The oft made knock against sustainability reports is that they don’t contain information that matters to investors. To counter that perception, reporting standards have begun tailoring their requirements to include only performance indicators that actually drive financial returns. These indicators are called “material” aka they directly impact an investor’s risk-reward analysis. The following outlines the 3 top sustainability indicators for real estate companies.
Getting the right indicators into your report and the wrong ones out is like a public speaker eliminating “ums” and “ahhs” – it transforms a flabby, stilted speech into an efficient, punchy monologue worth listening to.
The stakes are high. After all, the most material reporting standard will be the one most relevant to investors. The standards deemed relevant by investors equates to adoption by reporters who want to capture investor attention and capital. In short, materiality is what matters. It helps companies focus their time on managing the aspects of their business that help them outperform, and waste less energy on collecting “dumb” data that makes good storytelling fodder but has no real punchline.
Who determines what’s Material?
The answer is still in flux, but real estate owners have been buffeted by reporting requirements like GRESB, the Global Real Estate Sustainability Benchmark, and AB1103, California’s building energy disclosure requirement, for several years now. As a result, several indicators have emerged as top candidates. GRESB, for example, has pioneered energy, water, carbon and waste indicators that take into account tenant- versus landlord-controlled building areas. Meanwhile AB1103, which requires building owners to report on energy performance whenever an asset is sold, refinanced or leased, has exposed risks in whole building electricity consumption. These reporting standards have shone light on material key performance indicators (KPIs) and helped create consensus around “what matters”.
Now a new voice has emerged on what’s material: The Sustainability Accounting Standards Board. SASB is solely focused on establishing material, industry-specific KPIs. These KPI’s are reported not to SASB, but to the SEC through standard financial disclosures. As a result, SASB’s standards apply only to publicly traded US companies. Industry bellwethers like David Stanford of RealFoundations and Duane Desidario of The Real Estate Roundtable muse SASB’s indicators may determine what’s ultimately included in real estate companies’ SEC disclosures and, by extension, what’s included in the management dashboard of countless private companies aspiring to go public or do business with public companies.
“If I were a betting man, I would say components of SASB (will) become part of the compliance audit process.” -David Stanford, Founder and Executive Managing Director, RealFoundations.
Top 3 INDICATORS THAT MATTER FOR REAL ESTATE OWNERS
SASB’s real estate sector standard is slated for public release March 2016. It’s already started circulating within industry working groups. But while the sausage is still being made, it’s clear what the top three indicators are. Consequently, here’s what you can expect to be reporting on within the next few years:
|Indicator||How It’s Measured||How It’s Collected||Why It’s Material|
|Energy||Sum of fuel, district, electric (MWh)||Utility bills, automated meter readings||Energy is a controllable operating expense. Lowering energy use reduces OpEx and increases Net Operating Income (NOI).|
|Portfolio Location||Building latitude and longitude||Geotagging, mapping software||Regulatory requirements are based upon state or municipal boundaries. At risk buildings are determined by latitude and longitude coordinates.|
|Climate Change Position||Policies, advocacy efforts, management statements||Annual reports, website, company charter||Statements from senior management acknowledging the risk and opportunities created by climate change indicate the company is aware of and likely to address climate change impacts.|