GRESB in 2020 - Performance, results, and a look into the future

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  • December 10, 2020 | Chris Ogletree
GRESB in 2020 - Performance, results, and a look into the future

GRESB in 2020 - Performance, results, and a look into the future

In a recent webinar, the Goby team was joined by Dan Winters from GRESB, Natalie Teear from Hudson Pacific Properties, and Sarah Jung from Trademark Property to review the 2020 GRESB results, examine recent changes at GRESB, discuss the 2020 reporting season and future plans, and provide best practices and strategies for success. You can read the transcript of the webinar below or click here to view the recording.

Michelle Winters: Hey, everyone. Thank you for joining our webinar today. We’re going to give everyone just another minute to join and then we’ll get started. All right. Well, I think we gave our obligatory 60 seconds for everyone to start joining into the webinar. Again, thank you everyone so much for joining us today. We’re really excited to speak with you. Ultimately, so the live webinar with a panel is the goal today so “GRESB 2020: Performance, Results, and a Look into The Future.” So my name is Michelle Winters. I’m VP of Solutions at Goby and the moderator for today.

The 2020 GRESB season has come to a close. It's definitely an interesting year, I think, all around, but the results were really promising. It was another record-breaking year for GRESB submissions with more than 1,200 funds around the world submitting their ESG data and performance details which was a 22% increase over 2019 despite disruptions of COVID-19. So congratulations to the GRESB team and to our participants.

But during today’s session, so what we’re going to plan to do is, we’re lucky enough to have an amazing panel that I’ll introduce here in just a second, we're going to let Dan from GRESB start with a brief overview from the results presented last week and touch on anything new and upcoming with GRESB into 2021. And then open discussion with our panel of their 2020 GRESB experience, but really share some best practices and future ESG plans. We'll also open up the session to questions from viewers and across our panelists.

Our session today will run about 50 minutes in length and will be recorded and we’ll send it over to all participants, but before we begin, I’d like to introduce our speakers for today’s webinar. So we have Natalie Teear from the west coast, VP Sustainability and Social Impact at Hudson Pacific Properties. They’ve reported to GRESB specifically for over 3 years, but among other benchmarks as well. And in GRESB, scored in the top quintile of the entire GRESB universe for the past two years. That’s a five-star rating which is really impressive. And then we have Sarah Jung, Senior Manager of Portfolio at Trademark Property and 2020 GRESB Real Estate Development Sector leader for Retail America which is also really exciting and also a third-year participant. From the Goby team, we also have Erin Vicelja who is our Associate ESG Manager here at Goby and one of our inhouse GRESB and ESG experts. And he who needs no introduction, but Dan Winters, Head of Americas at GRESB.

The last quick thing before we get started, again, please feel free any questions throughout the session in the bottom right corner. We're going to answer as many as we can during our session for today. So with that being said, Dan, I’m going to start us off with you. 2020 has been an interesting year, but for our listeners who maybe couldn’t attend the results webinar last week, what are some key takeaways from the year and what does 2021 look like for GRESB?

Dan Winters: Well, Michelle, you almost stole my thunder there, right? So I think the big takeaway is, and I started this with our results of that last time, right? ESG has tremendous momentum and it had that coming into the year. And then as I reflected back upon January and February, right? And so my job is typically to spend time at the conferences. And so IREI, VIP Americas, PREA Spring Meeting, the Nareit ESG Forum, these were all packed events. So at Nareit, they had 50% increase of participants in their ESG Forum, right? About 150 people showed up. And what’s interesting to me is you’re seeing more folks. Not just the ESG people which get together and share best practices and are really a good solid group, but now it’s attracting more of the investor relations team. And they’re wanting to understand what’s going on, how to communicate these metrics, and it’s really sort of driving the interest within the firms.

So if I think about IREI, that’s a private equity group as is the PREA Spring Meeting. And at each of those events, whatever the topic was of the panel, they always devolved or moved into ESG issues. It was pretty amazing to see. And so there we were early March, the PREA Spring Meeting was in Los Angeles and then what? This pandemic hit, right? So that changed everything. And for us, it was a bit of a scramble to get our most important thing that we need to do with any year which is on April 1st; open up that portal, right?

So we were able to do that. We’re a distributed organization and we moved that. You know moved everybody into scramble mode and we delivered that, but the more important thing was being able to deliver some online training to folks because that’s what we normally do on our get-together. First, in Chicago with you and in New York and other places. And Goby has been a great host all along the way. So being able to pivot and deliver training online was also an important milestone for us. We, at that point, started to hear from the industry, right? Oh my goodness! That we were totally disrupted and what are you doing about the timelines? We were able to reverse engineer a bunch of deadlines and contracts and whatnot to extend the deadline until August 1st and that started to push everything back in our deliveries.

So here we are now. The second quarter was okay. The third quarter was a little bumpy. In getting the results out, we had some errors that showed up in the benchmark reports, but the good news is that we implemented this review period. We had 1,230 sets of eyeballs looking at everybody’s benchmark reports and things elevated. First from Australia then here in the U.S., the EU, right? The UK folks and they’re like, “Well, oh. We’re seeing some weirdness with our like-for-like calculations.” So we were able to step back, fix those things and reissue.

