The GRESB rating: a global benchmark for the real estate industry
In 2017, over 850 property companies and funds participated in the GRESB rating process. Collectively, they have USD 3.7 trillion in assets under management. Participants value the GRESB process for several reasons. Firstly, the analysis strategy is unique. It does not assess the real estate industry’s capital market environment, unlike the PRI (Principles for Responsible Investment), or the performance potential of individual properties, like LEED and BREEAM. Instead, it focuses at fund and company level. For the assessment, information on the sustainability performance of individual properties is collected and then aggregated at portfolio level.
Scorecards ensure transparency and differentiation
Secondly, GRESB combines three important competencies in one system: assessment, measurement and benchmarking. Using Scorecards, participants are able to see how their performance compares to that of the competition. The Scorecards are a very effective way of communicating the sustainability performance of each participant. Investors and other recipients can see all the information they need at a glance and can assess property companies and fund products quickly and easily. This aspect neatly sums up GRESB’s core mission, which is to enhance and protect shareholder value through a transparent assessment process. From an investor’s point of view, one way this can be achieved is by allowing greater differentiation between providers in the real estate fund market.
A holistic approach to analysis
One of the things that large real estate investment managers such as Union Investment particularly like about the GRESB rating is its holistic nature. The assessment covers core environmental, social and corporate governance aspects and analyses them in relation to each other. This holistic philosophy has resulted in the rapid adoption of GRESB scoring in recent years. In 2010, 198 companies and funds participated in the process; in 2017, 850 entities took part – and the number continues to grow. GRESB’s holistic approach is particularly evident in the seven assessment aspects included in the sustainability analysis. Of these, the measured performance indicators and participants’ stakeholder engagement have the greatest weight, at 25.2% and 24.5% respectively. Together they account for almost half of the total score. The assessment of risks and opportunities in relation to sustainability performance, the certification of buildings and an effective corporate policy are further indicators, but are less influential than the two main aspects. The infographic shows the exact breakdown.
Striving for Green Star status
The aim of participants in the GRESB rating is to become a Green Star. To obtain this status, the properties and funds assessed need to achieve a compelling overall result. Competing companies are also compared against each other within a peer group. Union Investment has been taking part in the GRESB rating since 2012. In 2015, all of its real estate funds were classified as Green Stars for the first time. This status has so far been successfully defended (up to 2017). Continuous improvement is needed in order to maintain this strong result over the long term. The GRESB requirements become tougher from year to year, thus accelerating the trend for sustainability issues and their ongoing development to become embedded in the business strategies of leading property companies.
International standard for the real estate industry
Another advantage of the GRESB rating is that the results of the analysis can be easily summarised and integrated into reports produced by property companies. The system also benefits from being international in scope. Major real estate investment managers like Union Investment have a global presence and therefore expect evaluation systems to function at international level to accurately reflect their business and their funds.
Continuous development of the rating system, tougher requirements
The GRESB rating has become even more granular in recent years. Property companies and real estate funds are no longer the only entities that are assessed – there is now also a system for analysing infrastructure funds and infrastructure assets, for example. A module for measuring occupant health and well-being is also available as an option. In addition to this granularity, the rating system for properties is also being continually developed. In 2017, for example, accurate energy consumption data was available for 57% of the analysed real estate assets held by the respective companies and funds. In future, the system will provide further stimulus for improving these and other key performance indicators in order to ensure greater transparency in the real estate investment market overall.
An article by:
Sander Paul van Tongeren, Co-Founder and Managing Director, GRESB