Global real estate sector improves ESG performance but more effort needed to reach global goals

GRESB, the environmental, social and governance (ESG) benchmark for real assets, has released the results for the 2019 GRESB Real Estate Assessment. The results are used by more than 100 institutional investors, representing USD 22 trillion in AUM, to monitor investments, engage with managers, and make decisions that lead to a more sustainable real estate industry.

1,005 property companies, REITs, funds and developers, representing more than USD 4.1 trillion AUM, participated in the 2019 GRESB Assessment. The Assessment now covers more than 100,000 assets, of which more than 66,000 were reported at the asset level.

The listed dataset covers 248 entities, representing 65% coverage of the major developed listed real estate indices. The private dataset covers 757 entities, representing 75 of IPE Real Asset’s Top 100 Global Real Estate Investment Managers (participating with at least one fund) and 47 of PERE 100: institutional capital’s top manager picks.

The comprehensive nature of the benchmark reveals meaningful global and regional insights and allows us to track the performance of the sector against key national and policy goals such as the United Nations Sustainable Development Goals (UN SDGs), the Paris Climate Agreement, and the net-zero targets laid down by the World Green Building Council (WorldGBC).

Global and regional sustainability scores

Globally, the average GRESB Score increased from 68 in 2018 to 72 in 2019, demonstrating a sector making strong improvements in overall sustainability performance. Listed property companies still outperform the private sector, but this gap is now negligible compared to previous years. Similarly, while average GRESB scores for offices continue to outperform other property types, the other sectors are closing in.

The regional breakdown of GRESB scores show that real estate companies and funds in Oceania continue to lead the world in sustainability performance, a position the region has held for a remarkable 9 years in a row. In 2019, the average GRESB Score for Oceania comes in at 81 (2018: 76), compared to the global average of 72. Notably, more than half of the GRESB 5-star rated portfolios (the highest rating and recognition for being an industry leader) are located in the region.

The average GRESB Score for the Asian real estate sector is now 72 (2018: 66). This is close to the global average and second only to Oceania. The listed sector largely accounts for this uptick in performance, significantly outperforming the private real estate sector in the region. This pattern differs from other regions, where sustainability performance is increasing faster in the private sector.

Both the European and American real estate sectors have improved average GRESB Scores in 2019. America comes in with a score of 72 (2018: 70), nudging slightly ahead of the European GRESB Score of 71 (2018: 66). Once again, Europe leads the world in transparency with the highest number of entities participating in the benchmark, while the North American GRESB cohort remains the largest in dollar terms globally.

More improvement needed to reach global goals

With increasing sustainability scores around the world, the data tells the story of a sector stepping up decisively to respond to investor demand for greater ESG transparency and performance. But it’s also clear that more improvements are needed to meet key global goals and achieve the transition to a low-carbon, resilient and more sustainable future.

The 2019 results show global like-for-like GHG emissions falling by 2.66%, a lower rate than the 4.91% reduction achieved in the previous year. This slower reduction rate will not be enough to meet the 1.5-degree target set out by the Paris Climate Agreement. After three years of consecutive reductions, global energy consumption increased by 0.20%. And with only three net-zero portfolios in the 2019 benchmark, much more still needs to be done to shift the sector to a sustainable path.

At the same time, the 2019 results show many encouraging developments. For example:

  • 88% of GRESB participants have annual performance targets linked to ESG outcomes (up from 83% in 2018)
  • 69% of entities now have Board-level financial compensation linked to ESG goals, an important indicator of ESG integration at the highest levels of governance.
  • 90% of GRESB participants monitor employee satisfaction, 81% monitor tenant satisfaction and 79% monitor impact on the community, putting the conditions in place for improvements in social aspects of ESG.

In its second year, there was a 96% increase in entities participating in the voluntary Resilience Module, which is aligned with the recommendations released by the Task Force on Climate-related Financial Disclosures (TCFD). The uptick in participation demonstrates an increasing awareness of the need to respond to investor attention on climate risks and resilience.

Added to this, our trend analysis for indicators that have remained consistent over the past years shows a significant shift in practice. For example:

  • In 2009, 19% of participants collected energy data. In 2019, it’s 98%
  • In 2009, 13% of participants used renewable energy. In 2019, it’s 61%
  • In 2009, 59% of participants obtained green building certificates, in 2019, it’s 63% at the time of construction and 58% for operational buildings
  • In 2011, 39% of participants incorporated sustainable factors in their Board of Directors. In 2019, it’s 41%
  • In 2012, 70% of participants had a senior decision-maker accountable for sustainability, in 2019, it’s 99%
  • In 2012, 26% of participants had sustainability clauses in their lease contracts. In 2019, it’s 86%;

Even in the face of present challenges, we remain optimistic because of the breadth and depth of the sustainability ecosystem that has grown up since the inaugural Real Estate Assessment in 2009. Looking back, it has been a remarkable decade of movement building that has laid the groundwork for exponential progress to be made in 2020-2050,” says Roxana Isaiu, Director Real Estate at GRESB. “We congratulate all 1,005 companies and funds that reported on their ESG performance this year. The leaders today are building on the important work of their predecessors, just as they pave the way for future efforts to achieve our shared vision for a sustainable real estate sector.”

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