2018 GRESB Infrastructure Results | North America
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The document summarizes the 2018 results of the Global Real Estate Sustainability Benchmark (GRESB). It reports that in 2018, GRESB assessed 75 funds, up 17% from the previous year, and 280 assets, up 75%. The funds and assets spanned 62 countries and 24 sectors, with total assets under management of over $500 billion. It also provided details on improvements in GRESB scores for both funds and assessed assets, with funds showing stronger sustainable investment objectives but room for improvement in disclosing sustainability performance at the asset level. Top-performing sectors and firms were recognized.
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2018 GRESB Infrastructure Results | North America
- 1. 2018 RESULTS Sustainable Real Assets 75 funds (+17%) 280 assets (+75%) 62 countries 24 sectors Funds: $100bn+ Assets: $500bn+ (GAV)
- 2. 2018 RESULTS Sustainable Real Assets 75 funds (+17%) 280 assets (+75%) 62 countries 24 sectors Funds: $100bn+ Assets: $500bn+ (GAV)
- 4. More ESG focus Long-term investment in illiquid assets Importance for society Regulatory environment Investors want to understand the non-financial risks that can severely impact returns and reputation Sustainable infrastructure source of deal flow Anticipating changing regulations and developments Opportunities REAL ASSETS
- 5. Investor Members Fund Manager, Asset Operator and Company Members
- 7. GRESB ASSESSMENTS ESG Performance Data ESG Analytics ESG Analytics Investor perspective
- 8. FUND ASSESSMENT ASSET ASSESSMENT GRESB SCORE ASSET FUND SCORE GRESB SCORE FUND Funds with ≥25% asset participation 30% 70% Two complimentary assessments
- 9. 0 50 100 2016 2017 2018 51 64 75 23 29 43 Average % of fund’s portfolio reporting to GRESB Asset Assessment 2018 2017 55% 44% Total Funds (+17%) Funds with >25% Asset participation $100bn+ GAV NoOFPARTICIPANTS
- 10. 0 100 300 NoOFPARTICIPANTS 2016 2017 2018 134 160 280 Total Assets (+75%) $500bn+ GAV 200 North America (+47%)
- 13. Fund Assessment
- 14. 2016 2017 2018 Global Average FUND SCORE WEIGHTED AVERAGE ASSET SCORE GRESB SCORE 55 2018 Average WEIGHTED AVERAGE ASSET SCORE 49 2018 Average FUND SCORE 69 2018 Average
- 15. Funds Improving in Almost All Areas 11 Indicators in the Fund Assessment
- 16. Funds - Sustainable Investment Objectives 75% of funds have sustainable investment objectives
- 17. Funds Improve Disclosure, but not Assets
- 18. Asset Assessment
- 19. MANAGEMENT& POLICY IMPLEMENTATION & MEASUREMENT GRESB SCORE 48 2018 Average IMPLEMENTATION & MEASUREMENT 46 2018 Average MANAGEMENT & POLICY 49 2018 Average 2016 2017 2018 Global Average
- 24. Materiality Approach Strongly Supported 92% agreement with standard sector weightings
- 25. Reporting on ESG Performance Strongly Affected by New Participants
- 26. Intensity Metrics Towards Standard Performance Metrics
- 27. Performance Targets Room for Improvement
- 28. First Data on Sector Carbon Intensities
- 30. Resilience Module Indicators 8 Indicators in its first year
- 31. Resilience-related responses by market segment
- 32. So… What’s next?
