GRESB: Net-zero targets and asset sustainability reveal sharp regional differences

Europe and the Americas are moving at a different pace on sustainability action, says Chris Pyke, chief innovation officer for GRESB.

Chris Pyke, GRESB

Real estate is critical to achieving global climate goals. In 2023, the GRESB Real Estate Benchmark increased to 2,084 companies and funds across 15 sectors, up from 1,820 in 2022. These companies and funds own and manage more than 169,000 assets with an aggregate value of $7.2 trillion.

The latest data from these companies and their assets reveals that while take-up of net-zero policies, commitments and targets is growing, there is significant variation between regions. The energy performance of assets considered ‘sustainable’ paints a similar picture of geographic difference.

Net-zero action growing

Recent years have seen an explosion of corporate commitments to decarbonisation and net zero. GRESB data shows the real estate sector is in line with these trends. Most real estate companies have policies supporting net zero and decarbonisation, often combined with explicit commitments. A smaller fraction of companies has time-bound, quantitative targets – for example, a commitment to achieve a specified level of energy efficiency by a set date.

However, the frequency of each of these elements – policies, commitments and targets – varies sharply between regions. Net-zero policies are reported by three-quarters of real estate firms in Europe; however, they are reported by less than half of property companies and funds in the Americas.

Energy performance varies

The 169,000 real estate assets in this year’s GRESB benchmark, up from 150,000 in 2022, reflect a broad increase in the amount of granular operational performance data available to owners and managers. This data provides basis for evaluating assets against new regulatory criteria, most notably thresholds in the European Union Sustainable Finance Taxonomy.

The EU regulation defines, in part, sustainable assets as those in the top 15 percent of the market (ie, those with lower energy intensity than the bottom 85 percent of the market). Until now, however, there has been no definitive dataset to establish this threshold.

GRESB’s 2023 data shows these important thresholds vary significantly across geographic regions. The top 15 percent of asset performance varies across regions and between property types. Overall, the top 15 percent threshold (in kWh/m2) varies across major regions by 101 percent for industrial assets and 40 percent for office assets. The industrial category is especially diverse across all regions, and a substantial fraction is composed of low-energy-use-intensity warehouse and distribution properties.

The illustrated data shows just eight of more than 12,000 possible combinations of property type, electricity grid and climate zone across the 169,000 assets reported to GRESB. The results for these eight combinations illustrate the complexity of assessing the top 15 percent of performance across a global property portfolio. These performance levels are the product of the interaction of multiple factors, including construction standards, climate zones, service levels and utilisation rates.

Balancing expectations

These findings can inform engagement between investors and managers on sustainability matters. Investors should be aware that many real estate companies have net-zero policies, commitments and targets, but expectations should be balanced by appreciation for variation between regions. The absence of policies, commitments and targets would be unusual in Europe. The presence of these same elements is a sign of relative leadership for Americas-based firms.

Investors should also recognise the characteristics of sustainable assets also vary. This is particularly true for new performance-based thresholds in EU regulation. Differences in building stock, climate and a myriad of factors mean that the absolute performance of energy-efficient assets varies significantly. Consequently, place-based, market-specific data will be necessary to understand asset quality and quantitatively analyse the sustainability of individual assets.