ESG Performance, Scoring Methodologies and Reporting

As the global hospitality community grapples with ESG challenges for decades, the need for clearer, evidence-based and risk-informed approaches to decision-making has become crucial. While ESG reporting is evolving more and more into a regulatory era, the challenge relies on a better understanding of the nuances of how rating agencies operate, where the data is and what it looks like. 

During the 3rd special session of the GRI Sustainable Hospitality Global Committee, members of GRI Club discussed ESG performance, scoring methodologies and reporting. 

Adrian Flueck (Director of Hotel Asset Management at Invesco Real Estate) and Alex Edds (Head Of Sustainability, Europe, at LaSalle Investment Management) moderated the virtual session.

Industry experts from Longevity Partners and Deepki presented key ESG performance frameworks to world-class owners, developers, investors, and asset managers from 20+ countries. 

Important Takeaways:

• Most hotels already have internal tracking systems, but a clear standardization of ESG scoring methodologies is yet to come; 

• Some suppliers are stepping back in providing data; 

• Other than the investors, the biggest consumers of the ESG ratings might be the companies themselves to benchmark and improve their performance;

• Regulatory Compliance Reporting: “Non-Financial Reporting Directive” and “Sustainable Finance Disclosure Regulation” are two regulations that are coming into force around sustainable finance disclosure in the EU; 

 

Too many templates? 

Noting that most hotels already have internal tracking systems, Committee Members feel that a clear standardization of useful ESG scoring methodologies is yet to come. In addition, even when buildings are set with systems and other infrastructure of ESG reporting, controlling external data has no mainstream approach. Among brands, owners, and operators, it’s been difficult to tell who is responsible for providing each data in the process. 

In this regard, some suppliers are stepping back in providing data as they have been hit by various mandatory reporting requirements that come with different templates. 

Moreover, it seems that, other than the investors, the biggest consumers of the ESG ratings are the companies themselves that need to benchmark and improve their ESG performance. Any rating agency in the future will have to ensure that their process is transparent and uses reliable data on the ESG performance of the companies. 
 

Benchmark Reporting 

According to the global sustainability consultancy Longevity Partners,  the two pillars to approach scoring methodologies in real estate are Benchmark Reporting and Regulatory Compliance Reporting. 

When it comes to Benchmark Reporting, Longevity highlighted GRESB (Global Real Estate Sustainability Benchmark), UNPRI (Principles for Responsible Investment), and TCFD (Task Force on Climate-Related Financial Disclosures) as exemplary organizations that help better judge a company's performance. 

GRESB services are applicable to investors and asset owners. Investors can use GRESB analytical tools to collect data and monitor ESG opportunities, risks, and impacts, and engage with investment managers. Their tools validate, score, and benchmark ESG performance data, with business intelligence and engagement. 

The organization helps companies in getting certifications such as ISO 14001, the most widely used international standard for environmental management systems (EMS).

 

 

UNPRI’s framework was developed mostly by institutional investors and covers multiple investing sectors and asset types. Evaluating adherence to six key principles, UNPRI should provide an opportunity to improve an investment approach at a corporate, fund, and asset level. 

Principles include: incorporating ESG issues into investment analysis, decision-making processes, ownership policies, and practices. Applicable to investors only. 
 

Types of questions in the reporting framework:

Focused on processes: How are ESG factors incorporated? How are outcomes assessed and understood? 

Focused on sustainability outcomes: What are these outcomes? 

 

TCFD encourages disclosure of climate-related risks and opportunities, and how they are identified and embedded within a business. 

This is split into four categories. 
 

 

Each category incites disclosure as framed through a set of standardized questions, the responses to which demonstrate compliance with the Taskforce's recommendations. 
 

To further explore benchmarking challenges, read the GRI ESG GLOBAL COMMITTEE REPORT  (2021 Edition)
 

Regulatory Compliance Reporting 

In summarizing the sustainable finance regulatory framework in the EU, Longevity mentioned two regulations that are coming into force around sustainable finance disclosure, the Non-Financial Reporting Directive and the Sustainable Finance Disclosure Regulation. 

They use the EU Taxonomy framework as a common reference point to help companies and financial markets to be more sustainable. 

 

The Non-Financial Reporting Directive lays down the rules on disclosure of nonfinancial and diversity information for large companies. It came into effect in 2018 and has since then been transposed into Member States’ national laws. 

For whom? The rules apply to large public-interest companies with more than 500 employees (listed companies, banks, insurance companies). 

The Directive was complemented by non-mandatory guidelines in 2017 (disclosure of environmental and social information) and 2019 (reporting on climate-related information). 

The Sustainable Finance Disclosure Regulation (SFDR) is part of the EU’s set of measures related to Environmental, Social and Governance (ESG) issues.

Its objective is to increase transparency on the integration of sustainability risks and opportunities into the investment decisions and standardize disclosure.

For whom? Financial Market Participants (FMP including asset managers) and Financial Advisors active in the EU. 

It introduces a series of sustainability-disclosure requirements. 

(Extracts from Longevity’s presentation to Committee Members.) 
 

Getting information in the right place – preparing for disclosures 

Deepki, a company that combines ESG data platform to ESG consultancy capability, works in a three-stage journey when dealing with ESG data in real estate. 

Inputs ⇒ Processes and tools ⇒ Outputs
 

 

The first step in the process is the application of ESG metric methods that not only collect information but identify the right data required through pragmatic methods. This means recognizing specific reporting objectives in accordance with regulatory compliance. 

Deepki approaches the very numerous types of data as internal data (or qualitative data), collected at the asset level, and external data (quantitative data), from benchmarks and external references. 
 

Qualitative data 

• Building qualification (ex.: location, typology, area, equipment, energy, certif., audits, EPCs.)

• Tenancy (ex. tenant type, lease duration, …)

• ESG questionnaires (ex. tenant surveys, …) 

• ESG strategy and policies

• Organization (ESG team, FM, AM, PM, …)

• Buildings ecosystem (ex. social environment, transportation network, services, …)

• Transition risks (ex. change of policies, …)

 

Quantitative data

• Utility consumption (ex. energy, waste, water,…)

• Building operations (ex. vacancy, air quality, …)

• Financials (ex. GAV, rents, …)

• ESG objectives

• References (ex. carbon pathways)

• Physical/climate risks

When companies have to identify the types and sources of ESG data, collecting them requires several tools that report on utility suppliers, building and maintenance measurement systems, air quality control, and ERP, among others. 

Finally, in the process, Deepki must also advise hotels on how to use the data. In the output stage, companies should build sophisticated indicators set for disclosure. 

 

Committee Members agreed to explore topics concerning suppliers and embodied carbon of FF&E. Check out our next session. 
 

Watch Now

A complimentary excerpt of the full 1h Global Committee session exclusive to GRI Club Members. If you’re a member, watch the complete session on Media Center.

 

About the GRI Global Committee

The GRI Global Committees function as think tanks that bring impactful international conversations, and top-notch content. They gather the most influential global players of the real estate industry in a full-year journey of online sessions in order to identify new trends, capitalise on growth opportunities, and aid deal flow discovery worldwide.

Learn more about GRI Club: griclub.org 

 

– Written by Lucas Brancucci | GRI Global Committee Production Team