- 33. Sustainable Real AssetsSustainable Infrastructure
- 34. Sustainable Real Assets• Sustainable infrastructure targets • ESG performance metrics • Assessment reporting guidelines • Data capture and quality assurance processes • Scoring and benchmarking approach Sustainable Infrastructure
- 35. Fund - Sector Leaders Sector Diversified Renewable Power Generation Other Sectors Europe Other RegionsGlobally Diverse
- 36. Asset - Sector Leaders Transport Transport - Airports Transport - Ports Transport - Roads Social Infrastructure Social - Health Social - Education Data Infrastructure Transport - Rail HELIOS UDICITE
- 37. Asset - Sector Leaders Energy Resources Network Utilities Power Generation X- Renewables Solar Power Wind Power Other-Sectors Diversified Renewable Power Generation
- 38. 2018 RESULTS Sustainable Real Assets 75 funds (+17%) 280 assets (+75%) 62 countries 24 sectors Funds: $100bn+ Assets: $500bn+ (GAV)
- 39. Panel Q&A Moderators: Zachary Schafer, Executive Director & CEO, Infrastructure Week and Dan Winters, Head of Americas, GRESB • Martin Lanternier, Investment Manager Infrastructure Equity, UBS • Steven Hason, Managing Director, Head of Americas Real Estate & Infrastructure, APG • Josh Nothwang, Practice Leader, Sustainability, Energy and Climate Change, WSP • Tricia Burnell, Director and Chief of Staff, Global Investments, Alinda Capital Partners
Editor's Notes
- -Welcome and congratulations on another year of improved performance. [We kept you on the edge of the seat for a little longer than expected this year, but our extensive testing took a bit longer than expected] -We know everyone’s had a chance to check their individual results, but we know you’re very excited to find out how you, as an industry performed
- Firstly, why are we here and in particular, why do we all care about the ESG performance of infrastructure? Infra needs capital, globally: USD89 trillion in infrastructure investments needed until 2030 (IEA) USD15-20 trillion in maintenance backlog by 2013(McKinsey) USD 8 trillion for a transition to a low carbon economy.
- There has been a lot of interest in infrastructure investments in recent decades. Increased often direct investment in infrastructure, has also created more awareness of ESG risks around this long term investments With ever-longer investment horizons, infrastructure investors increasingly require detailed information on non-financial indicators that may pose risks and provide opportunities to their infrastructure allocations. In recent times, particular impetus has been provided due to initiatives such as the Taskforce on Climate Related financial disclosure and the UN Sustainable Development Goals Regulation provides minimum performance requirements, but investors want to know more than just whether compliance is being achieved, they want to understand the non-financial risks that can severely impact returns and reputation and graps the opportunities that are arising
- Since founding, twelve more investor members have joined plus many fund managers and asset operators. These responsible investors are calling for more focus than ever on environmental, social, and governance performance across all asset classes, including Infrastructure They urge to: Increase pace of transition Increase green investments
- Ultimately GRESB is a communication framework. Our process to connect industry stakeholders Central in this process is data quality, both at the company/fund level and at the portfolio level
- Just as a reminder to the audience, the Infrastructure Assessment is made up of two complimentary assessments – one for funds and one for assets. Our investor members have told us that over time they want to see all of their funds reporting with all of their underlying assets. The Fund score and the Weighted Average Asset score combine to produce what we call the GRESB Fund Score, the ultimate measure of Fund ESG performance for investors. To achieve an overall GRESB Fund Score, at least 25% of underlying investments must participate in the Asset Assessment, and the GRESB Fund Score is based 30% on the Fund score and 70% on weighted average of the asset scores.
- Strong Growth in Participation - Fund Now in its third year, the infrastructure assessment has shown strong growth in participation – for Funds there was a 17% growth in overall participation and pleasingly a 48% increase in funds obtaining a GRESB Fund Score (that is 43 out of the total 75). It’s also pleasing to see that the average proportion of assets participating across all funds has risen from 44 to 55%, heading towards that investor transparency goal.
- Strong Growth in Participation - Asset For Assets, there was a 75% increase in participation, showing that the Infrastructure Assessment has reached ‘critical mass’ and is following the same trajectory as for Real Estate towards becoming the global standard. In terms of regions, participation grew across all regions with Europe growing the most, now making up just over half of participants by gross asset value (GAV), followed by North America (25%) and Australia/NZ (16%). North America Participation: 2016=38, 2017 = 38, 2018 = 56
- Funds participating in the GRESB Infrastructure Assessment span across the globe with the biggest proportion focused on Europe and Globally Diversified. Average Fund scores tended to cluster together this year hovering around 50-60.
