Rating the REITs

What will be interesting to see the level of participation and performance in this year’s benchmark report by the Global Real Estate Sustainability Benchmark (GRESB). GRESB is an investor-led environmental, social and governance (ESG) benchmark for real assets. The organization assesses the ESG performance of real assets globally, including real estate, real estate debt portfolios and infrastructure. Every year our REITs participate in the assessment by using the reporting tool to provide ESG data on their portfolios to investors. GRESB has more than 250 members that use this data to manage their risks and in making real estate investments.  

2020 was a slow year with only with only four of the 18 African REITs having participated in the 2020 assessment. The 2021 assessment saw the largest ever growth in total numbers, with 1 520 entities participating worldwide, covering $5.7 trillion of Assets under Management (AuM). According to the GRESB website, the assessments are guided by what investors and the industry consider to be the most material issues in the sustainability performance of real estate investments. By participating in the assessments, REITs can tell where they stand against their peers, what they can do to improve their ESG performance and communicate progress on a platform designed for and by investors. The point of it all is a more resilient real estate industry, worldwide. 

The assessment process has begun. The assessment reporting period was opened in April of this year with July 1st being the last day to make submissions for the 2021 assessment. August is when validation, scoring and benchmarking is done, with the public results event held on the 19th of October to launch the 2021 Real Estate and Infrastructure Assessment results. 

While South African REITs, for the most part, didn’t pitch last year for the assessment participation in 2020 grew 22%, covering 1 229 portfolios worth more than $4.8 trillion assets under management (AUM). The increase in participation despite the challenges of COVID-19 are indicative of an industry responding to the accelerating investor demand for comparative ESG data. The increase for 2021 was an additional 24% covering $5.7 trillion and nearly 117 000 individual assets.  

The assessments are important for two reasons, in my opinion. Firstly, we need a sustainability real estate sector if we have any hope of limiting global warming under the 2-degree threshold. The World Bank estimates that the sector would need to reduce CO2 emissions by 36% by 2030 to support this objective. Secondly, ESG is a value driver for real estate. The correlative appetite that investors have for ESG, closes the loophole where more (long-term) value is attributed to real estate assets. “Medium-to-long term profit is therefore considered and kept with the usual lower risk volatility of a real estate asset”.  

ESG is here to stay and will increasingly shape and influence real estate valuation, and therefore real estate investment. The growth in GRESB participation would seem to support this view. The challenge that lies before us is how to support South Africa REITs participation in the assessment. The business sustainability team at Mazars aims to support all our REITs and infrastructure funds in their participation in the assessment and to leverage the benefit of having platform to communicate with investors on sustainability topics that are material to the sector. In the 12 years since the assessment was founded (est. 2009) the benchmark has demonstrated the power of an industry-led benchmark to inspire a collaborative effort to improve ESG transparency across the world. GRESB has standardized ESG data collection, provides a peer benchmark amongst peers and has helped REITs identify both risks and opportunities.   

28/02/2022