16 June 2023
In today’s world, good data is at the foundation of any informed business decision. Whether looking at acquiring an asset, investing in a firm, or selecting a partner for a business venture – one should always rely on good data to provide a clear and unbiased look at what decision seems most beneficial. ESG data is no different. With rising regulation and interest in climate mitigation, non-financial (ESG) data has become increasingly important in the built environment sector, and with good reason. The built environment contributes about 40% of GHG emissions*; mitigating these would significantly impact the future of our planet. To mitigate these emissions, we need good ESG data to understand and track them. Whether a firm is looking to completely decarbonize its portfolio or follow market reporting and benchmarking trends, ESG data needs to be collected, stored, and analyzed with the same stringency as financial data. Additionally, people spend a lot of time indoors in the built environment. Tracking significant improvements, audits and certifications and general non-consumption data is just as important. Understanding what is present in an asset and how it is performing can lead to having more attractive buildings in the eyes of consumers and better environments for people to live, work, and just be in. Accurate data management will lead to greater transparency, appropriate action plans, and proper compliance. Additionally, as regulation evolves to address climate change, firms that do not invest in quality data management will face unfavorable outcomes.
The Importance of Collecting ESG Data
ESG data has become increasingly crucial in the built environment sector. Reporting frameworks and regulatory bodies across the globe now require that – like financial data – ESG data be collected and shared with investors. Although collecting this type of data is challenging, having visibility into a portfolio’s sustainable standing leads to many benefits. Regardless of the firm’s sustainability goals, having asset-specific information on consumption, generation, audits, projects, and initiatives is essential. Properly collecting, storing, and analyzing this information enables asset owners to prioritize and strategically plan which assets might require capital expenditures to adhere to regulation and which are already compliant. Thus, in the long-run having this asset-level knowledge will allow owners to correctly target assets with projects to improve performance and standing rather than targeting a whole portfolio, which can be costly. Suppose a firm wants to go further and fully decarbonize its portfolio. In that case, proper data management will be essential to determine baseline years to reference for improvements and data points comparable to established benchmarks. Having and utilizing ESG data will differentiate a firm from its competitors and provide a quantifiable record of ESG performance.
ESG data can increase visibility and thoughtful decision-making when adapting to the ever-changing climate and policy landscape. Additionally, with increased pressure from governmental and reporting authorities comes significant risks of not investing in collecting this type of data. In the US, where federal climate policy is lagging, local policies that push asset owners to decarbonize have arisen. Local Law 97 in New York City, the Clean Energy DC Omnibus Act in Washington DC, and state and city benchmarking requirements across the country are great examples of why ESG data must be collected, stored, and reported correctly. Failing to follow any of these local mandates leads a business to financial consequences and, equally if not more importantly, reputational risks. If, for example, a firm reports to the Global Real Estate Sustainability Benchmark (GRESB), incurring these fines and being non-compliant is both documented and shared with investors. Due to a changing regulatory environment (which seems to be continuing – see the SEC’s climate disclosure discussions), investors now place great weight on a firm’s ESG standing. High GRESB scores, TCFD (Task Force on Climate-Related Financial Disclosures) alignment, and Sustainable Finance Disclosure Regulation (SFDR) compliance are now significant factors that come into play and are discussed quarterly and yearly, like any other form of data. Therefore, ensuring proper data management should be at the top of any firm’s priority list.
Where can you store your ESG data?
Given the significant consequences of poor data, and the great benefits that can be gained from proper data management, the question of where data should be stored is crucial. One choice is to keep this data internally in flat files or a database. However, this approach is rarely seen in the market and can prove challenging when dealing with an extensive portfolio that needs to be updated regularly. Most firms partner with a data service provider specializing in ESG data. The options for partners are vast and most data service providers offer similar packages, making choosing one possibly confusing. At Longevity Partners, we are platform agnostic, and we recognize that there is no perfect platform. Despite that, we urge firms not to make this decision lightly. Who a firm chooses to partner with will influence all ESG-related work, and switching partners is an involved process, where the migration to a new platform can take months. Thus, we suggest “shopping around” for data providers with a few things in mind.
Firstly, an organization should internally assess why it is they need ESG data. Are they looking to report on a specific framework? GRESB or TCFD might motivate a firm to report on non-financial data, for instance. Discerning a service provider’s involvement in these frameworks, looking for GRESB partners, and asking the data service providers how they will support these endeavors would be top priorities in selecting a partner. Reporting on these frameworks is already a challenging, but necessary task; one of the last things a firm would want is issues with data come reporting season due to an issue with a partner.
Deciding on the reasons why they want to collect ESG data is also key. Let’s assume that a certain company is more interested in the internal use of ESG data. This company wants to understand their portfolio’s standing and improvement to reach their decarbonization goal or to report to local authorities. The next question that should be posed to a potential partner is, “How can I access my data?” Any partner should accommodate the format, style, and cadence the firm would like their data in. If providers cannot deliver what a firm seeks and simply states they can adapt to a company’s needs, be cautious and ask for proof before engaging in a partnership. In our experience companies that promise certain features or approaches can potentially go back on their word. Ensuring that data is collected and shared in the way a firm will need to utilize it is of utmost importance and should involve the least amount of risk and uncertainty possible.
How can Longevity Partners aid in effective data management strategies?
Longevity Partners understands that this changing ESG data environment can create friction for firms invested in the built environment. We are invested in facilitating ESG data management because we recognize its importance for our clients and for global decarbonization goals. How can Longevity Partners help? The first step in our process is to address your existing setup. As consultants, we need to understand the location and status of the data, who a firm’s current partners are, and overall quality. After we have a clear picture of a firm’s current standing, we can create a tailored strategy. No two firms are the same. Goals, requirements, and involvement in climate mitigation plans differ from firm to firm, and at Longevity Partners, we provide made-to-measure solutions. Our process typically involves onboarding data into your platform of choice, training your property teams, and providing continuous checks on the data. Once the data is stored and checked, we can create custom reports on how a portfolio, fund, or even a specific asset performs. If GRESB is a high priority, we will make reports that reflect that. If investors push for SFDR or TCFD compliance, we can adapt reports to reflect how these frameworks require the data to be presented. Many data service providers focus on the data alone, not the firm’s goals for utilizing that data. Longevity Partners will take a holistic view of a firm’s goals and requirements and adapt data to fit those goals. Get in touch with our team today to find out how our experts can assist you in optimizing your data management.