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ANALYSIS

Benchmarking ESG changes behaviour

The power of benchmarking funds on sustainability is demonstrated by the fact 171 property companies and funds surveyed in the 2012 GRESB benchmarking report reduced GHG emissions by 6 per cent – this is a reduction of 432,000 metric tons of CO2, the equivalent of removing 85,000 cars from the road.

The Global Real Estate Sustainability benchmark, an industry-led organisation supported by institutional investors including the Swedish AP funds, AustralianSuper, Ontario Teachers, USS, Norges Bank, PGGM and ATP, is the only sustainable benchmark that captures nearly 50 data points measuring sustainability, including environmental and social factors. The aim is to assess and reflect the sustainability performance of an institutional investor’s real estate allocation.

According to the report, the 2012 results show that real estate investors and managers are sharpening their focus on sustainability issues. Of the respondents, 60 per cent collect and report energy consumption data, compared to just 34 per cent in 2011, and 51 per cent of respondents include green building certificates in their portfolio. The 171 funds that were in the survey in both 2011 and this year reduced energy use, GHG emissions and water consumption.

Further the “green stars” reduced all of those outputs by more than the overall group.

Piet Eichholtz, chairman of the GRESB Foundation and professor of real estate finance at Maastricht University, says only if you start measuring things will you improve them.

“There are ways to make the industry accountable, including government regulation and pointing the finger at the industry, but only the industry itself can see that if it makes money things will really change, it’s a profit motive,” he says.

The number of survey members has increased from 19 to 35 in the past year, with the amount of institutional capital now $3.5 trillion (up from $1.7 trillion).

Eichholtz says it is important that the number of participants has increased, especially in the US. The real estate sector is responsible for about 40 per cent of global greenhouse gas emissions and for 75 per cent of electricity consumption in the US alone so accountability with regard to sustainability can have a huge impact in this sector.

“This is being taken more seriously. It means there are more funds that have information and can do something about it.”

The 2012 survey has been broadened to include more social and governance aspects, more details on sustainability and more checks.

“Now we ask if they people did something, what they did. The current survey is a lot deeper and more robust than surveys in the past.”

The 2012 benchmark looked at 36,000 properties worth $1.3 billion from 443 respondents.

The survey weights 34 per cent to management and policy and 66 per cent to implementation and measurement.

“The survey asks providers if they have the infrastructure in place – the management, systems and strategy – to improve sustainability,” Eichholtz says. “We question the industry about getting that translated into action, sustainability reduces costs and better performance for investors. The traditional approach to sustainability was finger waving, but that only gets you so far. What we do is more productive and more positive.”

The survey divides companies and funds into four quadrants – green starters, green talk, green walk and green stars. The number of green stars is about 20 per cent, the same as last year, while 55 per cent were considered green starters.

However there is room for improvement. 40 per cent of the property companies and funds are still considered green starters with limited disclosure of sustainability performance towards the investment community. This represents substantial upside potential in reducing opportunities costs

The survey points to two examples of “exemplary reduction targets and achievements”.

Investa Property Group, which has achieved significant cost savings since 2004 including a 31 per cent reduction in greenhouse gas emissions and a 30 per cent reduction in electricity use; and Hermes Real Estate investment Management which set a carbon reduction target of 40 per cent 2020, and has already achieved that in 2012.

The GRESB scorecards for participants will be available this week.

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