GRESB 2022 | ESG progress mixed despite jump in demand

The number of real estate portfolios benchmarking sustainability with GRESB has risen faster than ever before in the last year, providing a clearer picture of progress in the industry.

Some 1,820 entities with a combined $6.9tn in assets benchmarked their environmental performance – up 19.7% from 2021 – according to GRESB’s latest annual assessment of the industry.

GRESB – the Global Real Estate Sustainability Benchmark – measures and benchmarks ESG management, performance and development within real estate portfolios.

Portfolios report on metrics such as ESG policies; energy consumption and greenhouse gas emissions; and environmental efforts within design, construction and renovation.

GRESB 2022 in numbers

• +19.7%: rise in participants
• $6.9tn: total asset value
• 150,000: total individual assets benchmarked
• 74: average score among standing investments in 2022 (2021: 73)
• 81: average score among developments in 2022 (2021: 79)

With 111 more portfolios than last year, the Americas saw participation rise more than any other region. Nearly $3tn of real estate assets in the Americas now use GRESB, compared to $2tn in Asia and $1.6tn in Europe.

Despite the sharp rise in participation – which adds newcomers with generally less sustainable portfolios to the mix – average benchmark scores in real estate rose among both standing assets (up one point to 74 out of 100) and developments (up two points to 81).

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However, there were mixed results when it came to key performance metrics. While greenhouse gases and water consumption were down marginally on 2021 (-0.46% and -0.23%, respectively), energy consumption was up 0.83%.

Click to enlarge chart, Source: GRESB

Christina Djambazca, associate on GRESB’s real estate team, told PlaceTech that she had anticipated a “slight drop in scores”, partly because the industry’s recovery from the pandemic has had a direct impact on some of these metrics.

However, she added: “While this was still the case for some participants, and mainly those that were already performing quite well, we see that the industry as a whole was still able to make significant improvements across the board.”

She said that much of the overall progress came from participants setting improvement targets, making sure they have the underlying data they need to measure those targets and verifying that data.

Regional variation

While the US led in the uptick in participation, its average score for existing assets fell from 73 to 72 – the only region to record a fall. “Having a third of the benchmark comprised of newcomers, whose average score generally tends to be significantly lower, is what pulls the Americas’ score down,” Djambazca said.

Click to enlarge chart, Source: GRESB

By contrast, Oceania – Australia and the surrounding region – led the pack with an average score of 82, well above the global average of 74. While this was partly due to lower participation in Oceania at just $302bn of assets, Djambazca also credited the region’s “cohesive adoption” of ESG practices.

Existing buildings vs developments

While scores for both standing assets and developments have risen, the gap between the two has widened. In other words, real estate is improving its future buildings faster than existing ones.

Click to enlarge chart, Source: GRESB

Moreover, the Americas’ average development score (77) is lower than the average standing investment score in both Asia (78) and Oceania (82), implying that the region is playing catchup but at risk of falling further behind.

These gaps, particularly between standing and future developments, are a concern because real estate needs to fix existing buildings to put a real dent in its environmental impact.

Djambazca said: “We would ideally want both the development and standing investments score to converge over time as we need existing buildings to demonstrate a good level of ESG performance just as much as new ones.”

Do these results tell the full story?

GRESB hailed this year’s assessment as evidence of real estate’s growing appreciation for the importance of ESG.

Sebastian Roussotte, CEO of GRESB, said: “Looking at this year’s benchmark, the industry’s embrace of ESG continues to be reflected in our strong participation numbers and increased data coverage, signalling that real assets investors and managers alike remain steadfast in their commitment to sustainability.”

Indeed, the headline successes were more about industry take-up of GRESB, and less about environmental performance. Progress, as Djambazca noted, was driven in large part by participants setting up targets and making sure the underlying data is good enough.

After all, these assessments are not purely about how green buildings are. Someone simply focusing on the headline figures could miss that, on a performance level, progress did slow down in some areas and that growing data coverage played a significant role in propping up average scores.

Mitch Cooke, director at consultancy Greengage, said: “What we are seeing is both an investor expectation that GRESB is used to benchmark real estate asset sustainability performance and a real scrutiny in the overall scores – but also what areas scored highest.”

He added that there are still question marks over how much benchmarks actually drive change on the ground.

However, Katherine Beisler, head of ESG consulting at Hollis, said that the rise in both participation and average scores matched the firm’s own experience, having grown its ESG consultancy work by 150% in the last year.

She said: “The demand for ESG data is undoubtedly growing, with more and more real estate investors making it a key part of their investment decision-making process, both in terms of acquisitions and disposals. In the UK, at least, this is being driven as much by a commercial focus on meeting carbon reduction targets and EPC [energy performance certificate] regulations, as it is CSR.

“Most of the biggest commercial investors and landlords are not only benchmarking, but they are actively making improvements to buildings so that they are meeting or exceeding EPC ratings ahead of the changes that will come into force in a few years’ time.”