The whole reason why this was going on is two years ago, we started to make this pivot. What is performance? And what we did is we carved out the management component of GRESB and the performance component of GRESB and the developing component of GRESB. Well, this basically had us reinventing and rebuilding the airplane while flying it. And I don’t recommend doing that, particularly in a pandemic when other things are happening so third quarter was a little rocky.

Fourth quarter, all is well again so we were able to do benchmark reports. The benchmark reports have changed. You're seeing that there are some new graphics and things are in there to really more granularly slice and dice how peer groups or how peers are doing against one another and really being able to get into things like GHG emissions and energy, water, waste, right? We’re seeing more folks being able to report waste. That was really nice to see, particularly from the Canadians. And so here we are into December getting through what has been the longest year for, I think, pretty much all of us in our professional lives and we’re looking at 2021 is going to be a solid year.

We also had this little thing that happened. Not only a pandemic and not only rebuilding the airplane while flying it, but we had a small transaction and so we did a management buyout. And so now GRESB is setting a course forward for 2021. And the key thing with this is that we’ve taken the standard and we’re putting in a foundation that’s based in the Netherlands. And that is governed by institutional investors and all of our benchmark committees, all of our governance groups will live in this. And what we’re doing and what’s exciting to me is we’re going to start to define what is performance together with the industry so here we are.

What has been performance for a decade? It has been, “Can you acquire the energy, water, waste and greenhouse gas emission data?” You ask organization that in 2012 and they’re like, “Maybe I can get the spend,” but boom! My head’s exploding. How are we going to acquire that data, right? And so you have good partners in Goby. There's a whole ecosystem out there of folks that want to help you acquire this data. And not only get the data, but assure it. Make sure it’s good, high quality, with lineage and it’s timely so you can do a good service for your clients, right?

We have institutional investors that are carbon footprinting their portfolios, right? They signed the Montreal Pledge in 2014 and so an example of that would be CalPERS. CalPERS signed that pledge. They joined GRESB in 2016 and they asked all of their real estate fund managers, which they have 11 of, to start to participate in GRESB so they can raise their game when it comes to data availability and data quality. They did the same thing on the infrastructure side. So when they issued their carbon footprint report last year, they had good quality data from their real asset portfolios, real estate and infrastructure and that proved very, very beneficial to that organization. And so at the end of the day, people that are their fund managers, the listed property companies that CalPERS has positions in, they were able to start to report that data to them; worked out great.

So now as we’re looking ahead, performance is obviously a lot more than just can you acquire data in this year where COVID has happened and it has really disrupted the real estate industry. So looking at like-for-like performance and things, it’s going to be weird. Let’s just call it what it is. 2021 is going to come up with some strangeness in our data whether you’re an office company or retail company, whatever your property type and holdings are. So we’re together, through the foundation and through our governance groups, going to start on this journey, if you will, of what does performance look like and how is that recognized and rewarded within GRESB.

Now, the great news, I'm being joined by a couple of real all-star companies, right? And one of them has stepped forward in a big way and did a number of steps to move towards net zero. GRESB didn’t really recognize those accomplishments as well as it could have this year, but we always have to meet the industry where it’s at. So we’ve got some groups that have been participating in GRESB for a long time. They're five-star, they’re four-star, right? They’ve raised their game from maybe a poor grade, if you will, the public disclosure, all the way up to A’s. That’s awesome! So we want to now take this momentum and start to define together what performance looks like in the industry and that’s really where we’re heading. We don’t have the answers. We believe that the industry does. And so work in groups and our various governance committees and our trade association friends are going to help us with that.

So that’s what the next 24 months look like, right? We’re going to take those things in chunks. I’m confident that the assessment will stay relatively stable for 2021. So whatever we did this year, we’re going to continue to do the same thing next year with the one component of the Resilience Module where we still have designs to try to bake that into everything within the existing assessment. However, what was nice about that module is it really mapped well to the TCFDs.

So a little bit ahead of our skis because next week is when we have these benchmark committee meetings in Australia and in the United States, the EU and the UK. So we’re going to be getting some feedback from those groups and that will set our chart for 2021. So with that, that’s just some general highlights. I’m confident that we’ll answer some more things as this webinar continues. Michelle, can I turn back to you?

Michelle: Yeah, absolutely. And that was a fantastic overview going all the way back to reminiscing about the days of in-person conferences and what that looked like and getting out of my house. So yes, thank you for that. And yeah, there was a lot of really great components in what you were giving in terms of an overview and I’m excited to dive into each of those actually with our great panelist group here.

You talked a lot about performance so maybe that’s a great starting point because I think we’ve seen this really strong emphasis of tracking performance. And I guess I’ll really start with Sarah and Natalie here. Maybe Natalie, you first, but how have you found this shift and this change? I think we’ve really seen it over the last year more than anything of focusing on performance. Has this really changed your overall programming, decisions and your communication on those initiatives?

Natalie Teear: Overall, I think it’s 100% the right move. Performance is what matters and that is what we should all be moving towards. And not all of the ESG rating frameworks out there are doubling down on performance and so it’s really great to see GRESB doing that. And it’s tricky as you were talking about, Dan. It’s really hard to figure out a way that rewards performance in a fair way across an industry. The benefit that GRESB has compared to other ESG frameworks is that it is focused on one industry. So although every sub-sector is different, there’s a lot of coherence that you get just because everyone’s dealing with buildings in some way or another. And so that probably is one reason why GRESB has been able to move towards performance ahead of other ESG ratings frameworks.

