A ground-breaking global study by a partnership of industry bodies has mapped out the evolving landscape for global ESG regulations and reporting standards relevant for real estate. Their report provides the industry with a practical guide on how to navigate the myriad of ESG regulations, standards, and certifications.
Mapping ESG: A Landscape Review of Certifications, Reporting Frameworks and Practices was led by the European Association for Investors in Non-Listed Real Estate Vehicles (INREV), the Principles for Responsible Investment (PRI) and the Urban Land Institute (ULI), and carried out by PwC with the support of a range of experts from leading real estate fund managers and investors.
Environmental and social challenges present arguably the greatest risks facing our societies globally. In the absence of global regulation and uniform definitions, the real estate industry developed its own reporting standards and building certifications, which, more recently, is being complemented by an increasing range of regional and national regulations. As a result, it has become increasingly difficult to navigate the various mandatory regulations and voluntary standards, especially when taking into consideration bespoke requests from investors on top of the standards.
Following an extensive mapping exercise and numerous interviews with industry experts, this study examines the purpose of the different ESG requirements and the different intended users of the information. It explores how the requirements overlap and where there may be an opportunity to condense the ESG reporting burden.
The report flags new challenges in regulatory innovations that are not harmonised and coordinated. Those innovations affect the entire life cycle of real estate and all sub-sectors of the industry. This lack of harmonisation and partly undefined legal terms pose a major challenge.
There is no one-size-fits-all reporting standard, and this is not expected to change in the short to medium term, as the field of ESG is so broad and complex that it will continue to evolve as scientific knowledge grows and social norms become more widely accepted. As a result, despite all consolidation efforts, reporting standards and frameworks will evolve, and new requirements will emerge. Accordingly, an organisation will need to choose the right standards and metrics that appropriately reflect the requirements of their ESG strategy and their overall environmental impact and to comply with minimum social standards throughout the entire real estate lifecycle in value and supply chains.
To help navigate the selection of different regulations and standards, based on regulatory requirements and a company’s corporate and ESG strategy, the report provides several case studies as well as a set of self-assessment questions to produce greater awareness of the core issues and areas that are anchored in the company’s ESG strategy.
Already now and even more so going forward, data will play a key role as the market moves away from estimates to measured actual performance data. Credible data, especially covering environmental and scope 1-3 greenhouse gas emissions, is seen as fundamental to the ‘science-based metrics and targets’ that are most important for regulators, investors, and other stakeholders in working towards net zero and combating climate change.
The study outlines emerging best practices in this area such as the disclosure requirements of both the EU Taxonomy and Sustainable Finance Disclosure Regulation (SFDR), which require a shift to measurable, standardised, and comparable data disclosures, especially for investors.
“Addressing climate change and putting real estate on a path to net zero is becoming a non-negotiable requirement for governments and investors,” said David Faulkner, President for the Asia Pacific region at ULI. “While ESG standards and requirements are always improving, they are also changing at a lightning-fast pace — making it difficult for many organizations to keep up. With this report, we’re eager to provide our stakeholders in Asia Pacific with a tool that enables them to navigate this evolving landscape and craft a strategy that meets their individual needs.”
INREV CEO, Lonneke Löwik, comments, “In Europe, ESG reporting has already moved from voluntary standards to regulatory requirements. Those requirements unfortunately are still evolving, both on the continent as well as in the UK. At the same time we are lacking globally aligned standards and data. It’s all about data now – measurement and management – and real estate organisations increasingly find themselves getting to grips with data collection, data sharing and data consolidation.”
PRI Real Estate Specialist, Hani Legris, comments, “No single reporting standard, framework or certificate can cover all the wide-ranging regulatory and stakeholder requirements when it comes to ESG in real estate. Real estate investors face a dizzying array of options and obligations. Whilst the “right” choices will depend on the organisation’s ESG strategy and the jurisdictions they operate in, this report provides essential information to inform the process and is supplemented with case studies, which really helps to bring these topics to life.”
The 14 standards mapped by the report, including ten with metrics specific to real estate, cover the EU, UK, USA, Canada, Hong Kong, Singapore, Japan and Australia:
- Core corporate ESG standards: SASB (Sustainability Accounting Standards Board), IFRS S1/S2, CSRD (Corporate Sustainability Reporting Directive), GRI (Global Reporting Initiative)
- Thematic reporting standards: TCFD (Task Force on Climate-Related Financial Disclosures), CDP (formerly Carbon Disclosure Project), CDSB (Climate Disclosure Standards Board), CBI (Climate Bonds Initiative)
- Sustainability regulations: EU Taxonomy, SFDR (Sustainable Finance Disclosure Regulation)
- Industry-driven reporting standards: INREV (European Association for Investors in Non-Listed Real Estate Vehicles), EPRA (European Public Real Estate Association), GRESB (Global Real Estate Sustainability Benchmark)
- Principle-based commitments: PRI (Principles for Responsible Investment)
The Mapping ESG report is available on ULI’s Knowledge Finder platform and on the INREV website at https://www.inrev.org/standards/ESG
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About the Urban Land Institute
The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to shape the future of the built environment for transformative impact in communities worldwide. Established in 1936, the institute has 46,000 members worldwide representing all aspects of land use and development disciplines. For more information on ULI, please visit uli.org, or follow us on Twitter, Facebook, LinkedIn, and Instagram.
INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, was launched in May 2003 as a forum for institutional investors and other participants in the growing non-listed real estate vehicles sector. The association represents and reflects an industry with a total value of €2.8 trillion and INREV members deliver €385 billion of stimulus to the real economy of Europe. INREV has 497 members which include 127 of the largest institutional investors as well as 40 of the 50 largest real estate fund managers, plus banks and advisors across Europe and elsewhere. The non-profit association is focused on increasing the transparency and accessibility of non-listed vehicles, promoting professionalism and best practice, and sharing knowledge. It is based in Amsterdam, the Netherlands.
The Principles for Responsible Investment (PRI) is the world’s leading proponent of responsible investment. Supported by the United Nations, it works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions. The PRI acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole. Launched in New York in 2006, the PRI has grown to more than 5,000 signatories, managing over US$121 trillion. For more information visit www.unpri.org.