- Assets participating in the GRESB Infrastructure Assessment now span some 62 countries, being predominantly OECD nations. Average Asset scores tended to cluster together this year hovering around 60 for North America, Australia/NZ and globally diverse regions. Europe’s average was slightly lower as was South America’s.
- Funds Improving their Sustainability Performance Looking now at the GRESB Model for Funds, and the progression of scores. The GRESB Model for Funds shows the Fund score on the vertical axis and the Weighted Average Asset score on the horizontal axis. The average Fund Assessment Score increased from 60 to 69 this year, showing increased consideration of ESG within management and investment processes by Fund Managers. The average Weighted Asset Score increased from 43 to 49 this year. As mentioned earlier, 43 of the 75 funds received a GRESB Fund Score. These are spread across the graph, while the other 32 without asset participation are clustered on the y-axis. The average GRESB Fund Score increased from 50 to 55, signalling not only improved performance but increased asset coverage and performance as well. Notably for these funds, the Fund score is almost always higher than the Weighted Asset Score (look at the 45 degree line coming from the origin), showing that fund management practices tend to lead the overall performance of the underlying assets. This suggests that Fund Managers should put most effort into improving asset performance before improving their own practices.
- Now looking more closely at the Fund Assessment and the performance on its 11 indicators. This chart shows the percent responding to each indicator. The first indicator, Fund 1 was new. Apart from that, Fund indicator scores increased this year across all indicators except Policies. Almost all funds now have a senior decision-maker accountable for ESG issues – this is clearly a no-brainer for Fund Managers. Third party review of ESG disclosure increased significantly and is now at 27%.
- Reflecting the industry trend for more and a wider variety of approaches to ESG for funds, the new Fund indicator was added focusing on sustainable investment objectives. 75% of funds reported having such objectives. Funds also reported on a range of different actions implemented to achieve these objectives. As you can see, the most common actions were Integration within business strategy (52%) and Review of investment policies (48%), while the least common were Adjusting risk materiality thresholds (16%) and Exiting from certain investments (19%).
- Infrastructure investors increasingly demand greater and greater ESG disclosure. This graph shows the percentage of funds (light blue) and assets (dark green) that disclose their ESG performance through various means. Funds tend to show a higher degree of ESG disclosure than assets across all disclosure strategies except for integrated reporting where the proportion is similar. Funds also improved their communication compared to last year while assets stayed much the same. In general, there is still room for improvement. And notably, integrated reporting remains relatively uncommon.
- Moving now to the Asset Assessment.
- Assets Continue to Improve But can do Better First lets look at the GRESB Model for Assets. The Model splits the assessment scores into two components – the Management & Policy aspects and the Implementation & Measurement aspects. These each make up about 50% of the score. Overall ESG performance by reporting assets improved again from a total average of 43 to 48 in 2018 as shown by the total score. Note that this number is slightly different to the weighted average asset score used in the GRESB Fund Score calculation earlier since there are several assets that are not part of funds but are included in the average here. Average scores for Implementation & Measurement improved significantly from 34 to 46 while Management & Policy actually decreased slightly from 52 to 49 showing that more emphasis may have been put on the implementation side in the last year.
- Zooming in on the regional perspective, Australia/NZ in light blue is one of the leaders based on its average, and as shown in the world map earlier. The distribution of scores is very wide in all regions.
- Looking deeper we divide the assessment into 7 aspects shown here. The shift in Management & Policy vs Implementation & Measurement is also reflected in these Aspects, with the more implementation where Stakeholder engagement and Performance indicator scores have increased, while Management, Policy & disclosure, and Monitoring & EMS aspect scores have decreased on average compared to last year (the dark line is last year and the shading is this year). Whilst reporting on Performance indicators was a clear weakness last year, there appears to have been a ‘rebalancing’ of aspects this year. Likely partly due to changes in scoring approach (including materiality) and changes in participants responses. Certifications continue to be uncommon for our infrastructure participants suggesting that since most of these are development stage focused, they may take some years to be reflecting in operating assets.
