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Resilience as a business opportunity – A practical approach to improve property preparedness

Quinn & Partners, in partnership with Triovest Realty Advisors, contributed an article to the GRESB Insights Series summarizing its approach to evaluating and mitigating climate change and other environmental, social and operational risks.

“In 2019, Triovest partnered with management consultants and ESG advisors Quinn & Partners to develop a novel property-resilience management toolkit to augment its existing Resilience Policy and related approaches. The new tool and business process evaluate climate risks and other critical environmental, social and operational risks facing real estate assets. Evaluated topics include flood events, extreme temperatures, severe storm events, earthquakes, community shocks and stressors, cybersecurity threats, loss of power and telecommunication, and domestic water release.”

See the full article here: Resilience as a business opportunity – A practical approach to improve property preparedness

Six ways to leverage Investor Relations to attract ESG investment capital

Sustainability leaders with strong investor-focused reporting are positioned to access larger pools of capital from investors with ESG strategies. That’s because investors see sustainability as a sign of comprehensive, forward-looking approaches to managing business risks and opportunities. As the demand for sustainability information continues to grow, companies will need an increasingly investor-focused approach to their reporting. In this article, we describe how the Sustainability and Investor Relations teams can work together to improve reporting practices and attract ESG investment capital.

The business case for sustainability is clear

A raft of recent studies confirms that sustainability is good for business.

  • According to a 2017 Harvard study of 2,400 companies, those companies who performed well on material sustainability topics over two decades outperformed the market by nearly 5% annually.1
  • In a 2018 report on ESG ratings from MSCI, Sustainalytics and Thompson Reuters, Bank of America Merrill Lynch found that sustainability performance correlated with higher return on equity, lower price volatility and market outperformance.2
  • A 2017 study by Nordea Equity Research found companies with the highest ESG ratings outperformed the lowest-rated firms by as much as 40%.3
  • A recent study by Harvard Business Review found that ESG issues were almost universally top of mind for senior executives at nearly 50 global institutional investing firms, including the world’s three biggest asset managers (BlackRock, Vanguard and State Street).4
  • In Canada, $2 trillion, or more than 50% of institutional investor assets are governed by responsible investment principles,5 and all major pension plans and asset managers are signatories to the Principles for Responsible Investment.

Satisfying the demand for sustainability information requires a new approach

The correlation between sustainability and financial performance is driving investors to demand more – and better – sustainability disclosure.

In turn, that demand has led to a spike in sustainability information databases, ESG ratings and indices. For example, Bloomberg, Thompson Reuters, ISS, Standard & Poor, MSCI, Sustainalytics, FTSE Russell and DJSI all offer ratings to help financial analysts interpret and assess sustainability performance. Bloomberg terminals alone have approximately 900 sustainability indicators, and subscriptions to the service have nearly tripled in the last three years.

At the same time, companies are striving to satisfy this demand by reporting on their sustainability activities: 93% of S&P 500 companies now disclose sustainability information publicly.

Sustainability managers go to great lengths to align their reporting with frameworks and standards, such as GRI, SASB, TCFD, and CDP.However, investors often find sustainability disclosure falls short because it contains too much extraneous information and unreliable data that lacks comparability across companies.

The critical link between the supply and demand of sustainability information is the Investor Relations (IR) team. The IR team can act as a powerful liaison between two different and often disconnected groups – investors and Sustainability teams. The IR team can help Sustainability teams understand what is financially material to investors and identify useful sustainability information to disclose.

In our experience advising institutional investors and corporate clients, Sustainability teams who follow the following six steps report with more confidence and provide investors with high-quality information about what is most important for company outlook and value creation.

1: Promote collaboration between the IR and Sustainability teams

Set up regular meetings and ensure both teams have an understanding of each other’s strategic priorities, shared goals and key milestones. The Sustainability team should be aware of the requirements of the annual IR calendar – the AGM, annual report, quarterly reports, investor calls and events. Similarly, the IR team should be apprised of the sustainability disclosure reporting cycle – questionnaire responses, report publication, ESG rater solicitations.

2: Understand investor ESG priorities

Investors prioritize different information when making investment decisions. Profile your most important investors for sustainability-related investment positions. For example, many leading European institutions are starting to set portfolio decarbonization goals and routinely integrate climate change considerations into their investment decision-making.

Engage with your investors to understand what they consider to be the strongest indicators of sustainability leadership. For example, do they look for a clear link to the business strategy? Do they want to see a trend of improvements in resource efficiency, or are they more interested in an ambitious set of improvement targets?