Some of the questions that I expect you’ll be tackling in the upcoming benchmark meetings, and I hope come the next few years because it’s going to take time, I know are the things that we’re really focused on and you mentioned us. And so for example, well I should say just by way of background. Hudson Pacific, we’re a midsize REIT. We're 20 million square feet of classic commercial office and studio space on the west coast of North America. So we have a different value proposition that many other REITs or real estate organizations. So that said, it has been easier for us to move fast in a lot of areas both in terms of data coverage and performance. But one thing we have done is move fast. Last year, we converted to 100% renewable electricity and a few months ago, we announced we did hit our net zero target several years early. And we’re really proud of that. I’ll tell you like that’s what I cared about more than anything else. No offense to you, Dan, or the GRESB organization, but I care much more about us hitting net zero than doing any ESG-related things. However, I would really like for that to be reflected.

Dan: You did, so awesome! Keep it up. No, go ahead. Sorry.

Natalie: And so then you get into this question of okay, well, you would assume that that gets reflected in ESG ratings and the truth is that it doesn’t yet. There are a lot of ways that the ratings and GRESB and others are set up that they don’t necessarily recognize leadership and performance in the same way because A. Performance is just one part. There is also the management piece, but also because performance, at least right now, and the way that it’s structured is based on incremental year over year improvements. And when organization that makes really big reduction in one year, you kind of cap out on how much that can increase your score. There isn’t really a mechanism for bonus points if you do a real leadership move. That’s one thing I’m sure that you’ll be exploring in the upcoming benchmark meetings.

Dan: You stepped forward at the pivot point when we were rebuilding the airplane so good on you. We're going to make poster child of net zero. Is that okay?

Natalie: I’d be happy to do that, yeah.

Dan: Awesome.

Natalie: And it would be great to see. And Erin and I were talking about like oh my gosh, what does that even mean when we report this year? Are we just going to be all zeros everywhere? And then, are we going to be able to get improvements? Because how do you improve your like-for-like. There is no year over year performance improvement if our Scope 1 and 2 are going to be zero forever now hopefully, if we don’t go back on that commitment, right? So, yeah. So how do you set up a framework that rewards that as well as that kind of really fast improvement. Because the example I gave was last year when we converted to 100% renewable electricity, that got rid of all our CO2 emissions. It brought our total carbon footprint down essentially by 80% in one year. And from a GRESB perspective, it didn’t help our score any more than it would have if we had done a 10% year over year improvement, right? So are there mechanisms where there actually is a difference? There are bonus points available for going to 80% instead of 10%?

Dan: I just need to interrupt and let the audience know that we’re talking to an A student, if you will, right? So five-star, strong score, leader in the peer group. We’re splitting hairs, right? You’re doing all the right things and I know that the scores in the year that they retreated a little bit you know on the margin. You might have had points that weren’t quite as high as the year before, but it didn’t matter. Everybody else fell backwards you’re still a five-star so keep it up.

Natalie: Thank you. That was great.

Michelle: I mean, if anything, it’s a really good problem that we’re having with this. So I'm always a fan of good problems, but I think to Natalie’s point is what does that next stage look like which is why we’re excited to have Natalie join as well from that perspective. And so, Dan, you’re now on the case in your meetings next week. I like bonus points. I’m a fan, but Sarah, I’m going to turn the question over to you as well because kind of offset of Natalie. As she had mentioned, she’s on the west coast, she’s mostly office, there’s great accessibility to data. From the Trademark Property side as retail and kind of spread throughout different regions, you have a different perspective and challenge as it relates to performance. And so I’m really curious to hear your perspective as well because I feel like that’s actually more reflective of quite a few that are out here today as well.

Sarah Jung: I was just going to say I love hearing the A student’s take on things though because that’s like where my trajectory is, is like let’s learn from our peers and what are they doing really well. Yeah, Trademark is small boutique firm, privately-owned company in Fort Worth, Texas and mainly our portfolio is retail. For me, just not being a little unsure of what the scoring changes were going to do to our benchmark score, I really wanted to just cover everything really well as best that I could. So I did focus a lot on performance, but also put equal weight on the other components as well.

Michelle: Yeah. And I think we were excited to see too. Go ahead, Dan. I’m sorry.

Dan: No. What I learned from Sarah is if we put a little uncertainty out there, right? If we’re really transparent with what the questions are, what our scoring looks like, it’s all out there on the web, right? What we did, we did this management thing and then this performance thing over here and we were splitting it up, right? It kind of got people a little nervous. And so what happened is they got even more focused and were really in there and so your results were great.

Sarah: They were, yes. Thankfully.

Michelle: I don’t know that the scare tactic is the way to go, but we can get on board with it for sure. And Erin, maybe from the Goby side. So you’ve been able to work across multiple teams and what are some of the trends that you saw through this process? Are there other benefits that maybe are across some of our other teams with more transparent data? Transparency is always great, right? This time.