- Regarding sectors, we revised the sector classification slightly to better align with other infrastructure classification schemes, so it looks slightly different to last year. This graphic shows the 8 ‘super-sectors’’ we now use (plus Other and Diversified), which are divided into 31 sectors. Participation grew across the board but was strongest in Social infrastructure, Renewable energy generation and Transport. Introducing materiality based scoring produced a fairer assessment and scoring, resulting in the average scores for the sectors crowding together – Renewable energy scores are significantly higher than last year although the Social infrastructure sector continued to show lower scores in general.
- In a very important improvement this year, we introduced materiality based scoring across many of the Asset Assessment indicators using standard sector materiality weightings, assigned to each entity based on their primary sector. This tailors the assessment to each asset’s sector so that participants were assessed on the ESG issues that are material to their sector. This figure shows the response of participants to all issues that were either ‘Highly relevant, ‘Relevant’ or ‘Not relevant’ (the three materiality levels we applied). As might be expected, a high proportion of participants addressed ‘Highly relevant’ issues in their policies, risk assessment and the like. Around half of participants addressed ‘Relevant’ issues. Whilst a lower proportion addressed ‘Not relevant’ issues, this was still around 25% suggesting that there might be some wasted effort that could be better spent on the most material issues. Participants were also given the opportunity to review the materiality weightings, and nominate and justify different weightings if they disagreed with the standard sector weightings. In 92% of cases, participants agreed with the standard sector weightings showing strong support for materiality based scoring. The areas of disagreement focused around Child labour, Employee health & safety, Light pollution, Stakeholder relations, and Biodiversity & habitat. This data will help to further redefine the materiality process in 2019 and beyond.
- The Asset Performance Indicators look at whether and how assets report on their most material ESG issues. There are currently 7 PI’s in the assessment as shown. Here we show historical trends of indicator reporting in the green circles, with 2016 being the inner most circle and 2018 the outermost. Interestingly, asset reporting on performance indicators did not improve, halting the trend seen last year. This is primarily because half the asset participants were new as shown in the blue bar charts. In these charts, showing 2018 performance, the mid blue bar is repeat participants, the light blue bar is new participants and the black dot is the overall average. It is clear that new participants in general report less. We saw this effect earlier with total score also. Repeat participants however continued to improve their performance reporting.
- Feedback from our investor members is that they desire more focus on performance indicators and we have responded - we standardized metrics for indicator reporting building a basis for comparable intensity metric reporting. Intensity metrics utilise a numerator (measure of impact) divided by a denominator (measure of asset size). The numerators are our main performance indicators (energy, GHG, water and waste). The two most common and readily available denominators are Gross Asset Value and asset output. This figure shows our calculations regarding the capability of our participants to report on common intensity metrics. In each of these mini-figures, the top, light blue bar is the percentage reporting the numerator, for example, for Energy, this would be energy consumption in MWh. The second, green bar is the percentage reporting the denominator, being either an output metric such as Megalitres of water treated, the top series across, or GAV, the bottom series across. The third, grey bar is the overlap, that is the percentage that report both numerator and denominator and therefore can report the intensity metric. Looking across the top and bottom series, you can see that about 42% of assets currently have the ability to report on GAV intensity and 20% on output intensity. We will work with the industry to further standardise reporting and provide guidance to ensure consistency and comparability.
