INREV's new sustainability recommendations should help foster reporting consistency across Europe's real estate investment markets. Lonneke Lowik explains

INREV's first sustainability reporting recommendations were released in January in an effort to help non-listed property fund managers determine the data they should be reporting to investors. The INREV recommendations closely align with the European Public Real Estate Association's (EPRA) sustainability reporting best practice recommendations, released last September. INREV's recommendations focus on the same four main categories as EPRA's recommendations - energy consumption, greenhouse gas emissions, water usage and waste disposal.

Both sets of recommendations build on mandatory reporting requirements that have been introduced in some European countries and on voluntary initiatives affecting real estate - in particular, the Global Reporting Initiative's Construction and Real Estate Sector Supplement (GRI CRESS). INREV hopes that adoption of common measures for both the non-listed and the listed property funds sectors will encourage consistent sustainability disclosure throughout the entire real estate investment industry. As a result, INREV hopes to encourage the increase of sustainability reporting in the non-listed property funds industry.

By adopting recommendations nearly identical to EPRA's, INREV consciously aimed to create a common data-focused standard on sustainability reporting for both listed and non-listed. INREV believes that with the introduction of its recommendations, all real estate investment funds in Europe will be able to follow consistent practices in sustainability reporting that are measureable, workable and verifiable. Another important consideration is that the adoption of common reporting standards will allow investors to compare environmentally related data across their real estate investment portfolios.

The practice of voluntary sustainability reporting has become increasingly common in the European real estate sector in recent years, particularly among larger listed and non-listed real estate funds, as more and more investors ask for information in this area. At the same time, the possibility of introducing mandatory sustainability reporting regulations has become a focus of EU and national policy debates, and both industry associations cited their desire to introduce voluntary reporting standards ahead of European and national regulators. Mandatory sustainability reporting has already been introduced in some European countries, such as France and Denmark.

To prepare non-listed property fund managers for the possible introduction of mandatory sustainability reporting regulations, INREV decided to develop recommendations on sustainability reporting that build on relevant mandatory reporting requirements and voluntary initiatives affecting real estate, especially GRI CRESS. Adopting sustainability reporting recommendations that closely align with EPRA's reporting best practice recommendations should minimise confusion among real estate investors and fund managers in the listed and non-listed sectors, while furthering the goal of creating common sustainability reporting data.

INREV and EPRA realise that, particularly in the first year, data collection could be a challenge for some fund managers since they are not always given access to such information by tenants. Nevertheless, adopting reporting standards is seen as a way of encouraging fund managers to work with tenants to collect the data that would be required in the four main recommendation areas.

Under the INREV recommendations, it is optional to report sustainability data for offices and retail assets using ‘per person intensity indicators' - for example, per office workstations or retail property footfalls - rather than simply per square metre, since such information can be more difficult to obtain. Furthermore, the INREV guidance suggests disclosing the percentage of total space covered in the data. INREV also recommends disclosing to investors whether the data reported were collected or audited by an independent third party.

In the months ahead, INREV expects to begin promoting its recommendations and encouraging their adoption. In the longer term, INREV has indicated that it will explore whether its recommendations can be integrated into the INREV guidelines during a review of all aspects of the guidelines planned for later this year. In addition, INREV may consider initiating a review of sustainability reporting in the future as part of the annual review of reporting best practice, to determine how widespread the inclusion of sustainability reporting in compliance with the recommendations is becoming. Finally, by basing the INREV recommendations closely on those of EPRA, the two organisations hope to work together on future reporting recommendations.

As with the EPRA best practice recommendations, the first edition of the INREV sustainability reporting recommendations intentionally focuses only on environmental issues, which the INREV sustainability working group currently considers to be the most relevant and material to the non-listed property funds sector. However, future versions, possibly developed with EPRA, could incorporate social indicators, as INREV seeks to reflect emerging consensus on sustainability performance measurement.

INREV stressed at the release of its recommendations that it had tried to be as clear as possible when explaining issues and using technical terminology so fund managers should not have to engage in expensive, complicated or overly difficult data collection efforts. It also emphasised its intention to not add to the burden of reporting for non-listed real estate funds. INREV hopes, instead, that the process of sustainability reporting will lead to efficiency gains in two important ways.

The first is that by highlighting energy and water use and solid-waste production, property managers will know where they can take measurable steps to reduce operating costs through adopting efficiency drives. At the same time, common industry standards will avoid duplication of reporting efforts by fund managers who are asked to disclose sustainability data to individual investors using their own formats, which will thereby reduce reporting costs. In addition, INREV hopes to facilitate a greater understanding of the environmental impacts of non-listed real estate funds' portfolios and the opportunities to lower environmental footprints.

Lonneke Lowik is director of professional standards at INREV