Canada’s leading commercial real estate players are increasingly turning to ESG metrics to track responsiveness to a range of emerging risks and business imperatives, and to benchmark their competitiveness as new tenant, investor and regulator expectations reshape the market. The task is both growing in complexity and gaining more resources as companies set in-house targets and prepare for mandates that may be imposed upon them in the future.

REALPAC, an industry association that counts many of Canada’s most prominent real estate companies, investment managers and institutional investors in its membership, has released a macro-level look at the trends in an inaugural ESG report, drawing from a recent survey of its members along with Canadian data from sources such as GRESB and the Global Real Estate DEI (diversity, equity and inclusion) Survey. Meanwhile, several REALPAC members are also affiliated with OSCRE (Open Standards Consortium for Real Estate) International, which is currently developing standards for managing and reporting environmental data.

“Investor demand for more ESG data could not be higher. Having good quality data is fundamental,” Ailey Roberts, principal, sustainable investing, with BentallGreenOak, asserted during a recent webinar sponsored by OSCRE. “It’s actually a business critical need. We can’t raise capital without it. We can’t report to investors without it. It’s going to impede our ability at the end of the day if we don’t wrap our heads around it.”

Information silos impede organization-wide exercise

OSCRE identifies some core elements of that process. ESG should be incorporated into a company’s overarching data strategy with a clear delineation of how it connects to all business functions and how it is to be collected and aggregated. That will entail what’s known as master data management to ensure uniformity and accuracy, and to assign reporting accountability across the enterprise. A specific ESG data standards strategy then provides further tools and processes for managing and analyzing the data.

Many companies are still grappling with the logistics of that framework as demands for data collection and management evolve rapidly. Experienced practitioners are scarce, data can be difficult to locate and retrieve, and longer established business units may not be aware of, or receptive to, their required contributions.

Landlords can encounter complications in trying to track energy and water use, waste generation and other pertinent ESG factors within tenants’ premises, while, within their own operations, there is a vast supply chain to consider. Chris Lees, an OSCRE technical director, notes that both internal business units and external contractors tend to be largely focused on the types of information that they need for their own purposes, which is often narrower than ESG’s expanding scope.

“Even if you can establish some clarity around the ownership, it still doesn’t mean the data is just there for the taking,” he observed. “You’re often asking for something that people don’t feel very obliged to provide.”

“ESG data is embedded throughout the organization, in places that you probably didn’t know it existed. As we think about what is included within the pillars environmental, social and governance, this really does touch on all facets of an organization,” Roberts concurred. “We need to get incredibly granular with the level of detail, and the expectations to report on ESG data is typically put on our team, not necessarily on some of these other groups to report that data.”

For now, that’s necessitating some labour-intensive exercises. For example, Roberts’ team is currently going through BGO’s leases to identify clauses that are relevant to ESG and the company’s target for net-zero greenhouse gas (GHG) emissions by 2050. Extracted information is being plugged into a spreadsheet at this initial stage, with the goal of converting it into more workable data.

“These are things contained in very manual PDF documents that possibly no one has looked at for a number of years,” Roberts recounted. “The next question is: where’s this information going to live? We’ve never had this quality or this level of data before, but now our team is challenged with finding a home for it so that we can access it in the future and actually leverage it to make decisions and have an informed conversation.”

IT is critical to the endeavor as the ESG team collects everything from asset-level operational data to HR and financial data. In reaching into almost every department within the company, Roberts suggests it’s also something of a new conduit for communications between them.

“There’s a lot that the entire industry is learning about,” she said. “There’s constantly some new regulation, new standard, new framework to report on, and it’s our job to figure that out, and not only educate ourselves, but educate our stakeholders.”

REALPAC members rank priorities and report on indicators

REALPAC’s ESG report reiterates commercial real estate’s direct interest in nine of the United Nations’ 17 sustainable development goals, including:

• good health and well-being;
• gender equality;
• affordable and clean energy;
• decent work and economic growth;
• reduced inequalities;
• sustainable cities and communities;
• responsible consumption and production;
• climate action; and
• partnerships for these goals.

The membership survey, conducted in April 2023, finds that respondents’ most pressing ESG priorities, in order, are: net zero carbon; diversity, equity and inclusion (DEI); reporting disclosures; energy management; and green building certifications.

Currently, 83 per cent of REALPAC members have either a formal DEI policy or some measures in place; 75 per cent consider climate risk in investment decisions; 70 per cent participate in the GRESB annual ESG reporting and benchmarking exercise; 48 per cent report on scope 1 and 2 GHG emissions, encompassing direct emissions from on-site or fleet use of fossil fuels and indirect emissions from the production of electricity that assets consume; 37 per cent have a target to achieve net-zero emissions; and 33 per cent report on at least some categories of scope 3 emissions, encompassing the broad range of emissions from activities within a portfolio over which landlords have no control.

In his introduction to the report REALPAC’s chief executive officer, Michael Brooks, commends the membership for proactively embracing ESG and grasping how it underpins their business credibility and agility. Along with the snapshot of industry efforts, the report discusses the challenges to comply with and report on an expanding list of fiduciary and regulatory requirements. It also highlights some convincing economic prompts as the price of carbon ticks upward in $15 annual increments to reach $170/tonne in 2030, and there is increasing pressure to integrate ESG and financial reporting.

“REALPAC is proud to support our members on ESG — from developing the first office green lease in North America, to setting targets for energy consumption in office buildings, to publishing guidance on greenhouse gas accounting and net zero carbon, to offering insights and best practices on diversity, equity and inclusion, and to being a strong voice on affordability and housing solutions,” Brooks states.

Envisioned OSCRE environmental data management standards will drill down to technical protocols for exercises like greenhouse gas accounting — which the REALPAC ESG report identifies as a “key challenge for the industry” fraught with “greater uncertainty around the quality and availability of scope 3 emissions data”.

“At the industry level, we can’t make progress without having these environmental data standards,” Roberts maintained. “There are so many different pieces of data that we are talking about. If we’re not able to compare apples to apples, it makes our jobs really difficult.”

Lees further places that in the context of a comprehensive strategy to address inherent dynamism in the standards themselves.

“Actually, you’re looking at a kind of hybrid set of standards effectively to cover all of your needs, and how you brings those together is an important part of the standard strategy,” he advised. “Those standards will not be static because the world is changing all the time. If you’ve got several standards today and they are evolving, you’ve got to have a strategy about how you’re going manage that.”

Barbara Carss is editor-in-chief of Canadian Property Management.