_Understanding regulatory frameworks for ESG reporting

Within commercial real estate, there are a number of green building certifications and regulatory frameworks that need to be considered when building or retrofitting an asset. In fact, these can be considered at each stage of an asset's lifecycle. Here, we explore the key ones used in the UK and some that span globally.

Kalli Stuart April 16, 2024

For landlords, investors and occupiers, the demand for ESG-optimised green buildings is increasing. According to our (Y)OUR SPACE research, nearly three-quarters of respondents view ESG ambitions as having a moderate or significant effect on their real estate decisions over the next 3 years – compared to just over half of respondents in 2021.

Understanding ESG frameworks and reporting

ESG frameworks are used by companies for the disclosure of data covering business operations and opportunities and risks related to the ESG aspects of the business.

ESG reporting is the disclosure of environmental, social, and corporate governance data. As with all disclosures, its purpose is to shed light on a company's ESG activities while improving investor transparency and encouraging other organisations to do the same.

What are some of the main UK ESG regulations, ratings, industry benchmarks, reporting standards and green certifications?

Energy Certification Rating (UK Government Legislation)

EPC

EPC (Energy Performance Certificates) are probably the most well-known energy regulation. Unlike many other rating systems, which were created by private companies, commercial EPC ratings were introduced by the UK government in 2008. As of April 1st, 2023, it became mandatory for all privately rented non-domestic properties to have an Energy Performance Certificate (EPC) rating of E or above. This rule applies to all types of leases, encompassing both new and existing agreements. The cost of an EPC varies based on the asset class and complexity. Industrial properties generally fall on the lower end of the pricing scale, while fees for complex office spaces are higher. Additionally, the EPC charges encompass the lodgement fee for entry into the Government Database.

Reporting standards and climate disclosures

GRI

The Global Reporting Initiative (GRI) is an international independent organisation that helps businesses, governments and other organisations understand and communicate the impact of businesses on critical sustainability issues such as climate change. GRI provides Guidelines that reflect the perspective of a diverse range of stakeholders that are aiming at transparency. 

SASB

The Sustainability Accounting Standards Board (SASB) is a nonprofit organisation created to establish a consistent framework for businesses to report on sustainability issues. The SASB developed a set of industry-specific standards that companies can follow to disclose sustainability information that is essential to investors, because it could have a material financial impact on the business. Companies use SASB Standards to report information beyond what is available in financial disclosures, while investors depend on this reporting to make informed decisions.

United Nations Sustainable Development Goals (UN SDGs)

The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for peace and prosperity for people and the planet, now and into the future. The SDGs serve as a tool to bring awareness to important ESG factors, providing a universal aspiration for improving the planet and the people on it – laying out where we collectively need to go and how to get there.

TCFD

The Task Force on Climate-related Financial Disclosures (TCFD) was set up by the Financial Stability Board (FSB) to build a set of recommendations helping companies disclose information to help investors, banks, and insurance underwriters put a price on climate-related risk. TCFD has developed a reporting framework based on a set of consistent disclosure recommendations for use by companies to help improve the quality, consistency and transparency of climate-related financial disclosures will allow economies to have the necessary information to better assess the impact and effects of an organisation on climate change. 

Taxonomy Regulation

EU Taxonomy

The EU’s new Taxonomy Regulation is designed to support the transformation of the EU economy to meet its European Green Deal objectives, including the 2050 climate-neutrality target. As a classification tool, it seeks to provide clarity for companies, capital markets, and policy makers on which economic activities are sustainable.
At the core of the Taxonomy Regulation is the definition of a sustainable economic activity. This definition is based on two criteria.

An activity must:

Contribute to at least 1 of 6 environmental objectives listed in the Taxonomy; and
Do no significant harm to any of the other objectives while respecting basic human rights and labour standards.

Industry benchmarks and tools

CRREM

CRREM (Carbon Risk Real Estate Monitor) is a voluntary initiative within the European Union dedicated to evaluating and addressing the carbon risk linked to real estate assets. The report outlines the anticipated date when an asset may face stranding, primarily stemming from surpassing the allocated Greenhouse Gas Emissions required to adhere to the 1.5 degrees Celsius warming threshold. CRREM aims to support the industry to tackle these risks and foster investments in energy efficiency as many assets will become ‘stranded’ properties that will not meet future energy efficiency standards and whose energy upgrade will not be financially viable.

GRESB

GRESB (Global Real Estate Sustainability Benchmark) is an internationally recognised benchmark assessing the Environmental, Social and Governance (ESG) performance of real estate companies  (aligned with international reporting frameworks, such as the TCFD, the Paris Climate Agreement and country-specific disclosure guidelines and regulations)  GRESB provides a rigorous methodology and framework to measure the ESG performance of both singular assets and real estate portfolios using disclosed sustainability data. Performance assessments are guided by what investors and the broader industries consider as material issues, with alignment to the United Nations Sustainable Development Goals and the Paris Climate Agreement.  GRESB Scores help investors and other stakeholders understand the relative performance and risk of an asset or a group of assets within a fund or company.  

Green building certification and ratings

BREEAM

Launched back in 1990, BREEAM (the Building Research Establishment’s Environmental Assessment Method) is the world’s longest-established green building certification system. Delivered by BRE (Building Research Establishment), a non-profit centre for building science, more than 600,000 BREEAM certificates have been awarded to date in 93 countries worldwide, with more than 2.3 million buildings having been registered for assessment.

NABERS

NABERS is an internationally recognised rating tool that has been used to measure the efficiency of buildings. First established in Australia in 1998, the initiative was initially rolled out on a national level and continues to be managed by the New South Wales Department of Planning, Industry and Environment on behalf of the Australian government.

LEED

LEED (Leadership in Energy and Environmental Design) is described as “providing a framework for healthy, highly-efficient and cost-saving green buildings.” Developed over the course of the 1990s by the US Green Building Council (USGBC), a non-profit engaged in the promotion of sustainable building design, construction and operation, LEED accreditations are now administered by the Green Building Certification Institute (GBCI), whose technical experts apply LEED’s rating system for the review and verification across the gamut of real estate projects.

WELL Building Standard

The WELL Building Standard is an international system that measures, monitors and certifies a series of features to promote occupant wellbeing. It investigates seven key concepts: air, water, nourishment, light, fitness, comfort, and mind.  Created by the International WELL Building Institute, the standard is currently recognised in 98 countries globally and can apply to new and existing buildings. It’s predominantly used to assess workplaces and commercial buildings, but it can also be applied to residential developments and educational establishments.

ESG reporting is not just a regulatory obligation; it's a strategic imperative for organisations looking to thrive in an environmentally conscious and socially responsible world.

How can we assist you?

We understand how ESG is relevant in every part of an asset’s lifecycle and can provide solutions to support your ESG strategy and goals.

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