Does benchmarking actually drive better results, or is it a fundamentally flawed distraction?
A panel of experts from around the world tackled this question at Greenbuild 2017’s Better Benchmarking: Comparing Sustainability Performance.
Current State of Building Performance Benchmarking
When it comes to the disclosure of critical sustainability data, the market is fragmented and inconsistent. Lacking regulation to codify what data is “material” has led to a number of groups – GRI, GRESB, CDP, SASB, DJSI, NACREIF, MSCI to name a few – attempting to place value on various efforts. However, none exclusively use actual, verified data – the baseline expectation in traditional financial reporting. As expected, many investors discard the current regime of reporting as not sufficiently robust for their purposes, with 29% of investors trusting disclosed environmental, social, governance (ESG) data.
So, if ESG data is to be taken seriously by all investors, it needs to achieve a robustness comparable to that of financial data.
Investors Value Sustainability Data
Sustainability data is a useful component in assessing risk and cost of capital. An authoritative paper by CBRE, the world’s largest real estate services company, found higher lease rates and NOI as well as lower insurance premiums and tenant churn as a result of sustainability practices.
BlackRock CEO Larry Fink penned an open letter declaring “environmental, social and governance (ESG) issues – ranging from climate change to diversity to board effectiveness – have real and quantifiable financial impacts” and asked companies to act upon this in their operations and strategic planning.
“I’ve never seen anything as effective as ESG characteristics when it comes to anticipating future earnings and volatility of U.S. corporations,” said Savita Subramanian, the Head of US Equity and Quantitative Strategy at Bank of America Merrill Lynch Global Research. With proven low volatility and higher returns, investors would place greater weight on disclosed ESG data if they felt the information provided was reliable.
What’s Next in ESG Benchmarking
Benchmarking organizations serve the owners and operators of real estate – they want to help them drive their funds to produce verifiable ROI. These benchmarking organizations should be less concerned with weighing arbitrarily assigned value to ESG initiatives and place greater emphasis on measuring what matters – investors will determine which metrics prove better business performance.
The panelists discussed the future of benchmarking and solutions to current challenges. Here are highlights from the panel.