Explained: ESG reportings and scorings

In this article you will learn:

• What are ESG reportings and scorings?
• What advantages do they have for asset managers?
• Which providers are there?

To approach the topic of ESG reporting and scoring for real estate, we first answer the basic questions:

What are ESG reportings and scorings?

ESG scorings are frameworks that make the ESG performance of real estate comparable. This works by using questionnaires to ask about various ecological (E), social (S) and governance (G) aspects at the fund and asset level and benchmark the determined performance with assets from the same category.

Important to know: Scoring procedures are usually operated by private organisations and are therefore not part of the regulations. A good score does not guarantee compliance with the EU taxonomy and disclosure regulation. Nevertheless, there are providers who support ESG reporting in accordance with the Sustainable Finance Disclosure (SFDR) or other regulations.

Terminology

ESG reporting is the process of measuring, aggregating and reporting data related to environmental, social and governance principles. ESG reporting allows a company, investment fund or other entity to demonstrate its sustainability performance and track its progress over time. Most of the time, companies rely on ESG frameworks to decide what to report on, how to calculate quantitative data, and how to disclose ESG metrics.

ESG scores are numerical ratings or percentages that use the frameworks mentioned to determine ESG performance and make it comparable for investors or other stakeholders. ESG scorings, also known as ESG ratings, are carried out by independent third-party providers whose aim is to develop a comparable standard for ESG criteria.

Why are ESG scores relevant for asset managers?

The scoring value which is determined using a uniform catalogue of criteria provides information on where a building is on the path to CO2 neutrality and how ESG related risks are handled. This knowledge plays a decisive role in the financing and investment process, as it enables investors, banks and private investors to classify the sustainability of a property in the overall market.Hence, asset managers create transparency for investors with ESG scorings. In addition, a good result can be used to raise public awareness and take pride in sustainability, but also to prove its actual implementation.“The time to collect ESG data is now. A good database is a prerequisite for making the ESG performance of assets measurable and comparable and for becoming an ESG pioneer.”-Benedict Marzahn, Head of Product, Alasco

What is the difference between scoring and certificate?

The main difference to building certifications (such as DGNB, BREEAM or LEED) is that scorings are determined on a regular basis, usually annually, while a certificate is awarded once. ESG scoring depicts the performance of an asset over time through annual calculation and typically covers fund and company issues, while certification depicts the condition of the building at a specific point in time. Another difference is that scorings are typically determined purely through digital means, using electronic questionnaires and data entry. Certification, on the other hand, usually involves a time-consuming physical inspection of the building before it can be awarded.

Which providers are there?

Asset managers who are interested in measurable sustainability and ESG reporting or scoring will sooner or later come across these two providers:

• GRESB Scoring (ESG Benchmark Platform )is currently the largest and most widely used ESG scoring standard for real estate companies and funds in Europe and even worldwide. The reporting period is limited and takes place between April 1st and July 1st (Q2) each year. After that, GRESB will start the verification and benchmarking process until the results are announced in September. GRESB’s so-called “Real Estate Assessment” is always reported for two years retrospectively and requires a large amount of data and information that asset managers have to collect. The score is determined in a range from 0 to 100%, whereby the higher the number, the better the rating.
• ECORE is particularly widespread in Germany, Austria and Switzerland. The scoring process works on a principle similar to that of GRESB. However, the structure of the questionnaires and the weighting of the individual subject areas for determining the score differ. For example, the questionnaire at ECORE is divided into three clusters (governance, consumption and emissions, asset check), which contribute to the overall score with different weighting.

Membership gives access to the scoring tool for the annual survey. With both providers, asset managers are able to objectively evaluate their assets and classify the ESG performance in comparison to the overall market. Although scoring is not part of the regulatory framework, as a transparent and measurable control tool, it makes a significant contribution to translating the definitions set out in the regulations into concrete measures. A good score starting above 70 is an indicator that the respective asset considers the ESG criteria holistically on all three levels.

ESG reportings and scorings – a must for sustainable assets

In summary, ESG reportings and scorings bring a number of advantages for asset managers, because not only do those responsible deal specifically with the ESG performance of their assets, but the score is also a solid foundation for arguments with stakeholders. Since the ECORE and GRESB scoring catalogues also query the criteria of applicable regulations and are updated or expanded annually, they are also an important step towards a common understanding of ESG compliance – and thus the answer to a question that the regulations so far left mostly unanswered.