Also enhance understanding of how investors apply sustainability information in their equity and credit research – what sources of information do they use, who does the analysis and how frequently? Sophisticated investors often apply proprietary sustainability-themed investment screens, while others may rely more heavily on third-party ESG ratings and disclosure scores.

3: Hone your reporting

Once you’ve established what your investors want to know, make your sustainability information clear, concise and readily available for investors and ESG raters. Take advantage of tools such as sustainability microsites and downloadable data charts. Equip the IR team with an information packet for investor roadshows and quarterly calls. This can be a selection of material from an annual sustainability report and scored results from disclosure frameworks, such as CDP, DJSI or GRESB.7

4: Be proactive about shareholder questions

Monitor and anticipate investor questions ahead of proxy season and develop responses proactively. This demonstrates a forward-looking orientation that helps investors understand your plans and upcoming initiatives.

5: Refine the message

Make sure the IR team is able to both speak articulately about your sustainability approach and connect your priorities to how the company creates shareholder value. Practice makes perfect – outline jargon-free messages and use case studies to highlight your sustainability journey and differentiate your firm based on your tangible sustainability actions and achievements.

6: Engage directly with investors to continuously improve  

Sustainability provides companies with an opportunity to build relationships with investors by driving new and different conversations about value creation. To maximize this potential, allow investors to weigh in on your sustainability strategy. Ask them what resonates and aligns with their priorities, and get their feedback on what you are aiming to achieve. Discuss your ideas about how the company can innovate and position itself as a future-fit investment over the long term.

Of course, the information shouldn’t flow only one way. IR teams at leading companies will no doubt see the relationship as beneficial too: Ideally, they will be working towards integrating sustainability into mainstream investor reporting, helping the markets integrate material sustainability information in fundamental analysis and valuation.

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1Harvard Business School, George Serafeim, Better Information Better Markets, 2017: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575912

2Bank of America Merrill Lynch, The ABCs of Environmental, Social & Governance (ESG), 2018: https://www.bofaml.com/content/dam/boamlimages/documents/articles/ID18_0970/transcript_abcs_of_esg.pdf

3Nordea Equity Research, Cracking the ESG Code, 2017: https://nordeamarkets.com/wp-content/uploads/2017/09/Strategy-and-quant_executive-summary_050917.pdf

4Harvard Business Review, Shareholders Are Getting Serious About Sustainability, 2019: https://hbr.org/2019/05/the-investor-revolution 2/14

5Responsible Investment Association, 2018: https://www.riacanada.ca/research/2018-canadian-ri-trends-report/

6GRI (Global Reporting Initiative), SASB (Sustainability Accounting & Standards Board), TCFD (Task Force on Climate-related Financial Disclosure), CDP (Carbon Disclosure Project).

7CDP (Carbon Disclosure Project), DJSI (Dow Jones Sustainability Index), GRESB (Global Real Estate Sustainability Benchmark).

GRESB Insights Series: A practical approach to assessing and managing physical climate change risks in global portfolios

Quinn & Partners contributed an article to the GRESB Insights Series summarizing a practical approach to managing physical climate change risks in global portfolios.

“Physical risks represent a threat to real estate because buildings must adapt to the changing climate in their region or risk obsolescence. Despite the threat, few owners understand their exposure to these risks and what management strategies currently are in place – especially across global, diverse property portfolios.  This is not surprising as there is little industry guidance so it can be intimidating to take that first step into a previously unexplored area. That is why we worked with our client, The Healthcare of Ontario Pension Plan (HOOPP), to develop a pragmatic approach to assessing risk and resilience.”

See the full article here: A Practical Approach to Assessing and Managing Physical Climate Change Risks in Global Portfolios

GRESB Insights Series: 7 Steps to Improve the Quality of Your ESG Data

Quinn & Partners contributed an article to the GRESB Insight series going through 7 steps to improve the quality of your ESG data.

“Good data—data that is accurate, comparable and easy to understand—allows sustainability managers to evaluate performance and provides incisive insights to help asset managers make informed investment decisions.

Our team supports asset owners and managers—collectively responsible for assets well in excess of $200 billion—tackle their data woes head on and report with confidence. While the road to data bliss is never easy, we guarantee that these seven steps will make the journey smoother.”

