Construction, retrofit, and renovations are important phases in the life cycle of buildings, and responsible construction practices and sustainable design of buildings are essential aspects of the sustainable real estate industry. That’s why GRESB assesses the environmental, social, and governance (ESG) performance of real estate development activities via the New Construction and Major Renovations (NCMR) Aspect within the Real Estate Assessment.
Last November, we ran a survey to gather industry feedback on the material ESG issues related to new construction and major renovation projects and to better understand the needs of the property development sector. We sent the survey to more than 350 GRESB Real Estate participants who reported their development projects to GRESB in 2018 and received 91 responses, representing over 150 participating entities.
Standing Investment: Real estate properties where construction work has been completed and which are owned for the purpose of leasing and producing rental income. The level of occupancy is not relevant for this definition. Also known as operating buildings.
New Construction: All activities to obtain or change building or land use permissions and financing, including the development of new buildings and additions to existing buildings that affect usable.
Major Renovation: Alterations that affect more than 50 percent of the total building floor area or cause relocation of more than 50 percent of regular building occupants.
The respondents represent a diverse group of managers, with 38 from Europe, 27 from North America, 11 from Oceania, 9 from Asia, and 6 representing globally diversified entities. Most are involved in both new construction and major renovation projects, and the proportion of development projects in their portfolios range from less than 5% to more than 50% (see figure below).
The survey findings offer valuable industry insights into the material ESG issues related to new construction and major renovation projects that will help drive the sustainability conversation forward for the sector. The results underline three trends that we have observed unfolding in recent years.
First, more than half of the respondents are in favor of keeping the current scoring structure, which provides separate scores for operational activities and development activities.
Peer group allocation
Second, there is no industry consensus on whether the involvement of development projects should impact peer group allocation. On the one hand, some entities wish to compare themselves with peers engaged in the same type(s) of core businesses, while on the other, additional peer group logic could segment the current peer group and lead to an unstable peer allocation in subsequent years.
Material ESG issues
Third, most (62%) respondents believe that new construction projects share “very similar” material ESG issues with major renovations, and 30% “somewhat similar” issues.
In qualitative responses to the survey, embodied carbon, climate resilience, circularity and modern slavery in the supply chain are highlighted as material ESG issues for new construction and major renovations. In addition, green building certifications are considered to play an important role in real estate development projects.
In order to build on the feedback from the industry and further develop the GRESB’s approach, GRESB is convening an Industry Working Group (IWG) on new construction and major renovation. The IWG will provide focused input for the future development of the GRESB Assessment.
Over seventy organizations have already indicated their interest in participating in the IWG. IWG sessions will take place in the second and fourth quarter of 2019.
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