Erin Vicelja: It can. So I think for the performance question on how did that change programming. For a lot my clients, it was finally now worth it to tackle tenant data collection now seeing how many points it is for the performance section, how many points are left hanging by not collecting that tenant data and how many points are really associated with coverage. They're now like okay, let’s take a step back. We've said no to you every time you’ve asked us in the past years of, “Oh, do you guys want to collect for the indirectly managed properties?” It’s always no, but now it’s yes. We need to do this. We need to engage with our tenants. We need to figure out a way that’s not so burdensome on them, but allows them to see the benefits of it which is if the owners can track the data, they can also help reduce the energy use and the water use and that really only benefits the tenants. So that has been helpful in starting the conversation. And it’s really because of this year because of the change in emphasis on performance that that took off. So I'm excited to see where that goes in 2021.

I mean other things like that, it’s right to have data collection be the first part. Without it, you can’t do anything. You can’t set targets; you can’t know how much carbon dioxide you need to purchase. Like that is the first step, but that’s where some people are. Other people are way past that, like Natalie is saying, but for now, I think that is still where people are. That’s where we’re meeting in the industry right now is trying to get that data. And I would like to see like pressure on utilities to keep releasing that data. And I don’t know who that will come from. Maybe our new administration will help. I'm not sure, but people with properties primarily in the benchmarking ordinance cities, they have an advantage because utilities have a way to get that data to them. People who aren’t, they don’t. So it would be great to see that release of data available across all cities. I don’t know where that pressure will come from. Maybe us, maybe higher up. I’m not sure, but that would be great.

And then that also allows people to really, if they know what they have, they can manage it. And then that also opens all the doors to reporting frameworks. It could be GRESB, TCFD, GRI. Like you can actually use the data in meaningful ways and that’s what I see the benefit of this being. The performance should be what is the main focus.

Dan: There were 317 portfolios that participated in North America this year and I think that the pressure is a collective groundswell, right? And so as more folks are asking data from utilities, hopefully that pressure in and of itself, our collective shared purpose, if you will, will really come to fore. It was heartening for me to hear you talk about the push for tenant data because that’s an engagement. And we have splitting set of problems you know whose carbon is it? Gee, I want to invest in LED lighting, but the tenant’s going to get the benefit. That drives green leasing conversations. All of those things are things that we’ve all wanted and so whatever the forcing mechanism to make those things happen or get momentum behind those, seems like we’re going in the right direction.

Michelle: Yeah, absolutely. That’s one of the benefits I think of a lot of these benchmarks and frameworks that are out there when it comes to benchmarking. Even down the benchmarking ordinances, when it comes to GRESB and it comes to these others is it’s really pushing the industry forward which I think is exciting to see. And we’re seeing some of those benefits compared to as, I think it was Dan who had said, compared to like 2016 where we are today which is really exciting.

Well, with that, while we have performance on the brain, I think we’re seeing across the industry concerns of what does 2021 look like as related to performance. I mean across the board. On the office side, is anyone in the office? Maybe some, maybe not. Are there other things we’re doing at these buildings associated with bringing in outside air? Are we tracking occupancy in that sense? Same with on the retail. That's why I’m really excited for kind of the two sides of the panelists that we have. Some areas, retail has been hit hard. Some areas, it has been opening and then you know, Dan, how do you give points for all of this?

At the end of the day, we care about the points. I know. We're not going to give you too much pressure. You're still in decision mode, but maybe I'll start with the panelists as it relates to that question before I give Dan the hard one. Natalie, like I know this is on your radar. Can you talk about from your perspective of what is that communication looking like right now? What are things you guys are focusing on to address what performance tracking looks like from last year to compare it into 2021?

Natalie: Yeah. Well, I think in some ways, COVID is forcing a really important conversation in this world and it’s not just GRESB, right? I mean you have the EPA and ENERGY STAR program and others struggling with the exact same issues, but forcing this conversation around how do you adjust for external factors in a way that makes like-for-like comparisons actually meaningful, right? And so how do you adjust for the weather? How do you adjust for occupancy? Do it in a fair and unbiased way that’s also efficient and actually reasonable. We can do it because we’re midsize and we’re vertically integrated. I have a handle on our portfolio, but some of the really big funds, I mean to do that at scale is really challenging. So I’m not saying these are easy issues, but I do feel like moving towards more adjustments will make like-for-like comparisons more meaningful and will give integrity to the whole performance score. Otherwise, I think that there is a real risk that it just becomes awash and people stop caring about it because they know it doesn't mean anything. Yeah.

Michelle: Yeah, exactly. And Sarah, I think everyone is going to have the same concerns, same issues, we’ll say, so to speak, but also from different perspectives and from like the retail industry right now. Can you lend some of your thoughts on what that communication is looking like internally and externally on your end also?

Sarah: Yeah. I mean even when you think about the stay-at-home orders and closures, I mean we had some malls that were closed months longer than others. And so I think when you think about the like-for-like, how do you compare when they’re all in your portfolio together, but you have some that were on a completely different opening timeline than others. How are we going to look at that in 2021 is the big question.

Natalie: Yeah.

Michelle: And then, Dan, here comes your hard question. So any insights that we can start to glean or telling us while you’re still figuring it out is okay too, but any thoughts to what GRESB will be looking at in terms of how to account for this heading into the new year? Because although we will probably see impact in some way or fashion across all the participants, they’re each being impacted slightly differently. Exactly as Sarah said. She has regional differences or you have asset type differences or even all the retails aren’t going to look the exact same. So what are some things that you know of today or that GRESB is planning to look at or how to address that into next year?

