Environmental, Social, Governance (ESG) Consulting
Global Real Estate Sustainability Benchmark (GRESB) and Global Reporting Initiative (GRI) are environmental, social and governance (ESG) tools/benchmark guidance for real assets.
- GRESB was launched in 2009 by a group of pension funds who wanted access to accurate data on ESG performanceof their investments.
- GRI is a multidisciplinary stakeholder group that was established in 1997 in Boston after requests for corporate transparency following the Exxon Valdez oil spill.
According to study completed by McGraw-Hill Construction, ESG delivers a 4% to 7% increase in asset value. Improved asset valuation and stakeholder engagement for corporate social responsibility has resulted in ESG benchmarks for approximately 4.5 trillion dollars in real estate value and is utilized by over 100 institutional investors.
ESG assessments deliver comparative asset and business intelligence on where an asset class stands compared to industry peers. A road map is available for ESG participants that provides opportunities to improve performance scores and guidance on communicating back to investors. Other than financial benefits, why would Real Estate investment Trusts (REITs), property companies, large funds, and developers be interested in ESG?
- Increased building value of 7% for new buildings and for existing building retrofits of 5%.
- Increased asset value of 5% of new construction and 4% for existing buildings.
- Energy efficiency in non-residential buildings delivers operating costs savings and strong valuations. For example, assuming a 6.5% cap rate:
- $5,000 savings in energy will deliver $76,923 in valuation.
- $20,000 in savings will result in $307,692 in asset valuation.
- ESG helps to reduce legal and regulatory risk, meeting an organization’s fiduciary duty.
- Such a reporting system offers transparency to investors or stakeholders so they may assess environmentalperformance and so they may have input in ameliorating the value of the asset while reducing negative environmental
- Tenants are requesting leasing spaces in green or energy efficient buildings where their operating costs are reduced, where they have access to adequate daylight and where indoor air quality improves comfort and worker productivity.
- Employees prefer working in green buildings and in companies that have made a commitment to a mission larger than themselves. A survey was conducted by Porter Novelli that included 1,001 workers in the U.S. who are employed full-time or part-time, or self-employed but work in an office building setting. More than 80 percent of respondents stated that having access to clean, high-quality indoor environment contributes to their overall workplace happiness.
- As of 2016, ESG focused companies in the USA are slightly outperforming Non-ESG committed companies by about 1.2%. This number is expected to rise.