The Convergence of Sustainability and Resilience
Newly Integrated GRESB Resilience Module Provides Investors with Holistic Assessment
WRITTEN BY NICK CATON
“You cannot manage what you do not measure.” It’s a common adage in business, one you’ve likely heard time and time again if like me you are knee-deep in the world of environmental, social and governance (ESG) reporting for commercial real estate. The phrase is often invoked to refer to the need for real estate owners, managers and developers to benchmark and disclose building sustainability performance for investors, who are increasingly waking up to the pivotal role that the built environment plays in addressing the climate crisis.
Each April, the leading ESG reporting entity GRESB (formerly known as the Global Real Estate Sustainability Benchmark) opens its assessment portal, beginning a three-month period during which time property companies, real estate investment trusts and developers are invited to respond to its annual survey. This spring, GRESB is requiring something new of its voluntary respondents: After a successful three-year pilot, its once-optional “resilience” module has been fully integrated within the standard GRESB assessment.
The resilience module, introduced in 2018, defines the admittedly broad concept of resilience as “the capacity of companies and funds to survive and thrive in the face of social and environmental shocks and stressors.” It was conceived in response to a rise in investor demand for answers about “how companies are assessing social and environmental risk” and, furthermore, “how they are acting on the results of these assessments to protect business value, maintain continuity of operations and safeguard human health and the environment.”
Why Should LABBC Partners Care About GRESB?
In 2020, property companies, REITs, funds and developers representing more than 1,200 portfolios totaling roughly $4.8 trillion in assets under management across 64 countries participated in GRESB. Though many of these participants certainly have environmental and other altruistic motives for getting involved, one of the biggest drivers for participation is a different kind of green: money. A wide variety of investors now look to the annual GRESB survey as a barometer of sustainability performance; ignoring that truth may mean losing clients.
While GRESB offers three types of assessments—real estate, infrastructure for assets, and infrastructure for funds—most LABBC partners would likely only submit to the real estate assessment, which now includes the resilience module. The cost of the assessment, about $4,800, is more than a bargain compared to the potential downside risk an investment manager might face as a result of not participating.
Integrating Resilience Updates for 2021
The additional questions that make up this new resilience module have been integrated into the “Management” component of GRESB’s assessment, which accounts for 30% of a participant’s overall score. A total of five new questions, or “indicators,” have been added to the “Risk Management” aspect of the assessment, and changes have been made to two indicators in the “Leadership” aspect. These indicators, taken directly from the 2021 GRESB Real Estate Assessment reference guide, are as follows:
Leadership:
LE3: Individual responsible for ESG and/or climate-related objectives
LE5: ESG and/or climate-related senior decision-maker
Risk Management:
RM5: Resilience of strategy to climate-related risks
RM6.1: Transition risk identification
RM6.2: Transition risk impact assessment
RM6.3: Physical risk identification
RM6.4: Physical risk impact assessment
No additions focused on resilience have been added to the “Development” nor the “Performance” components of the assessment, which make up the remaining 70% of one’s score. Furthermore, the newly added risk management indicators will not be scored in 2021, to allow for a smooth transition for those GRESB real estate participants who have not yet completed the module in prior pilot years.
Important GRESB Assessment Milestones
The additional questions posed by the newly integrated resilience module were designed to provide greater alignment with the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD). This makes it easier for organizations to report to GRESB while also maintaining the 2017 recommendations of the TCFD. The benefit of these changes—developing the necessary governance, strategy, risk management, metrics and targets to assess and manage climate-related risks and opportunities—far outweigh the slightly greater burden imposed on reporters.
Updated reference guides and scoring documents for the resilience module were released on March 1, 2021, alongside GRESB’s online assessment training. Other important dates to keep in mind, for those who plan to participate, include:
April 1: Assessment Portal opens
June 1: Deadline to request a response check
July 1: Assessment Portal closes
September 1: Preliminary assessment results released for participants only
October 1: Public assessment results released
The full 2021 GRESB Assessment Timeline can be viewed here.
Many LABBC Partners already participate in GRESB. In fact, several LABBC partners have topped the rankings. We applaud your efforts and encourage our partners that are not already participating to get involved. Sustainability and resilience go hand in hand, and GRESB provides a best-practice framework to help identify and operationalize those synergies. Los Angeles is already #1 in ENERGY STAR—let's make it #1 in GRESB, too.