Dan: Well, look, it’s definitely too early. We want to take the pulse of the industry so this is a great start and next week will be an equally good start. The good news is that this is a worldwide phenomenon so it’s affecting everybody. It does affect differently. We get it. I like how Natalie was able to navigate Hudson which is focus on carbon. I honestly believe that’s where the focus will be, right?

Natalie: Yes, I agree.

Dan: So like-for-like is all about trying to tease out did you make some intervention today that is driving down some energy spend or some energy consumptions and then shows up and likes to play. Okay. Well, that's one method and one way to do it. The other thing is how do you navigate to net zero? So that’s a component of it, but there’s more, right? Where do you procure your energy from? That’s equally important, if not more so. And it doesn’t have to be a CapEx. It’s an OpEx, right? COVID is affecting OpEx, not CapEx. So I think the data is going to look weird. And the point about ENERGY STAR, absolutely, it’s going to affect Canada. The folks that are going into winter time right now, but you have people coming into the buildings, you’re going to be blasting in fresh air as much as you can. And that’s going to cause energy spend to go up and that’s going to cause utilities to go up and consumption.

Natalie: And frankly, to that point, Dan, that’s exactly why we pulled our de-carb strategy forward is we saw what was happening. We had a plan to get there over several years and we saw what COVID was going to do to our energy. We knew it. We’re in Canada, Seattle and plenty of places where we’re going to be running a lot, just everyone’s running their HVAC longer and harder than ever before, right? And for us, the line in the sand was our energies can go up, but our carbon footprint cannot go up. Like no way. We’re not going up so the answer was to decouple it completely and just get to net zero and then we will work on energy as appropriate in a way that’s actually safe. We're not going to compromise safety. That's also a line we’re not going to cross.

Michelle: And actually, Natalie, one of the questions that came in was just diving into a little bit more on how you hit your net zero target. It sounds like there was a lot of that through some of the purchasing renewable energy that you guys were doing, the driving energy efficiency. This is like a lesson learned for those that are out there going after that goal. Can you touch on a few recommendations and how you guys are doing it?

Natalie: Yeah. It’s...

Michelle: Or is that a whole other webinar?

Natalie: Yeah. There are a lot of things that went into it. Energy efficiency, really focusing on building specific improvements and we used our ENERGY STAR certifications as a proxy for how well we’re succeeding on that front. And those have gone way up across the portfolio. Also, our PropTech and innovation pipeline, really focusing on things like on-site renewables and energy storage. And then it was really about energy procurement. So we had a lot of our sites because our west coast was fortunate to have direct contracts available and in place already or accessible to us at a reasonable price with our local utilities that are fully renewable, green power agreements. And where that wasn’t possible, we used off-site renewable energy credits from a wind farm in Texas and that took care of all of our Scope 2 emissions. And then the piece that we accelerated into this year, once we saw COVID was hitting, was our carbon offset strategy which effectively negated all of our Scope 1 emissions.

Michelle: Awesome. It’s an exciting feat so we’re absolutely excited too. Maybe we’ll have a whole other webinar with you with of like, “Okay, we did it. Now what?”

Natalie: Now what?

Michelle: How do we maintain this? Lessons learned on that front. Perfect. Well, I think from here I’m going to go ahead and dive into there are a few other specific questions that have kind of come up. They were either prior to the webinar as well as that I see coming in. So I’m going to maybe dive into some of these if that’s okay with everyone.

Specifically, I want to talk about the Resiliency Module and really what resiliency means holistically even beyond just GRESB. But in light of everything happening with COVID, I'm really curious to hear from the panelists and even Dan, from you, on “Is resiliency being viewed differently?” Are you seeing kind of a change in that conversation that’s happening? A. Because of COVID, but how that’s really being reflected within ESG. I know we’ve been seeing in conversations, an uptick in questions. Sarah, I might ask you first. Resiliency specifically and tell us the impact of where are you really seeing that shift maybe.

Sarah: Well, I feel like the conversation at the beginning seemed like it was mainly just about climate risk a lot. And now, you’re hearing, especially with COVID, you’re just hearing about it in a really different social way that I think really opened the conversation up in a way that it hadn’t been before and made it feel almost as more tangible to people in an everyday kind of way. And I think it really just helps the conversation especially knowing that it’s going to be included in the module for 2021. I think that it just helps to have this conversation.

Michelle: Yeah, absolutely. And, Erin, I may even, from our team, ask you as well. I mean I’ve found that now because of COVID, having these conversations are just easier. And it has always been we’ve had to make the case of why and a lot of that why comes from a risk mitigation standpoint. And sometimes it’s hard to put that in front of people. It's like no, no. This is to prepare for these components and COVID is one of those components. So Erin, maybe from your perspective, from our clients and us helping to frame those conversations, any other thoughts or what you’re seeing on your end?

Erin: Yeah. In the past years, we’ve talked to clients, “Okay, do you want to pursue this optional module?” And a lot of them are like, “Oh, we don’t do anything for that.” Like they’re just like, “No.” And I'm like, “This is the first year we sat down and we’re like you have to be doing things like that because it’s occurring.” You have to have a business continuity plan. Your properties have to have things in place to deal with their tenants, their occupants. And that opened the conversation to everything else they actually are doing. It’s just like the frame.

