Environmental, social, and governance factors are becoming more significant concerns for real estate investors, property owners, and other stakeholders. All of these parties look for reliable ways to measure the soundness of a company’s ESG practices. Various portfolio-level ESG certifications seek to fill that need.
What are the different ESG scoring models, and which are the most relevant to a real estate portfolio? Consider six of the primary frameworks, their goals, and their uses.
GRESB Portfolio-Level ESG Certifications
Spend any time discussing ESG and real estate, and GRESB scores are bound to come up. What is GRESB, and why is it the premier scoring model for real estate portfolios?
GRESB stands for the Global Real Estate Sustainability Benchmark. The organization is an independent third party providing annual ESG performance assessments.
GRESB uses an easy-to-understand 100-point scoring model that allows stakeholders to compare one portfolio to others like it. A consistent yearly scoring metric helps a business see where it can improve as well as provides an easy way to show others how it is improving or maintaining high standards.
CDP was formerly the Carbon Disclosure Project. The group now prefers to go by its initials as it has expanded its focus to consider all environmental impacts.
This institution has over two decades as an international nonprofit. Public and private organizations from over 90 countries use its disclosure model for their portfolio-level ESG certifications.
CDP scores organizations with a letter-graded report card model. An “A” indicates a forerunner in ESG practices, while an “F” means a failure to disclose.
The CDP model incentivizes companies that use its Climate Change, Water, Forests, and Supply Chain programs to reduce environmental impact. The widespread use of this measurement makes it applicable across many industries.
The United Nations established its Principles for Responsible Investment to encourage accountable investing. UNPRI asks investors to consider ESG factors as means of mitigating risk and improving returns, which will also positively affect the economy and society as a whole.
UNPRI’s Principles include:
- Incorporating ESG issues into investment analysis and decision-making
- Adopting ESG standards into ownership policies and practices
- Seeking disclosure on ESG issues from investments
- Promoting acceptance and implementation of the Principles in the investment industry
- Working as a unit to enhance the effectiveness of implementing the Principles
The final principle is a commitment to reporting on ESG activities and progress.
This framework is one that investors in various markets should examine as it addresses the investment field specifically. The group uses a five-star system for grading investment practices and providing portfolio-level ESG certifications.
SASB is the Sustainability Accounting Standards Board. This organization supplies sustainability accounting standards to investors. Investors then use this framework to see how ESG decisions connect to financial valuations.
SASB creates different standards for each industry for customized reporting. The group focuses on providing data and does not have a scoring model. Instead, many companies use SASB standards along with other reporting methods.
The Global Reporting Initiative uses its “Triple Bottom Line” approach to help organizations determine their impacts on the world through financial, social, and environmental performance. The GRI standards grew out of the desire for more accountability and transparency after the Exxon Valdez oil spill in 1997. Thus, GRI is one of the earliest organizations promoting ESG, as people now know it.
GRI reporting takes a five-step process that moves from preparation to reporting. Then, member businesses review 30 environmental performance indicators in nine categories.
GRI is one of the most widely used reporting standards. This framework is similar to SASB in that it focuses on providing quality information, but it does not have a simple scoring standard like GRESB. GRI usually functions alongside other portfolio-level ESG certifications.
The Financial Stability Board created the Task Force on Climate-Related Financial Disclosures to promote market transparency for public companies. The TCFD offers recommendations around governance, strategy, risk management, and targets.
The TCFD provides various cross-industry metrics categories, including greenhouse gas emissions, transition risks, climate-related opportunities, and physical climate risks. The focus is on how climate-related issues impact financial performance.
Some organizations have struggled with understanding how to implement TCFD standards. As such, investors and businesses that want to comply with TCFD standards have used guidelines from SASB and other organizations to find clear solutions for implementation.
How To Take Full Advantage of Portfolio-Level ESG Certifications
Determining the best certifications, preparing for reporting, and promoting one’s score can become overwhelming work. A company must often consider using multiple frameworks or standards to accomplish its ESG objectives. For this reason, keen businesses rely on expert consultants to assist.
When you need help with your portfolio-level ESG certifications, ESG Property Consultants is here. Contact our team for assistance setting, achieving, and promoting your ESG goals for financial benefit.