See the full article here: 7 Steps to Improve the Quality of Your ESG Data

 

GRESB 2018: Participation and performance accelerate – and so does investor interest

Quinn & Partners’ Francisca Quinn & Tony Pringle were at the GRESB North America events in New York last week. Here they share insights from the Real Estate and Infrastructure Assessment results and how companies can act now to get ahead.

Image credit: greens.org.au

The Global Real Assets Sustainability Benchmark, GRESB, recently released the 2018 results of its widely adopted Real Estate and Infrastructure Assessments. Key takeaways: investors value environmental, social and governance (ESG) disclosures and the process helps funds and entities to improve sustainability strategies and performance. Here is a summary of the results and what they mean for you.

GRESB solidifies its position as the global ESG standard for real assets

In 2018, 184 new companies and funds participated in the Real Estate and Infrastructure assessments. The growth signals that investors and fund managers believe that ESG integration in real assets delivers value. The numbers speak for themselves:

  • Real Estate: 903 participants (+6%) with an average score of 68/100 (+5)
  • Infrastructure Fund: 75 participants (+17%) with an average score of 69/100 (+9)
  • Infrastructure Asset: 280 participants (+75%) with an average score of 48/100 (+6)

Nine years into the survey, GRESB covers the majority of public and private real estate investments around the world. Participants represent 61% of global listed real estate equities and 75/100 top private equity firms and property companies. The infrastructure sector’s uptake of GRESB after three years is similar to real estate.

Data. Data. Data. The most powerful tool to improve scores and achieve results

The real estate industry has succeeded in engraining sustainability in executive oversight and business management. Most entities score above 75% on Management & Policy. The focus is now shifting to data quality and improving resource efficiency and portfolio sustainability metrics. These are the areas where leaders now differentiate themselves in GRESB.

Driven by regulation, the infrastructure sector typically has good data at the site level. However, operating companies need to aggregate data across their sites to manage ESG as a business issue, set targets and report environmental and social impacts to investors.

Data also enables sustainability certifications, which is an opportunity for both real estate and infrastructure assets.

New Resilience Module helps to future-proof portfolios

The Taskforce for Financial Climate-Related Disclosures, TFCD, recently reported that 500+ major financial institutions have articulated support for its disclosure recommendations. In other words, it’s fair to say that investors and executives consider climate risk material. This year, GRESB reported that 114 companies answered the voluntary resilience questions and this demonstrates that companies are also paying attention to climate risk and associated issues like extreme weather, renewable on-site energy, Paris Accord-aligned carbon targets, etc.

Participating in the GRESB Resilience Module has several benefits:

  • Prepare for future submissions as GRESB adds resilience questions to the main survey
  • Understand portfolio risks from climate change
  • Understand ability to mitigate impacts of shocks and stressors
  • Develop action plans based on survey gaps

Infrastructure Fund Managers: Differentiate through ESG initiatives

Infrastructure funds are increasingly formalizing ESG due diligence and monitoring practices in a market where it’s harder to find value due to increased asset prices. The Fund assessment is competitive, and most funds score 60-80 out of 100 possible points. There are quick wins that most funds can execute to differentiate:

  • Show your investors you are committed – Become a PRI signatory
  • Systematically embed ESG in due diligence and monitoring – Encourage teams and assets to build ESG management and measurement processes and share results across the organization
  • Proactively report ESG performance to investors – Aggregate key metrics at the portfolio level – carbon emissions, health and safety, etc. – and disclose trends and targets

GRESB requires effort – and it’s necessary for smarter investment decisions

In closing, GRESB has become the global standard to benchmark and disclose sustainability performance in real assets. GRESB allows investors to assess funds and companies in their efforts to outperform and mitigate downside risk. Many investors also believe that ESG signals quality. We may soon see indices tracking the stock performance of GRESB participants versus the market.

This high-quality benchmark is founded on real information – lots of it. It can be tempting to not think about GRESB until Q2 next year, but that’s a major missed opportunity. Get started now! Use your results to focus your efforts on addressing gaps over the next six months – whether it is engaging with stakeholders, collecting more data or setting a target. Embrace the opportunity to stay ahead of the ever-increasing GRESB benchmark.

 

Quinn & Partners supports leading institutional investors, real estate and infrastructure companies with ESG integration and GRESB audits/assessment services. In 2018, the value of all Real Estate and Infrastructure Assessments that we submitted on behalf of our clients was CAD 210 billion, which is equivalent to 10% of all North American responses. Please reach out to Francisca Quinn, Managing Partner, Quinn & Partners, at +1 416 300 8068 for more information.