I think maybe when they thought resilience, they were like oh that’s a new area of sustainability that we’re not into yet, but they are. Like everyone is doing something for resiliency. It's just it’s less known. It’s less top of mind. So I think this year with COVID, with talking about social risks and the pandemic, it did help frame the start of the conversation that led to us learning a lot more about what they actually are doing and that they didn’t even realize was applicable here. So I do think it will be helpful. And I also really pushed everyone because it’s going to become in the actual survey. So I was like let’s just see what you have.

Natalie: Yeah. One thing...

Michelle: Natalie, go ahead. Yeah.

Natalie: Just to chime in on this, I do think it’s great that there is more focus on resilience in general. And for sure, I mean if you look at the investor world, TCFD is the most talked about issue at the moment so this aligns with what’s happening in the investor community. My personal gripe, however, with the framing of resilience in GRESB, but also this is half true in the TCFD framework as well is that for a lot of companies, these issues are not just a risk, they’re an opportunity. And often, they’re more of an opportunity. Climate, in particular for us, it's an opportunity. We think that, in many ways, carbon is already priced into our business. We have already converted to net zero which has negated pretty much all of the transition risks that we’re facing at the moment. So when we do our scenario analyses, the downside is actually fairly minimal to us at the moment, but there is huge upside and that’s aligned with our business strategy. That's the niche that we’re going after and we’re not alone in that space. So I would love to see the conversation around this topic. And I don’t even want to use the word “resilience” because it implies the downside, right?

Michelle: Sure.

Natalie: I would love to see, and CDC does a good job of this, to really talk about the upside as well.

Michelle: Yeah. And, Dan, from your perspective, I know you commented a little bit on resilience in your initial opening, but any additional comments on this from you also?

Dan: Well, so let’s step back and think about what these modules are meant to do. So we started five years ago, I believe, with the Health and Wellbeing Modules. So what this is, this emerging topic that’s not captured within the assessment framework as it is and we come up with 10 questions. We throw it out there. It’s optional so you were already dealing with people that have survey fatigue. And so, to Erin’s point, right? “Oh, you should do it.” “No, we’re tired. Oh, it doesn’t matter to us,” right? So okay. So you get some volunteers, if you will, from the 1,230. Let’s step forward and do this. That’s a learning moment for GRESB.

So then in the second year of a module, we take that learning and we say, “Oh, okay. Well, here’s what some leaders and some people in the industry are thinking about.” And granted, some people just do it because they stumble in it and say, “Oh, there are more questions? Okay, I'll do these. No, no, no, no, no.” They get a zero. That has happened. Either way, we learn some things, we iterate on the questions and then we elevate. And then the third year, we score it with the idea that we’ve baked it into the assessment into the various questions and sort of answer options, if you will.

So what I heard from Erin, and this was the third year now of the Resiliency Module, so we would be on a trajectory to do what we did with the Health and Wellbeing Module; bake it in. But what I heard from Erin is a case to kind of leave it there and see if more people think about it. Because at the end of the day where GRESB shines is the whole idea of an annual assessment, wash, rinse, repeat, have a management team think about the issues, every one of the aspects within GRESB, things in the module, get some results, look at those results, do some management introspection and decide what makes business sense for them in their context to make progress.

So to the extent of the Resilience Module, and I’m just going to argue both sides of it, it can live as a standalone. It will put more management teams through that process, get them to thinking about it. If we take it and bake it in, well it’s going to be part of lots of different things within the assessment. So these are best practices that show up in underwriting, right? So how many people do a climate risk analysis in their underwriting? Either transitional risk or physical risk? It’s an emerging topic and I’m watching people bring these memos forward in their investment community. So that’s how these practices elevate and diffuse and that’s our goal.

Michelle: Yeah. You mentioned about health and wellbeing and I think that’s another good example too of how we’ve seen that actually be moved toward successfully within GRESB and it’s the exact same thing. It brought additional conversation to light and it was inserted into the rest of the portfolio. And I personally think the social and the resilience, I think now that you touched on it, it’s really all intertwined. It's all together. It’s a little bit of also the risk mitigation, but looking for opportunities for growth and improvements as well and what that positive benefit and impact can be.

Switching gears a little bit, with that kind of still in mind, but I'd love to spend a few minutes talking about just the social initiatives that are happening right now. I think in addition to the global pandemic, we also have a lot of social initiatives that were happening especially here in the states. And there is, I think, some really great positive things that can come out of that. And just looking at big picture, Natalie, again, maybe I’ll start with you here, what is it that you were really focused on in terms of the initiatives associated with social? I love that you have “Social Impact” in your name. Like that is in your title. It's a key aspect of it. What recommendations would you maybe have for our viewers of what you’re starting to focus on or even metrics you’re starting to touch on? I personally find the metrics of social, just those two words don’t go well together in my head, but how are you addressing this currently at Hudson?

