Increasing attention being placed on ESG performance for Infrastructure

Carbon Credentials attended the Global Real Estate Sustainability Benchmark (GRESB) European Infrastructure Results 2018 event on Tuesday, hosted by Macquarie Bank.

What is GRESB?

GRESB assesses the sustainability performance of real estate and infrastructure portfolios and assets worldwide. As a consultancy we have a depth of expertise in supporting real estate clients and those with real assets to submit to this global benchmark, and applaud the ability it has to drive sector improvements in sustainability.

GRESB has three separate assessments covering Real Estate, Debt and Infrastructure.

The Real Estate assessment results were released last month (see here for our blog) and are followed this month by the Infrastructure assessment results release. The Infrastructure assessment is still in its relative infancy, 2018 marking its third year, but is growing rapidly.

Strong growth in GRESB Infrastructure assessment participation this year

An increasing focus on ESG in infrastructure

The focus on ESG for infrastructure has been steadily rising in response to regulatory changes, the development of frameworks such as TCFD (Task-Force for Climate Related Financial Disclosures), an increasing awareness of pressures from society and the need for long-term risk management for improved climate resilience. Rick Walters, Director of Infrastructure at GRESB, noted that much is yet to be done to achieve the Sustainable Development Goals (SDGs) and infrastructure plays a key role in bridging this gap. Therefore, it may be of no surprise that 2018 saw a 75% increase in total assets reporting to the GRESB Infrastructure assessment, Real Estate’s lesser-known little cousin.

Key 2018 Insights from the Infrastructure assessment

  • Australia and North America leading globally
  • Europe experienced a large intake of new participants
  • Investors are now looking for full participation (including assets) rather than simply fund-level reporting
  • 75% of participating funds had some kind of sustainable investment objective
    • Most participants either integrate sustainable investment objectives into their company strategy, review ESG/sustainable investment policies or report and disclose on ESG issues
  • Funds are improving transparency on ESG issues, but not improving the performance of their assets
    • While funds may be improving their disclosure through reporting, there has not been a significant improvement in their actual asset performance
    • Assets, on average, improved year on year but this was not significant
  • On average there has been a more balanced approach to environmental, social and governance issues compared to last year
  • Materiality-based scoring was introduced for the first time this year
    • This meant a reduction in penalisation (as previously entities were being scored on perhaps immaterial issues) and therefore improved scores
  • The assessment is being trialled in the listed infrastructure space with GLIO (Global Listed Infrastructure Organisation)
    • The first phase of a pilot study has begun and is expected to grow faster than that of real estate

Australia and North America leading the pack on average, whilst Europe suffered this year due to a large uptake in number of respondents

Recommendations for improvements

  • There needs to be a stronger focus on increasing asset-level scores
  • Funds should ensure they have set improvement targets
  • These targets should be material, and more importantly, achieved (a surprisingly high proportion of targets were not achieved)
  • A large number of entities are reporting and acknowledging issues that are not relevant to their core business, therefore focus should be placed on material issues rather than wasting time.

What do we expect for 2019 and beyond?

We’re observing and engaging with the infrastructure space with an excited anticipation here at Carbon Credentials as funds turn increasing attention to improving the sustainability credentials of their infrastructure investments, following in the footsteps of real estate.

We expect this assessment to grow in participants once again next year and eagerly await the sector improvements this will bring with it.

Where’s the opportunity?

Infrastructure lags behind the real estate sector in terms of ESG performance and disclosure currently. Therefore an opportunity exists to demonstrate leadership by doubling down on efforts to improve the sustainability credentials of infrastructure investments before it catches up with real estate… which we don’t expect to take very long.

Contact us

If you are in the infrastructure space and you’d like to understand more about how we might be able to leverage our expertise to support you in your endeavours, please contact sam.carson@carboncredentials.com or Francesca.wiley@carboncredentials.com.