5 Steps To Effective ESG Benchmarking Across A Portfolio

Sustainability continues to rapidly rise up commercial real estate stakeholders’ agendas. While there is increased societal pressure for CRE to reduce its impact on the environment, perhaps more pressing is the increased legislation demanding that organizations demonstrate and improve energy efficiency. 

To gain the insight they need to understand their portfolio’s position, more organizations are turning to environmental, social and governance benchmarking, said Ronak Shah, senior energy analyst at technology company InSite. ESG benchmarking involves comparing and evaluating performance against established industry standards, best practices and peer groups.

“ESG benchmarking in real estate is a dynamic and iterative process, guiding the industry toward a more sustainable future,” Shah said. “It allows organizations to identify sustainable practices and align themselves with societal expectations. As organizations navigate this landscape, the meticulous assessment of ESG impact becomes not only a best practice but a strategic imperative for enduring success.”

Bisnow spoke to Shah about the key steps in the ESG benchmarking process that CRE firms should follow to gain the information they need.

Step 1: Define Your Objectives 

The first place to start is to clearly define your business’s ESG goals, Shah said. A property owner or investor needs to select the most relevant metrics that align with both industry standards and the specific characteristics of a real estate portfolio. They also need to consider the applicable laws.

“An investor, property owner or landlord needs to consider the regulatory requirements for each building’s applicable jurisdictional mandates,” Shah said. “Many cities and states have their own requirements, so it’s essential to understand what is required, particularly when considering a portfolio that spans locations.”

Step 2: Collect Data

Data needs to be gathered from diverse sources, including energy bills, tenant surveys and corporate policies. Information gathered needs to be far-reaching, looking at energy consumption, emissions, waste management, community engagement, diversity metrics and governance structures. 

It isn’t enough just to collect all the data possible, however. It also needs to be accurate. 

“A critical step for meaningful benchmarking is rigorous validation to ensure the accuracy and reliability of the information,” Shah said. “Inconsistent data quality and availability pose the biggest challenge to the accuracy of benchmarking assessments.”

Step 3: Compare And Analyze 

Once you have collected data, compare it against three different pools for information: established benchmarks, industry peers and, where possible, prior performance. This step sets businesses up to identify areas of strength and weakness, Shah said. 

“ESG benchmarking allows a business to derive actionable insights,” he said. “It helps identify and address ESG-related risks that you might otherwise miss.”

Step 4: Develop A Strategic Plan

Based on this analysis, an organization can then develop a strategic plan to address any shortcomings that have been identified. Importantly, this includes any underperformance with compliance mandates, Shah said.

“It also allows a business to capitalize on strengths,” he said. “By planning with these insights in mind, an investor or property owner can enhance the resilience of its real estate portfolio against both changes in regulations and societal shifts.”

Step 5: Look At Industry-Recognized Benchmarks

Once an organization has carried out ESG benchmarking, it may be appropriate to consider adopting an industry-recognized standard or methodology, Shah said.

GRESB provides ESG performance data and peer benchmarks globally and is gaining popularity. It provides a framework many organizations use to evaluate and improve the sustainability performance of both assets and portfolios.

Another option is the LEED rating system, which provides benchmarks for sustainable construction and operation practice. A third is Energy Star Portfolio Manager, an online tool providing benchmarks for commercial buildings that is used widely across the U.S. and Canada. 

“The right benchmarks to use depends on the nature of an organization’s operations,” Shah said. “At InSite, we see every day how an organization that identifies the best method for their business can create a highly effective ESG strategy.” 

This article was produced in collaboration between InSite and Studio B. Bisnow news staff was not involved in the production of this content.

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