GRESB has launched its latest survey on sustainability performance in the real estate sector. Philippa Shire and Elsbeth Quispel explain
The Global Real Estate Sustainability Benchmark (GRESB), which measures the sustainability performance of the global real estate investment industry, has launched its 2013 Survey. Participants complete the Survey online via GRESB’s online portal, which remains open until 1 July 2013.
GRESB’s global membership now includes more than 45 institutional real estate investors. The annual survey, undertaken in co-operation with those investors, focuses on the sustainability performance of both private funds and listed company real estate investments, measured with a consistent methodology at the portfolio level. This is the fourth year that GRESB is undertaking its survey. Over time, responses have increased substantially, from 200 companies and funds in 2009, to more than 450 in 2012.
The GRESB team has also grown in the past 12 months, with Elsbeth Quispel joining as head of sustainability in March 2013 and Ruben Langbroek joining as head of Asia in April 2013. There is now a dedicated team of five people based at GRESB’s headquarters in Amsterdam.
GRESB’s membership has also increased over time and now includes BNP Paribas Investment Partners, Credit Suisse Real Estate Asset Management and the Aegon Group (including TKP Investments and Kames Capital). GRESB has also strengthened its credentials as the leading global portfolio-level benchmark, with South Africa’s largest pension fund, the Government Employees Pension Fund (GEPF), also joining.
GRESB’s global presence and continued growth are signs that the real estate investment market is continuing to focus on sustainability issues. “The past few years have been a challenging environment for the real estate sector,” says Sander Paul van Tongeren, senior sustainability specialist at APG Asset Management, one of the co-founder of GRESB.
Search for global tool
“However, at the heart of GRESB’s philosophy is the alignment of sustainability measures with financial performance. Our aim is to create a tool that can be used globally by investors and managers of real estate investments both to lower operating costs but also to better manage their investments and portfolios in the face of higher and more volatile energy prices, stricter legislation to combat climate change and require increased energy efficiency and the changing preferences of corporate tenants.”
This view is reflected in the comments made by GRESB’s recent additions to its membership. “GEPF, as a significant investor in South African property is of the view that integrating environmental, social and governance (ESG) issues within property investments can deliver better risk-adjusted returns through improved energy, water and other resource efficiencies across GEPF’s property portfolio,” says John Oliphant, principal executive officer and head of investment and actuarial.
The rationale behind the benchmark is that it facilitates realistic comparisons within property type, country and regional peer groups. The aim of GRESB is not to rank absolute results, but rather to create a tool that can be used to show how peers perform compared to one another, taking into account regional variations, for example in climate and regulatory structures.
Investors in real estate use the survey results as a tool for engaging with their investments. For investment managers, as well as engagement with investors, the results are also a tool for internal due diligence and sustainability performance monitoring. The methodology behind the survey is designed to highlight these issues with greater weight being given to sustainability approaches that implement change within a portfolio and which measure performance.
That said, GRESB’s message is clear – there is no need to be fearful of benchmarking sustainability performance.
It is important to measure sustainability performance but it is equally important to use that information to take steps to improve. Rather than naming and shaming, the benchmark is designed to help drive practical and cost-effective sustainability strategies that reap tangible and measurable rewards.
The results of the 2013 survey will be published in early September.
An important section in the GRESB survey is stakeholder engagement, the purpose of which is to identify the steps taken by a property company or fund to engage with its stakeholders, including tenants, suppliers, the respondent’s workforce and the local community, as well as the nature of that engagement.
One of the questions focuses on the implementation of employee satisfaction surveys, since they help organisations engage with their human capital and increase employee retention rates and overall productivity. Such surveys should address both organisational and work-specific issues and directly address employees’ concerns.
An important aspect from a risk perspective is tenant engagement; a tenant is less likely to leave the building once its lease expires if it has been more involved – and potentially has invested – in the building (fit-out) to improve its sustainability performance. This makes tenant engagement crucial for the sustainable management of real estate investments.
GRESB looks for engagement programmes, which, in accordance with UN PRI principles, engage occupiers and seek to influence occupier behaviour.
The landlord and tenant relationship is particularly important in situations where the landlord does not have operational control as far as sustainable practices are concerned.
Having a fit-out and refurbishment programme in place helps to align the views and actions of landlords and tenants.
Additionally, these types of leases define the relationship between the landlord and the tenant, as well as the duties of both parties. GRESB also measures the extent to which respondents are implementing initiatives that empower them to influence tenant behaviour, either via contractual obligations such as green leases or more informal obligations such as memoranda of understanding (MoU).
In its survey definitions, GRESB follows the UN PRI Reporting Framework for Property Principles, which define green leases and memoranda of understanding as follows.
• Green leases: A lease of a property that includes provisions to encourage the landlord, tenant or both to carry out their roles in a more sustainable way. The details of the provisions and the means of encouraging more sustainable behaviour are negotiated between the parties but typically relate to the achievement of specific targets for energy and water use and waste management.
• Memorandum of Understanding (MoU): A starting point for both landlord and tenant at the more informal end of the spectrum when it comes to incorporating obligations for environment and energy. The MoU provides a formal mechanism for both parties to discuss sustainability issues, including the achievement of specific targets for energy and water use, and waste management. As defined in many green lease sustainability toolkits, the fundamental concept that underpins a green lease is that of mutual understanding.
While the details may vary from one agreement to another, the primary purpose of a green lease is, firstly, to improve the operational performance of green buildings, and secondly, to deliver landlords and tenants an equitable share of the incremental value provided by green buildings. A green lease seeks to achieve these goals by securing long-term operational performance through a transparent, mutually beneficial agreement between tenants and landlords.
In practice, green leases are generally used to describe a document for negotiating green-building initiatives between the owner and the tenant of a building.
A green lease is a performance contract, focusing on the sustainable operation of a building, and it is an opportunity for both tenants and owners to understand the benefits to them and future-proof their respective involvement in the property. Green leases might well prove to be the ultimate solution to ensure that a building is actually managed and used in a sustainable way, which might lead to further and consistent environmental improvement of the building.
To secure long-term operational performance and therefore sustainability within organisations or investments, mutual understanding is not just crucial for green leases and tenant engagement. It is also important for stakeholder engagement as a whole.
There still is a large regional and country-by-country difference in how green leases
are applied. GRESB will continue to review its questions regarding green leases in the coming years.
Philippa Shire, operations manager at GRESB and Elsbeth Quispel, head of sustainability at GRESB