Buildings as the solution
Expectations are changing rapidly in the global property industry. Investors, owners, tenants, regulators and other stakeholders are asking for greater levels of transparency in general, and specifically with respect to environmental, social, and governance (ESG) issues. This trend is fueling demand for disclosure and information on the sustainability performance of property companies and fund managers. An increasing number of investors now incorporate such information directly into their investment processes and strategies.
This year we saw the publication of another set of independent studies linking ESG issues with financial returns – suggesting that fiduciary duty and robust management of ESG matters reinforce each other in the real estate sector. This convergence of factors encourages market participants to better understand sustainability risks and discover new opportunities to create value for shareholders, customers and society.
As leaders in the global real estate industry, we recognize GRESB’s central role in this transformation and encourage our constituents to participate in the annual GRESB assessment. This report summarizes the 2015 GRESB assessment results and provides unique insights into sustainability practices across the global property industry. In reviewing this year’s findings, we are impressed by the work of our members toward better ESG management. Activities include setting clear goals, taking coordinated action, expanding impact monitoring and improving sustainability performance.
Overall, we believe the 2015 GRESB Report underlines that the real estate sector provides practical solutions to our most pressing challenges. We can create better places for people and communities – places that reduce environmental impacts, improve social practices, and set high standards for corporate governance. Importantly, as an industry, we can do this in ways that make business sense and reward innovation.
Steady progress, but… a long road ahead
The global property industry is at the heart of the most important and far-reaching issues of our time, including urbanization, demographic change, resource constraints, environmental impacts, and emerging technologies. The design, construction, and operation of buildings reflects, drives and potentially mitigates the impact of all of these issues on occupants, owners, communities and society at large.
There is strong evidence that thoughtfully designed and operated buildings can provide practical solutions to the most challenging issues, while creating value for shareholders. Conversely, we also have evidence that more traditional, conventional approaches to property development often have the opposite effect.
This distinction motivates GRESB to provide institutional investors with clear, actionable information about the environmental, social, and governance (ESG) aspects of their real estate investments around the world. GRESB seeks to offer investment decision-makers the tools they need to understand the positive and negative impacts of their investments, recognize leadership, and engage effectively with companies, fund managers and operating partners.
After six years, we have started to see tangible results. On average, property companies and funds in the GRESB universe are significantly more advanced on ESG issues than they were just a few years ago; for example, sustainability policies are widespread and actions to save energy, conserve water, and reduce waste are more common. These are only a few of the many findings of the annual GRESB assessment, which creates clarity and transparency on the ESG performance of the real estate industry. Importantly, early studies show that relative outperformance on the GRESB benchmark translates into higher total returns for private equity funds and higher returns on assets and equity for listed property companies.
Despite this success, the journey of the property industry towards better ESG performance and reporting has only just begun. The industry has a vast and growing environmental footprint. Its large share of total global resource consumption continues to attract attention from local and national regulators, notably including mandates for transparency in building energy performance and more aggressive building codes. The industry has begun to appreciate the role of property in emerging issues such as occupant well-being, public health, and resilience. In the years ahead, the industry will be challenged to continue to not just understand, but also to demonstrably address the impacts and opportunities of these emerging topics.
The 2015 GRESB Report provides many new insights on global issues in sustainability, energy, and real estate, and we hope readers will explore the full breadth of resources offered, including key findings, research highlights, and innovation case studies provided by leading property companies and fund managers.
2015 ESG Research Highlights
Finding: Higher GRESB ratings correlate to superior financial performance
A University of Cambridge study by Franz Fuerst, commissioned by the Carbon War Room and the Rocky Mountain Institute, found that, adjusted for risk, there is a significant link between portfolio sustainability indicators and REIT stock market performance. More
Finding: Companies with superior ESG practices receive market benefits
An updated literature review by Gordon Clark et al. indicated that 90% of empirical studies found that strong sustainability standards lower the cost of capital and in 80% of studies strong sustainability practices are positively correlated with superior stock price performance. More
Finding: Consideration of ESG improves risk-adjusted returns
Natalie Trunow and Joshua Linder found empirical evidence that incorporating ESG factors into investment decisions improves the investment selection process and enhances risk-adjusted returns. More
Finding: Sustainable property features lower default risk
Xudong An and Gary Pivo document that certain sustainability features, including energy efficiency, walkability, and proximity to fixed-rail transit, significantly reduce default risk in CMBS loans.More