Natalie: It’s funny you say that about my title. I joined Hudson a year and a half ago and before this, I never worked in real estate. I was in other sectors. It was mostly retail, consumer and healthcare sectors doing ESG work the whole time. And when I was in those other sectors, people used the word “sustainability” interchangeably with ESG, with corporate responsibility, with purpose, with mission. It was understood that sustainability was incorporated; inclusive of the “S” I think more often than not. And I was surprised when I moved into real estate that it really, in real estate, it really just means “E;” the “E.” And that the sector in general has not thought that much. The sector is, I think, more advanced on the “E” than a lot of other sectors, but is way behind other sectors on the “S.” And so for me, once I figured that out, I actually really pushed hard to get that social impact in my title because I wanted it to be clear to everyone that I do have a cross-functional role. And it has never been more important.

I mean our ESG strategy that we’ve built has three pillars and intentionally they span the sustainability and social impact sides and it’s sustainability, health and equity. And this year, I've spent most of my time, even though we’ve hit net zero, I'll say the vast majority of my hours have been on health and equity. Dealing with the COVID crisis, navigating through that, navigating through our approach to racial equity and racial justice, those have been top of mind to me and to our company even as we’re hitting these really big environmental milestones. But I feel it’s critical that the social topics be on an equal playing field as the “E” in real estate. And I would love to see the Performance Module in GRESB, that’s a plug for you Dan, to see it be reflective of a real balance and not just the “E” topics that are in there today.

Michelle: And follow up to that, what are some of those metrics that you are tracking for social? Just out of curiosity. I mean I’ve got a few that we are focusing on on our end, but I love hearing it from individuals. Specifically, because I think we’re seeing some trends and the same typical metrics, but I'm also seeing a little bit differentiation so I’m really curious like what are you tracking today? What are those performance metrics that you look at as kind of moving forward your social initiative?

Natalie: Yeah. And to be honest here, our data maturity here is less advanced than our “E” so a lot of the metrics we’re tracking, we’re not disclosing publicly yet. We do disclose our E01 data at a company level. We've disclosed that publicly and internally, we also track it at a management level. We track also things like hours. Hours of training in general, hours of DEI training that are distributed across the organization; that’s all on the DEI topic. Our other main priority under the equity pillar is homelessness which is a crisis issue in all of our cities. So we have a commitment to donate 1% of net earnings to charitable causes every year. I track that so our charitable giving really closely. And within that, a lot of that is dedicated towards homelessness and I’m trying to boost up the percentage of our giving that’s focused on homelessness every year so we can be more strategic about that. We also track things like policy and advocacy positions that we take and supports and whether they pass or fail at the local level. We track hours of volunteering. We track board seats that our members have in local community organizations. So I think there a lot of organizations and ways that we track impact. I definitely think that the sector as a whole has aligned on what the meaningful metrics are.

Michelle: GRESB has really been a fantastic benchmark, I think, for real estate. And there are a lot focused, exactly as you said, on the “E” side in terms of metrics. We have ENERGY STAR. I know there are other asset level certifications out there like Fitwel and WELL, but there’s nothing really out there today that’s a benchmark of alignment to review against as it relates to the social and the governance side of metrics. There's a lot of “this is a good place to be” information that I think you can sometimes find especially from the EU. They, I think, are a little bit more vocal on here are some things that you can strive for so I agree. I think as an industry it would be really exciting to see that as the next kind of standardization. And it’s also a word I don’t like with this, but maybe those at GRESB, they’re a little bit more familiar with how to set that up and come up with something a little bit more intriguing for how to be able to do that effectively.

Dan: What we do is capture what’s happening out in the marketplace and try to reflect it back. So I’m glad you’re recording this because I couldn’t take notes. Natalie said a number of thoughtful things. And the “S” is difficult, without a doubt. In real estate, it has mostly been about affordable housing. Sometimes it’s about what the construct of the company looks like as far as diversity and inclusion that way, right? And that means attracting people to real estate from different walks of life.

I was asked this question yesterday by somebody else and I kind of came around to the answer of I think that better decisions are made when you have people with different perspectives and coming at things from a different way that all pile in and offer their perspectives and it leads to better outcomes. I truly believe that and I watch it happen with our organization, right? We’re 34 people of 16 different nationalities and 50-50 male, female so we typically, over a process, we’ll make some good decisions. And I very much appreciate that. It has been my experience through the walk through life and I'm hopeful that that resonates with others that are listening.

Michelle: Yeah, absolutely. Well, I know we’re going to be coming close to the end here in just a minute so why don’t you get a little bit more like forward thinking. Let’s leave 2020 maybe behind us as much as we can. And maybe, Sarah, I'll start with you here. Looking ahead into 2021, is there anything that you’re really excited about that you’re kind of putting your focus and your efforts on heading into next year?

Sarah: Yeah. We're definitely cleaning up our data even more. I’m kind of a perfectionist and I want it to be as good as it possibly can be so I'm putting a special focus kind of on data right now within our portfolio. But then also, it’s really just educating our teams, educating our field teams, our managers, our employees about what ESG is and how it affects them individually, both as an employee of Trademark as well as working at a specific property or working in our corporate office. So when you guys were talking about social, it made me think about all the conversations that were happening over the summer about race led Trademark to start kind of a diversity committee. We call it “The Idea Committee” and it’s inclusion, diversity, equity and access. And so we’re getting those voices to be having conversations. They’re printed in our newsletters that comes out once or twice a month to all the employees with really interesting articles and all sorts of different things. So I think just kind of changing our culture in a way that includes these conversations, these ESG metrics as a part of the conversation is something that I’m looking forward to.

