Asset-level ESG data, a need for harmonisation and benchmarking as well as game-changing tools and regulations were the hot topics at the 3rd annual Nordea GRESB Green Building Forum.
New data streams providing asset-level intelligence are revolutionising sustainable finance in the real estate sector, but there is still a critical need for more harmonisation and benchmarking when it comes to ESG data.
That was the main message from experts gathered for the third annual (and this time digital) Nordea GRESB Green Building Forum on September 25. The event drew in over 100 participants, bringing together leading investors, real estate companies and other market experts to discuss the substantial shift currently underway in real estate financing.
Here’s a recap of five key takeaways from the event.
1. The real estate sector will need to undergo major changes to reach international environmental targets – a challenge and an opportunity for the industry.
The real estate sector both affects and is affected by climate change. It is responsible for a large share of global greenhouse gas emissions, roughly 40% when considering both direct and indirect emissions, according to Marco Kisic, Head of ESG Research at Nordea. The industry will have to undergo a “very significant” transformation in order to meet the targets set forth in the Paris Agreement, he told the audience. In Europe, a host of regulations and policies are driving that change, from the Energy Performance of Buildings Directive and the EU Green Deal to the EU Sustainability Taxonomy.
“By starting to act now and plan ahead, companies have the opportunity to get ahead of the competition and get in a strong position before regulation is even tighter than where it is now,” Kisic said.
2. The business case for going green is strong.
The experts presenting at the forum made it clear that a strong ESG performance can influence corporate performance. In one breakout session, Anna Denell, Head of Sustainability at Swedish real estate company Vasakronan, presented four compelling reasons why real estate companies should focus on ESG performance:
- Lowering your environmental and climate impact typically leads to saved resources, which usually means saved money.
- Certified green buildings are easier to lease, often offering benefits such as improved air quality, reduced noise and better light, which can help attract and retain tenants.
- Appraisers have started to implement a yield shift for certified assets.
- Going green is the best way to lower the price of your funding.
Denell noted that Vasakronan currently has 85% of its assets certified.
Presenters from S&P Global Ratings and Moody’s Investors Service also shed light on how ESG factors are incorporated into their frameworks for corporate credit ratings in real estate. Manish Kejriwal from S&P noted that environmental credit factors are becoming increasingly relevant, affecting such parameters as asset quality, business strategy as well as cash flow and profitability.
3. There is a critical need for harmonisation and benchmarking when it comes to ESG data in the real estate sector.
When asked about the quality of the ESG data he has to work with when assessing credit ratings, Kejriwal described the current state of disclosure as inadequate.
“Companies are disclosing data, but key performance indicators are missing,” he said, pointing to value chain data as one missing component.
Part of the problem with ESG data is that only a relatively small percentage of real assets are certified and that the certifications are so different, according to Nordea’s Kisic. He noted that companies have made massive strides over the past 10 years when it comes to ESG disclosures, particularly in the Nordics, but there is still ground to cover, and a gap persists between large and small caps.
As part of Nordea’s Taxonomy work, Kisic has tried to map the different certifications available in the Nordics to the criteria in the EU Sustainability Taxonomy, an exercise Kisic described as “incredibly complicated.”
“We’re going to need some unification going forward. The Taxonomy is hopefully a first step in that direction,” he said.
Today’s forum makes it clear that to really supercharge the shift currently underway, we need harmonisation on ESG data and benchmarking as well as regulation that supports that.
Jacob Michaelsen, Head of Sustainable Finance Advisory, Nordea
4. ESG data in real estate is at an inflection point.
Since its founding over 10 years ago, GRESB has been driving a collaborative effort to define standardized metrics and develop a consistent approach to measuring and reporting on ESG performance of real assets. In the past, GRESB only gathered data at the portfolio level from asset managers and passed that along to investors.
Five years ago, the organisation started looking at the underlying, asset-level data. In 2020, reporting on such asset-level data became mandatory for all GRESB participants. Those disclosures are used to inform the data that’s passed on to institutional investors. The GRESB database now covers around 96,000 assets and includes specific data on criteria such as building certifications, energy consumption, greenhouse gas emissions, water and waste.
“Once the data comes together in a structured way, we will be able to make some meaningful conclusions at a structural level,” said Josien Piek, Head of EMEA at GRESB and a co-host of the event.
For companies that report their asset-level data to GRESB, that data can be easily integrated with the Carbon Risk Real Estate Monitor (CRREM) methodology, which breaks down high-level Paris Agreement goals into country-level, sub-sector and building-specific carbon transition pathways.
“It’s revolutionary that the business community is now picking up something that’s a collective goal and doing it in a diligent and fast manner,” Piek added.
In one breakout session, Derk Welling, Senior Responsible Investment & Governance Specialist at APG Asset Management, explained how pension manager APG has adopted the strategy of looking for more detailed certified asset-level data, imposing BREEAM In-Use certification across its complete portfolio in Europe for non-listed investments.
“A green certification scheme means to us that the environmental performance has been measured against a certain standard. And since each BREEAM certificate comes with over 100 questions, we indirectly can get access to a lot of additional asset-level data,” he said.
5. New ESG disclosure regulations are fast-approaching.
The regulatory landscape around ESG data is also rapidly evolving. Bahar Yay Çelik from INREV presented the ins and outs of the Sustainable Finance Disclosure Regulation, set to take effect in Europe in March 2021 with the aim of reorienting capital towards sustainable investment. The regulation covers financial market participants and financial advisors; companies with more than 500 employees and all firms that market funds into the EU, requiring both entity and product-level disclosures. The legislation is expected to indirectly have a global impact on the whole value chain.
Jacob Michaelsen, Head of Sustainable Finance Advisory at Nordea and co-host of the event, summed up the main takeaways from the day: “Today’s forum makes it clear that to really supercharge the shift currently underway, we need harmonisation on ESG data and benchmarking as well as regulation that supports that.”
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