While many real estate owners and operators in the CRE industry are new to ESG (environmental, social, governance), some of Measurabl’s users have been working to push the boundaries in these areas long before ESG considered was essential to good business performance.
Recently we had the pleasure of sitting down with Jason McIntyre, Director of Real Estate Operations and Sustainability at USAA Real Estate, and Melissa Bartow, Account Manager at Measurabl on a live webinar. USAA Real Estate adopted Measurabl’s software platform early in its program development, advanced sustainability management and disclosure, and now the team is exploring new technologies to continue to improve the ESG performance of its real estate assets in order to better serve USAA’s customers.
Check out the full recording
Here are some highlights from their conversation, edited for brevity.
Melissa: It’s been a privilege watching the market transform from sustainability being a side conversation to ESG being fully integrated into business strategies. What were some of the factors that initially pushed ESG into focus at USAA Real Estate?
Jason: Some of the primary factors were gaining a competitive advantage, and then responding to and getting ahead of investor pressures. As early as 2000, our firm made a commitment to be an ENERGY STAR partner. When we began to set targets and goals around sustainability, we saw opportunities to reduce our operating expenses while also doing good.
Over the years, we’ve found that doing the right thing is really not a tradeoff for the business. I think sometimes sustainability or ESG can seem to some like a necessary evil or that it’s potentially slowing down progress. If you’re in acquisitions and your deal flow is fast and now you’re having to look at additional ESG risks, it can seem like a burden. But if our goal as an investment manager is to meet returns and reduce risk, then ESG is a risk, and if we ignore it, we’re potentially not taking advantage of opportunity. If you don’t integrate this into your business then you might run into some unfortunate surprises later on.
And now, increasingly, our investors are asking for more transparent disclosure around ESG performance and almost requiring improvement. By getting ahead of these requests, we’ve been able to further deepen those relationships and engagement with our stakeholders.
Melissa: How have you made a business case for sustainability?
Jason: We’ve actually been able to use our energy savings toward many of our ESG-related expenses, like LEED certifications. Now, many of our tenants have similar ESG goals and strategies, so we’ve been able to demonstrate to asset managers that there really is a business case here. Right now we’re involved in an energy analytics program in which we’re getting real-time analytics on our office buildings. Those programs cost money, but we’re paying with the resulting savings. If you can position your strategies that way, you’ll catch some tail winds and you’ll get the confidence you need from asset managers to continue bringing ideas to the table.
Melissa: How has technology helped you improve your ESG efforts over the years?
Jason: We joined with Measurabl as an early adopter in 2014. The software gives us a framework to collect and manage data and evaluate the data quality. The last thing we want to do is disclose erroneous data. When we owned all of the data and we were just collecting it annually, disclosure was pretty straightforward; but, it’s become more complex as we’ve grown and pivoted. Having good data that’s timely, accurate, and being able to understand the lineage has certainly helped us gain a lot of confidence when we disclose to stakeholders.
This year the discussions have been not just around logistics of obtaining the data or what data do we have, but the right or authority to gather data. We’re a leader in green leases, but gathering data on assets can still be difficult if we don’t require tenants to disclose it. Having triple net leases with industrial tenants strengthens that partnership. Data is certainly a strong driver. We have embraced other technologies as well, including solar roof leases, and we just finished our first battery storage solution in San Jose, Calif. We also did a smart window installation in San Jose to save energy costs. It’s important to be ready and willing to embrace these technologies and push for them as well.
Melissa: What advice would you give to a company that is just getting serious about tracking and disclosing ESG data?
Jason: Take one step at a time: If you aren’t getting data, start getting data. If you have the data, start validating it. If you’re validating it, get it assured by a third party. Without data accuracy, it’s difficult to establish a baseline. Certainly lean on best practices, lean on good solutions out there. Any data is better than none.
Then determine at what point you’re going to disclose that data. If you aren’t ready yet, look at the gaps you have in your current data set. That’s probably the best place to start. Try to focus on two components: obtaining data and obtaining the authority to request the data. When determining how you want to disclose that data—whether it be reporting to a benchmark like GRESB or producing your own sustainability report, my advice is to listen to your stakeholders to gain a deeper understanding of what their drivers are.
Melissa: How can companies gain a competitive edge once they understand the physical climate risks affecting their portfolio? USAA Real Estate has started to assess and act on these risks. Can you shed some light onto why your group decided to look into that, how you’re building resilient practices, and what is the true value of climate risk exposure?
Jason: Climate risk has always been there, but being able to quantify and utilize these risks for decision making is paramount. The industry has brought us to the point where we have decent metrics to look at, but it’s still a bit unclear on how we should use them—that’s each company’s secret sauce. In 2019 we did an initial look at physical climate risk, but it’s really taken time to digest some of those numbers and to understand how to use them to build resilience.
For us it’s understanding these risks and then determining how they drive decision making and operational planning of the asset. We can’t eliminate all of California from our investment portfolio because of wildfire risk, for example, because there are still desirable markets. As with any good risk management plan, you have to identify and determine what risks you’re going to avoid, which ones you can transfer, and which you’re willing to accept. Right now we’re doing our best to incorporate that into our risk ratings and ultimately with our asset management to evaluate how they impact underwriting, or determine whether we need to budget capital for things like rising sea levels. None of our investors right now are asking us to disclose this, but they are asking if we’re incorporating climate risk into decision making.
Visit USAA Real Estate’s website to learn more about its sustainability efforts.
Watch the full recording of the discussion here.