Michelle: It’s one of my favorite things about our industry is that I feel like we take some of these crazy, global pandemic, as the example, and we turn it into a positive impact. Like the goal that that I find across ESG and across clients that we work with is positive impact and what that means and how can we share that. And that’s why we love webinars like this too. So I think that's another really great idea of sharing into 2021. Natalie, same for you; 2021. You hit net zero. What does next year look like for you?

Natalie: Yeah. We're focusing on a couple principles, and this is true across both the sustainability and social impact side of things, but local impact. Really understanding our communities, the neighborhoods that we’re in and having a local impact. And additionally so spurring new solutions, environmental and social solutions where they don’t exist already. Where I think we’re doing that pretty well right now with our in-house innovation pipeline that’s in place operationally, where it’s new and I'm spending a lot of time right now, is partnering with our investment team and looking externally to start making some impact investments and splitting up an impact investing platform so that we can help grow solutions. Whether that’s climate tech solutions that we can use in our buildings that aren’t scaled yet and we could use them. And by the way, that would have great impact on the world and we can make money. We think now is a great time to be investing in these solutions so let’s focus on that and then that’s true also on the social side. There are some really interesting innovations particularly in the housing space right now which is about, I think, on the cusp of real transformation in the same way as green buildings is and climate tech. So moving towards scaling new innovative solutions that help us advance sustainability, health and equity in our community.

Michelle: I love that also. Awesome. I think 2021 is going to be a good year. I’m excited. And then actually, Erin, from your standpoint too, what are you hearing across our clients or maybe what are you excited about? Because I mean I think we get into a lot of the weeds and the details sometimes, but what are you most excited for heading into 2021?

Erin: I think I'm just excited for the level of engagement I've seen this year more than any. People are ready. They're like, “I’m going to the table and I’m bringing my like this is what I want to do and these are the conversations I’m going to have.” It just seems like it’s more powerful this year than it has been in the past. There's an extra "umph" behind what people are saying and why they think it’s important. So I think all of these like the social, the climate risk, everything, it's so relevant that I think it’s giving everyone an extra leg up on pushing these initiatives through where past years it might not have been an option to.

Michelle: Absolutely.

Erin: At least, I think that’s what I'm looking forward to.

Michelle: Well, we’ll take the excitement.

Erin: Yeah.

Michelle: Well, Dan, I’ll have you bring us home here. I'll ask you the two questions. The one will be we expect some potential new things coming out into 2021. I know in March you guys come out with updates. But as you’re planning to address 2020 and what that means for 2021 reporting, I’m curious to know what’s next for GRESB in terms of communicating those things out to us. And with that, what are you most excited about as well?

Dan: So I'm most excited that I think we’re going to leave everything stable.

Michelle: There you go.

Erin: We are too!

Michelle: We recorded it.

Dan: We’ve locked ourselves into this annual change thing and part of it is because we’re trying to propel the industry forward, right? And we want to meet the needs of the leaders, right? But we also have some folks that are just getting into the system and that creates some tension. So I’ve realized a couple years ago that GRESB is really a 2-year change cycle and we had a heck of a year. So let’s just take a timeout here, right? And so you’re not going to see a whole lot of big revolution from us. It's going to be a lot like 2020, only better, right? More and more stable.

Where I think GRESB shines is their purpose in using what I have termed “behavioral economics” to create this competitive move to the top. So we’re propelling that and keeping that momentum down that track is really important to us, right? Because I think with that shared purpose, what everybody, I sense, wants are better outcomes for their companies and their clients as well as their communities and the kids. So if we can keep the direction going that way and bring more people along, we had 1,230 this year, I'd like to see that number go up by another 20%, but we never know, right? We never know who’s going to go up in the assessment year on year. Sometimes we have companies that were public and go private. Sometimes there’s a private equity fund that liquidates, right? Or who knows? So hopefully, we capture that momentum and keep it going and we bring that shared purpose to more folks. That's really our goal.

Michelle: Well, I think this was really engaging. So we appreciate everyone’s thoughts and feedbacks. And I’m personally excited for 2021 for kind of all the reasons that everyone indicated and looking to see what this industry can really continue to do. Each year, I’m always very humbled at what we’ve seen really and the impact it can have. So thank you to our panelists. Thank you to everyone that joined us for today. Thank you to the industry for joining as well.

For those of you that asked questions that we didn’t get to, we will try to answer separately, from at least from our perspective. And we’ll also send this recording around to everyone who joined, but thank you again. Everyone, have an amazing holiday season and we appreciate your time today.

ESG materiality assessments

With investors inquiring more and more frequently about what your company is doing in regard to responsible investment, how you treat employees and vendors, your dedication to sustainability initiatives, and other activities that fall under the ESG umbrella, it’s important to have answers to these questions.

An ESG materiality assessment empowers you to easily report on your current state and outline future initiatives while taking into consideration your business goals and risks. Download our guide to creating and extracting the maximum strategic value from an ESG materiality assessment.

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Chris Ogletree

Chris joined Goby in 2016, and as Inbound Marketing Manager oversees generation and development of a wide range of content, such as email campaigns, social media, website administration, and marketing collateral, as well as supporting improvements to the design & functionality of the Goby platform.

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