As the real estate industry works to collect data for annual reporting, GRESB, SFDR and EU Taxonomy, I sat with a colleague that works for both Scaler (an ESG data platform) and Cooltree (an ESG consultancy) to understand the major challenges in this annual activity and the synergies he has found working across the two organizations.
- What are the main challenges you face when collecting ESG data?
The first challenge we encounter is understanding what metrics to collect. Most clients have several reporting requirements— GRESB, SFDR, EU Taxonomy, annual reporting according to GRI guidelines— each with their own indicators. We have to dive into frameworks and disclosure regulations to understand which metrics apply to a client and what exactly is being asked for. Especially in the case of mandatory disclosures like EU Taxonomy, it's often necessary to look from a legal perspective to ensure we cover all requirements applicable to the client and that they are being interpreted correctly.
Next, we have to collect the actual data and in many cases this means working with the client to put the right processes in place. Both static and dynamic ESG data is collected. Static data like policies and the implementation of risk assessments are fairly straightforward to collect once the process has been put in place. Dynamic data like consumption across energy, water and waste needs to be collected at multiple intervals in the year across all assets in a portfolio, often down to the meter level. The high level overview of data at the building and portfolio level is built on this granular data. The result is a lot of data points and the involvement of several stakeholders in the process. We work with clients to streamline this as much as possible, but it’s always a time consuming activity and can be especially difficult when an asset manager or other team members lack the knowledge, skills or other resources necessary to gather this data. That is why it is often outsourced to a consultant.
An excel-based data collection process adds extra complexity to the scope of reporting. Working with multiple spreadsheets for various reports and frameworks means that the same data may need to be entered in several places. In addition to being time-intensive, it is easy to make mistakes— values may be entered or updated incorrectly or not updated across all locations. These errors can be very difficult to detect and result in a misalignment of data.
- The EU's Sustainable Financial Disclosure Regulation became mandatory for the first time this year, with pre-contractual disclosures required on January 1st and the first mandatory Principle Adverse Impact Statements due on June 30th of this year. Has SFDR reporting proved to be different or more challenging than other reporting?
SFDR is one of the first reporting requirements of ESG information that is mandated by a regulatory body, rather than just being internal reporting or for shareholders. So there is an added level of pressure to ensure that reporting is done correctly, especially amidst questions and requirements that lack clarity. There are also a number of indicators the sector is not familiar working with, like exposure to fossil fuels and calculating exposure to inefficient real estate. So while those reporting to GRESB have a leg up with a lot of the data collection, there are new metrics that we are all figuring out how to answer. And simply the additionality of another disclosure means we need to be conscientious of not duplicating data collection efforts and ensuring that values are reported the same everywhere. You don't want investors questioning why reports are not aligned.
SFDR has a minimum number of questions that need be answered, but those asset managers that answer more have the advantage of being more transparent, which is the direction we expect the industry to move toward. And lastly, we need to calculate alignment with EU Taxonomy for clients as part of SFDR, so this is another new element.
- Reporting up until now has focused heavily on policies and data coverage. Does SFDR follow this trend or do you think it really will bring a new dimension to ESG in real estate?
One of SFDR's main goals is to combat greenwashing. Not only do asset managers have to outline their goals and objectives and specify indicators they will use to measure them, but they are also required to do periodic disclosures to show how they are performing against these objectives. While the current trend of organizations making sustainability claims like net zero carbon in the next 15-20 years is laudable, we expect that SFDR will force organizations to develop realistic goals along with the strategy to actually meet them. And it will underscore a shift from simply focusing on data coverage to measuring performance.
Because organizations will be held responsible for acting on and meeting their sustainability objectives, it is key that they understand the data that is being reported. As consultants, this presents us with a new challenge and opportunity. We have to work with clients to translate their data into insights that can be easily understood and acted upon. Most people don't have a background in data or statistics— numbers in a spreadsheet aren't enough. ESG indicators are increasingly being used in operational and other investment decisions, so it's critical that information can be digested properly to avoid missed opportunities and manage risk.
- How does using an ESG data platform like Scaler help you streamline the collection and reporting processes?
Where ever an organization is on their ESG journey, the landscape has become so complex that using a data management platform can add a lot of value. At the very least, it can make data collection and reporting more efficient and less error-prone. This can free-up valuable resources amongst employees— or even consultants— to do more meaningful work. At the other end of the spectrum, it can give managers tools to develop strategies and make more-informed decisions. In between, working with a real-estate specific platform like Scaler provides us and our clients with many advantages. Specifically for collection and reporting:
- A data point is collected once and then automatically used across all reporting and analytic requirements. We are no longer reporting to GRESB, then SFDR then GRI, but reporting simultaneously for all disclosure requirements.
- The platform is flexible and can ingest new and changing metrics. This means that as GRESB adds new indicators or SFDR clarifies the regulatory technical standards, the input parameters of Scaler can be changed accordingly, providing users with a clean and user-friendly experience on the front end.
- New data and changes to data are timestamped, user-linked, and data can even be frozen like financial data. That means that ESG data for our client is audit-ready and their data history is always traceable. This ensures the integrity of data for internal use and can also save clients time and money on getting data externally verified or assured.
ESG reporting in real estate monopolizes resources across the industry. It has become an end goal in and of itself, rather than a tool to move the industry forward. There are elements that will always necessitate manual work, but at Scaler we also see areas where so much efficiency can be gained. We'd love to support your organization through this reporting season and empower your team to build a successful ESG program.