE stakeholders can make informed decisions, unearth unique opportunities, and better align against ever evolving industry standards. Embracing best practices ensures a foundation for lasting success, propelling CRE performance towards a more sustainable and resilient future. 

Written by William Loyd, Senior Manager, ESG, at Stok. 

References: 

GRESB launches new transition risk and TCFD products for asset managers, GRESB, May 16, 2022. 

How GRESB aligns with common ESG reporting frameworks, GRESB. 

M&V, MBCx, WTF: Building Performance Monitoring as a Means to Achieve Decarbonization Goals, Ally Duncan, Stok, April 25, 2023. 

SEC Regulation: What to Expect & How to Prepare for Climate Rules, Colette Crouse, Stok, April 12, 2023.