ESG Data Quality: The Foundation of an Impactful ESG Program

by RE Tech Advisors     4/24/2019 4:40:58 PM

Successful ESG programs in commercial real estate often share one key characteristic with the assets they represent: a strong foundation. Just as a building requires proper framing and construction at its base to maintain stability, ESG programs rely critically upon high-quality ESG data if they are to function as desired. Only with information that is effectively collected, aggregated, and analyzed can you appropriately set baselines, establish metrics and key performance indicators, and track progress toward organizational goals.

At RE Tech Advisors, helping our clients create a strong foundation is often the first step in our engagement, and maintaining quality data remains a guiding principle in our approach to developing impactful ESG programs with them. To accomplish this, we begin with an investigation to confirm the accuracy of existing utility information.

Reviewing data quality and addressing inaccuracies is a critical part of this initial step to produce an accurate baseline, regardless of whether the information is manually extracted from invoices, or automatically uploaded by local utilities or third-party data service providers. One of the most important decisions we advise clients on is how to set up a streamlined data acquisition process that minimizes the need for intervention, yet yields timely and quality information. Several tools can assist in this process. The Data Quality Checker within ENERGY STAR® Portfolio Manager® can help to identify gaps in data coverage and other potential errors, while GRESB’s Asset Portal will flag utility consumption patterns and outliers that do not align with expectations for the selected property type.

“An added (or subtracted) zero, or mislabeled units for a single meter can portray significant peaks or valleys in consumption that would undermine the validity of measurements and reporting related to a baseline in the future, and it is essential to identify and correct potential errors as early as possible.”

Tom Rucker, Managing Director and Chief Operating Officer of Berkshire Communities

Once an accurate ESG foundation has been established, the next step is to utilize the data and conduct a program gap analysis to formalize actionable and achievable short-term and long-term goals at the property, fund, and portfolio level. Using performance data as a roadmap, building owners and operators can identify key performance indicators and measure their progress. Analyzing trends in ESG performance data allows firms to conduct targeted interventions like site assessments or technological upgrades at the property level that identify and address inefficiencies, drive operating expense reductions, increase net operating income, and generate value for building occupants and investors. Owners and operators would also do well to remember that setting and communicating goals, conducting assessments, and executing efficiency improvements can also contribute to improved GRESB scores!

ESG program results are ultimately driven by the integration of ESG into investment management decision-making, daily property operations, and engagement with stakeholders to sustain efficiency. Implementing the right policies and procedures propels action towards achieving those goals, and maintaining data and continually addressing data quality concerns ensures that progress toward goals is reported correctly, and operating expense reductions from retrofit projects and other performance upgrades are captured effectively to continue making the business case for efficiency investments. To this end, quality ESG data also enables firms to create value through communications. Communicating and collaborating with stakeholders in this way also fosters advocacy for future ESG initiatives and can result in a shift towards high performing sustainable assets. 

Expressing the value and progression of a successful ESG program backed by high-quality data increases transparency and drives results. Dashboards and other collateral can tell the story of a property, fund, or firm’s ESG journey and engage investors, employees, occupants, and the community to understand their influence and role in the success of the program

Jennifer McConkey, Senior Director of Operations & Sustainability of Principal Real Estate Inventors

More and more industry indexes and benchmarks are using data to calculate and rank investment portfolios from an ESG perspective – from MSCI to GRESB, CDP, Moody’s and Bloomberg are starting to build ESG indexes that rank investment funds. Fair or not, real estate owners need to understand that – rightly or wrongly – low-quality data inputs will create low-quality outputs that will be reflected in these indexes. With this trend in mind, the importance of assembling and maintaining accurate ESG information cannot be overstated. It forms the cornerstone of any ESG program, and it is through this continual process of analyzing data, setting accurate baselines, interpreting and acting upon performance trends, and communicating our process and progress that we unlock the true value our ESG efforts.

This article is written by Andrew White and Alison Kirby