- To drive performance improvement, it is good business practice to set targets and track performance against them. These figures provide a summary of how assets are setting targets for Energy and GHG emissions. The ‘race tracks’ show 1) what percentage of assets reported actual performance on the indicator [Report on 2017 performance], 2) the next line shows what percentage set targets for 2017, 3) the next line distinguishes where the targets set were legitimate (we removed targets that were identical to actual or unlikely zeros), and 4) the final line shows what percentage of assets actually achieved their target. The blue race tracks are for 2017 targets and the dark green are for long term targets. Whilst over half of participants are measuring performance, only about 15-20% are setting legitimate targets and only 12% reported achieving the 2017 target, showing much room for improvement. On the other hand, participants as an overall average beat their 2017 Energy and GHG emissions targets by 1.2% and 1.7% respectively. The long term targets are set on average about 4 years into the future and for energy on average target a 9.1% annual reduction, while for GHG emissions they target a 1.4% annual increase. While the energy reduction targeted is impressive, the rise in GHG emissions targeted is a long way from anything like net zero emissions that might be required for a rapid transition to a low carbon economy as advocated by some.
- For the first time, we have started to calculate ESG intensity metrics. The results should be treated with caution as more needs to be done to standardise reporting boundaries and assumptions. Nevertheless, these results show what the industry is capable of reporting and how we can start to compare sectors and assets in the future. We have focused for a start on Greenhouse Gas (GHG) emissions per unit of gross asset value (tCO2e/$), being a measure of Carbon Intensity. This chart shows the carbon intensities for 11 sectors for which we could obtain large enough sample sizes. These box and whisker plots show the minimum value, 1st quartile, median (circle), 3rd quartile and maximum moving upwards respectively. Note this graph is on a log scale. There is a lot going on in these last few charts so please refer to our public snapshot and website results section for more details. Unsurpisingly Power Generation x-Renewables shows the highest intensity, an order of magnitude higher than the next highest. Electricity Transmission is next, followed by Energy Resources (energy pipelines, processing and storage). Most other sectors are in a similar range with Rail Companies somewhat lower but with a wide dispersion. This sort of information will no doubt become increasingly important for investors as the world transitions to a low carbon economy.
- Moving now to the Resilience Assessment. 37 of 280 respondents completed both the core Infrastructure Assessment and the Resilience Module
- Responses for eight new indicators in the 2018 GRESB Resilience Module. The new results provide a unique picture of how infrastructure companies and funds from around the world are beginning to address resilience. Over 80% of respondents report designating an internal leader and establishing clear lines of communication and accountability through cross-department teams or working groups. More than 60% of respondents report identifying and engaging stakeholder groups and taking action to reduce risks during new construction and operations. Less than half of infrastructure respondents report systematically tracking the impact of extreme events and near misses.
- Resilience-related responses by market segment. Each bar represents 25% of respondents. The y-axis indicates the relative number of indicators reported by each company in the segment with higher scores reflecting more comprehensive responses. Given 37 infrastructure participants in the Resilience Module, there are 9 or 10 respondents per segment. Responses to individual resilience-related indicators is interesting and important. However, the elements of leadership, risk assessment, business strategy, and performance measurement need to be used together to promote resilience. The conjoint analysis of these factors is reflected a measure of comprehensiveness of the response of each company. The breadth of responses is not necessarily an indicator of quality or risk management; however, it is likely to be indicative of the comprehensiveness of an organization’s approach to resilience. Participants were segmented to examine differences in responses between four market segments (Figure 6). On average, infrastructure participants in the top 25% of participants provided responses for 74% of answer choices, while participants in the bottom 25% provided information for 12% of answer options.
- With our shared industry vision of sustainable real assets, we want to work with you to accelerate progress towards this goal
- We are in the process of developing our medium term plan which will focus on: Setting aspirational long term goals for the industry Refining performance indicators and metrics – greater standardisation, clearer and more consistent boundaries, great comparability and suitability for benchmarking Streamlining data capture to reduce reporting burden. Building in checks and balances to enhance data quality Improving the scoring and benchmarking approach [need to clarify what we meant by this?] Talk about the engagement timeline and process for getting their feedack in the upcoming months.
- We would like to finish by celebrating this year‘s leaders…….
- We would like to finish by celebrating this year‘s leaders…….
- We would like to finish by celebrating this year‘s leaders…….