Defined Benefit
Defined Contribution
Insurance Assets
Nonprofit

Sustainable Real Assets Portfolios Enter the Mainstream

Sustainable Real Assets Portfolios Enter the Mainstream
clock
4 min 58 sec

As institutional investors prioritize sustainability and environmental, social, and governance (ESG) practices, their efforts are particularly important across real assets. In recent years, the industries associated with real assets have been developing ESG practices, standards, and management processes, including real assets ESG benchmarks and frameworks for reporting against these standards.

This blog post, an excerpt from our white paper available through the link above, summarizes five prominent initiatives used by the real estate, infrastructure, timber, and agriculture sectors aimed at facilitating value creation and improving sustainability.

Real Estate: The GRESB Real Estate Assessment

The GRESB Real Estate Assessment generates two benchmarks. The GRESB Real Estate Benchmark is used for operating properties, and the GRESB Development Benchmark is used for properties under development or undergoing major renovation. Both benchmarks are divided into a management component and a performance component. The management component collects and scores information at the entity level. The performance component comprises information on properties at the fund/portfolio level. GRESB places a much greater emphasis on this second component (performance), which represents 70% of the overall score.

Participants receive a GRESB Rating that is a measure of “how well ESG issues are integrated into the management and practices of companies and funds,” according to GRESB. The rating is relative to all participants in the current year. In addition, participants receive an overall star rating, with those in the top 20% given a five-star rating and those in the bottom 20% a one-star rating. GRESB also creates peer groups based on property type, geography, and structure (private/listed), and ranks participants within their respective peer groups.

Participants receive a benchmark report and an online tool that provides analyses of sustainability performance and detailed peer group comparisons. The assessment allows the user to review areas of success and identify areas needing improvement related to its ESG policies, processes, and implementation.

Real Estate: Urban Land Institute Greenprint Center for Building Performance

The Urban Land Institute (ULI) Greenprint Center for Building Performance describes itself as a worldwide alliance of real estate owners, investors, developers, financial institutions, and strategic partners. It focuses on reducing carbon emissions associated with real estate, improving the environmental and financial performance of buildings, and developing best practices in sustainable real estate.

The Greenprint Center tracks progress toward members’ commitment to reduce energy and water use, waste generation, and carbon emissions in its annual Greenprint Performance Report and conveys industry progress using Greenprint member properties as a proxy.

According to ULI Greenprint, the path to net zero across the portfolio begins with energy-efficiency measures, which it considers the most cost-effective way to cut carbon emissions. After that step, it lists the following:

  • On-site renewable energy
  • Low-carbon power delivered by the utility grid, combined with steps to “electrify” buildings
  • Off-site renewable energy
  • Renewable energy credits
  • Carbon offsets

Other steps include asking tenants to cut emissions, and looking for ways to cut embodied carbon in building materials.

Participating in Greenprint is voluntary. Greenprint is different from GRESB because it is not a certification or standardized framework for an ESG program. Rather, it is an industry group working to solve sustainability problems.

Infrastructure: GRESB Infrastructure Assessments

As with the real estate assessments, the GRESB Infrastructure Assessments collect, analyze, validate, and benchmark the ESG performance of infrastructure investments. The assessments are intended to be used as a framework to help investors implement best practices and mitigate risks.

There are two complementary GRESB Infrastructure Assessments: one that scores and benchmarks participating funds against one another, and another that scores and benchmarks assets against each other. Both assessments address key elements of ESG performance with a standard template that can be applied worldwide. GRESB developed the assessments to cover the major infrastructure sectors, including:

  • Data infrastructure
  • Energy and water resources
  • Environmental services
  • Network utilities
  • Power generation (excluding renewables)
  • Renewable power
  • Social infrastructure
  • Transportation

Like real estate, the infrastructure assessment is divided into a management component that collects information at the fund/organizational level, and a performance component that measures asset-level information.

Participants in the assessments receive a GRESB Fund score and GRESB Asset score, along with individual scores tied to ESG practices. Both the asset and the fund participants are ranked against peer groups and given an overall star rating, with those in the top 20% receiving a five-star rating and those in the bottom 20% a one-star rating.

Timber: Sustainable Forestry Initiative

The Sustainable Forestry Initiative (SFI) is an independent, nonprofit organization whose goal is improving the practice of sustainable management for all forestland in the United States and Canada. While SFI certifications span the supply chain, timber owners use standards that ensure certified forestland is managed with sustainable practices, as defined by the SFI 2022 Forest Management Standard. Forestland managers and owners can use the standard to certify the forests under their management and then make verifiable claims to the market regarding their management.

The standard addresses key environmental, social, and economic values, and the requirements include measures to protect wildlife habitat, water resources, and forests with exceptional conservation value. Certification also ensures that management respects indigenous peoples’ rights on public and private lands and does not create hardships for local communities.

Certification requires third-party audits by one of seven accredited bodies. Certified program participants must complete audits every 12 months to verify conformance to the Forest Management Standard. Participants must also undergo a complete re-certification every five years.

Agriculture: Leading Harvest

Leading Harvest is a nonprofit organization that was formed, in part, to address the growing demand for sustainability assurance in agriculture and to drive U.S. agriculture toward sustainability. It launched its Farmland Management Standard 2020 in the United States as a tool to provide assurance about the sustainability of farmland that meets the standard.

Certification to Leading Harvest standards requires third-party audits by accredited consultants. Certified participants must complete audits every 12 months to verify conformance and to facilitate continuous improvement of a farmers’ operation, with full re-certification every three years. To avoid conflicts of interest, Leading Harvest is not involved with certification decisions. Leading Harvest plans on revising the standards every five years through a public process to incorporate the latest advances in agricultural sustainability.

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
ESG

Callan Survey Sees First Decline in ESG Incorporation Since 2019

Thomas Shingler
Tom Shingler and Hannah Vieira describe the findings of our 2022 ESG Survey.
Private Markets

Private Real Estate Gains, but REITs Fall; Commodities Also Dip

Munir Iman
Kristin Bradbury, Munir Iman, and Aaron Quach analyze real estate and real assets performance in 3Q22.
ESG

Green Financing in Residential Real Estate

Aaron Quach
Christine Mays and Aaron Quach explain green financing and how it can help investment managers obtain more favorable financing terms.
Public Markets

There Was Really No Place to Hide in World Markets

Kristin Bradbury
Kristin Bradbury analyzes global equities, fixed income, and real assets markets in 3Q22, where there really was no place to hide.
Private Markets

Private Real Estate Strong; REITs Lag Equities

Munir Iman
Private real estate performed well in 2Q22 while REITs lagged equities. Real assets saw widespread drops.
Public Markets

Few Bright Spots as Markets Continue to Drop

Kristin Bradbury
Kristin Bradbury recaps how the global markets performed in 2Q22.
Private Markets

Investing in Data Centers: The Real Assets of the Digital Age

Lauren Sertich
Lauren Sertich provides a summary of her recent paper on investing in data centers.
ESG

SEC Proposes Rule to Enhance ESG Disclosures for Investments for Funds and Advisers

Kristin Bradbury
The proposal is designed to help investors assess the degree to which ESG considerations are a part of a strategy.
Private Markets

Continued Strong Performance Across Real Assets

Munir Iman
Munir Iman analyzes real estate and real assets performance in 1Q22.
ESG

Initiative Aims to Standardize ESG Reporting for Private Equity Investors

Aidan Davison
Aidan Davison explains the data convergence project and what it might mean for ESG efforts within private equity.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.