A friend of mine often uses the phrase “The tide raises all boats” when talking about sustainability. His beautiful focus is that we must work together to make any kind of achievement. That has a lot of truth to it. However, there is a caveat that we should all be prepared for: How big is the tide and is it different?
Recently the Global Real Estate Sustainability Benchmark (GRESB) released its 2024 results. I have yet to speak to anyone who is happy with them as many organizations’ scores fell slightly (and sometimes more than slightly) year-over-year due to a variety of factors.
The tide is different. GRESB, now in its 15th year, updated some key components of its benchmark. First it made enhancements to its measurement of energy consumption metrics to exclude nonoperational consumption. For example, the platform now allows its participants to exclude energy related to functions like EV charging. Given that a level two charger draws as much power as an AC unit on a 2,000-sf house in Fresno California in July, this is a noteworthy exclusion for the performance benchmark.
The second and even more noteworthy modification to the benchmark is the depreciation of building certifications. Up until this year, a building certification earned in one year had the same value years later. We all understand how things degrade over time (like my metabolism), but the drop in scores related to this depreciation was larger for some participants than they expected.
The tide is bigger. GRESB saw a 23 percent increase in participation this year. If anyone is wondering if ESG is dead, I recommend watching “Freddy v. Jason.” SPOILER ALERT: even when you think something is dead, it is not. A 23 percent increase in participation globally demonstrates that investors and private equity firms are still bullish on sustainability. This is predominantly because a direct correlation between sustainability and profitability has been repeatedly demonstrated.
Back to the GRESB results. In addition to that overall increase in participation, the number of participants in residential real estate (which includes multifamily) eclipsed that in commercial real estate. As we all know, with respect to benchmarking, size matters. A larger sample set is better than a smaller one. The increase in participation in GRESB in 2024 expanded the size of the reference group and subsequently changed scores.
Although everything GRESB did to make their benchmark more accurate arguably improved the benchmark and the increase in data is positive, again, some participants were disappointed that their scores decreased. Imagine if you are a high performance, tightly wound A+ student who suddenly gets his first A-. Imagine what his bosses think of his efforts? The Board? The Investors?
Yes, the tide raises all boats; but it can also muck up a boat if you are not ready for it.
