Canadian participants are largely in line with their international peers in a 2014 accounting of portfolio-wide real estate sustainability. Results of this year’s Global Real Estate Sustainability Benchmark (GRESB) survey, released last month, draw on a database of 637 respondents, encompassing 56,000 properties collectively valued at $2.1 trillion, and demonstrate an overall improved score from 2013 despite the influx of 156 first-time participants with the lower scores typical of beginners.
“I do believe in markets and market transformation,” Nils Kok, GRESB’s Amsterdam-based executive director, told a Toronto gathering in late September as he summarized the recent results prior to a panel discussion on GRESB’s relevance for Canadian owners, managers and investors. “Our goal is creating light in an area where I think there is still a lot of darkness.”
Thus far, the annual survey has exhibited impressive momentum, growing from a database of just three European pension funds when launched in 2009. Oxford Properties was an early Canadian adopter in 2011, and this year was identified as the North American leader in the diversified office/retail properties category.
“I think GRESB has been successful because it has really filled a gap in the market, and it is customer driven,” Darryl Neate, Oxford’s director of sustainability, observed in opening remarks to the afternoon session.
Plotting performance
GRESB results plot participants within the four quadrants of a line graph labelled Green Starters, Green Talk, Green Walk and Green Stars. This offers an easily grasped sketch of performance that has been derived from a more complicated mix of differently weighted factors, dubbed sustainability aspects, and gleaned from an extensive questionnaire.
The upper right Green Stars quadrant represents the best outcomes in both the management & policy (vertical axis) and implementation & measurement (horizontal axis) categories — a status that 36 per cent of this year’s participants obtained. That’s up from 22 per cent in 2013.
Notably, 70 per cent or 30 of 44 investors and companies based in Australia and New Zealand were Green Stars. Australia/NZ’s average score of 61 also significantly outdistanced average scores in the other regions, which were 47 for Europe, 46 for Asia and 44 for North America. Nevertheless, the trailing regions’ higher numbers of participation translated into a greater portion of Green Star achievers.
“A lot of the global sector leaders are actually from North America and that’s something that’s really different from a few years ago,” Kok said.
Although Canada’s nine respondents are somewhat overwhelmed in a North American pool of 151 and are a small fraction of the entire database, the value of their holdings amounts to a much more substantive presence. This reflects the relative strength of major pension funds and the lesser role of fund managers compared to in the U.S..
“Canada is a little bit of a paradox. This is also due to investment structure and pension fund structure,” Kok reflected. “I believe Canada is a little bit like Australia.”
Panellists — representing GRESB participants and a blue chip tenant of some of their buildings — welcomed that comparison.
“I would like to see us in the top right quadrant with Australia. I think Canada can be,” said Gary Whitelaw, chief executive officer of Bentall Kennedy Group (U.S. and Canada), which emerged as the global leader in the diversified property category in this year’s survey.
Stakeholder engagement
From the property owner/manager’s perspective, Whitelaw commended GRESB’s applicability to both investors’ and many tenants’ ESG (environmental, social and governance) obligations, as well as the company’s own operations, employee recruitment and retention. While Kok earlier acknowledged that some participants and observers may dispute GRESB’s attention to stakeholder engagement, which is allotted a value of 35 points or approximately 25 per cent of the absolute score, Whitelaw agrees proactive employees and tenants are a fundament of market transformation.
From that comes a drive for continuous improvement that can spur innovation and invigorate the corporate culture, adding to its talent-attracting arsenal. The same dynamic holds in attracting tenants.
“There is not much, generally, that a landlord can do that can help TD Bank be better in its core business, except sustainability,” Whitelaw maintained.
Roger Johnson, head of enterprise real estate with TD Bank Group, backed that hypothesis. “We truly believe one of our core values is to be an environmental leader. We do strive to embed it in everything we do,” he affirmed.
Turning to relationships on the other side of the corporate equation, Whitelaw noted that GRESB data is now figuring into investors’ due diligence, particularly in the case of pension funds. “I think it’s the fact that they actually feel a responsibility as the custodians of our capital to reflect our social values,” he suggested.
Analytical tool
The observation resonated with Joy Williams, an environmental and responsible investing specialist with the Ontario Teachers’ Pension Plan (OTPP), who endorsed GRESB data as an analytical tool. She noted that other components of ESG, particularly governance, are more longstanding concepts, which investors approach with more established questions.
“We have tended to look at environmental issues in a more ad hoc fashion,” Williams said. “We want to be more systematic about it.”
Meanwhile, for the boutique investment manager, Presima, GRESB can provide guidance in uncharted territory.
“When we are questioning management teams on sustainability issues, we often get the response, even today, that ‘You guys are the first ones who are asking about this’,” recounted portfolio manager, Vincent Felteau. “The biggest issue we had in the past was getting information at the portfolio level, but we are seeing that sustainability is really a key aspect in generating good returns, affecting share price.”
Panellists’ and attendees’ enthusiasm is perhaps to be expected. “We’ve got a self-selected crowd here and almost all have chosen to opt in,” observed Michael Brooks, the discussion moderator and chief executive officer of the Real Property Association of Canada (REALpac), one of GRESB’s partner organizations.
However, GRESB’s take-up rate over just five years illustrates how quickly ideas can spread, as Kok observed in crediting his first three survey respondents.
“These investors single-handedly changed the way a lot of portfolio managers and a lot of REITs were thinking about sustainability,” he said. “Now we need to get the conversation beyond this room.”
Barbara Carss is editor-in-chief of Building Strategies & Sustainability and Canadian Property Management.