No longer just a “check the box” exercise, ESG issues are top of mind for businesses, their shareholders, investors and fund managers.
Increasingly, real estate is being evaluated based on ESG policies and various ratings as investors in real estate assets want to see real adoption efforts by companies, not just “greenwashing.”
Not only are investors asking for more information on ESG, but regulators worldwide are putting pressure on fund managers and companies to disclose their policies and procedures.
But the questions for real estate fund managers have been what data to collect, how to collect it and what to do with that data to drive meaningful ESG improvement.
Enter Apex ESG Ratings and Advisory, which is tailored to private markets, and scores and rates companies based on ESG data, intelligence, and insights.
Andrew Pitts-Tucker, managing director at Apex ESG Ratings & Advisory, said the firm’s ESG ratings system was designed to help managers to start thinking differently about how they are investing, and gathering necessary and helpful data the managers can use to make meaningful ESG changes.
“We recognized very early on that the big gap was in the private marketspace where investment managers invested in various companies simply don’t know what data to collect because they haven’t had to before, and they don’t know how to collect that data even when they’ve thought about it,” he said. “Then the question is, how do you convert that data into positive action? We set out to try to fill that gap with our data collection tool.”
Pitts-Tucker explained that the software’s ratings methodology looks at major global standards, including the Task Force on Climate-related Financial Disclosures (TCFD), SASB, the Global Reporting Initiative (GRI), and the Global ESG Benchmark for Real Assets (GRESB).
Each company inputs their own data answering questions Apex created. After cross-comparing the data to the various global standards, Apex then issues a report, or a score card, and a GAP analysis report, which is a list of recommendations of how companies can improve their score.
Looking at real estate, Pitts-Tucker said Apex is building on GRESB’s standards to collect and manage non-real estate specific data beyond what it has had to do before, including companies’ carbon footprint, how diverse the board of directors and the companies executives are, and how interactive they’ve been with the community.
Additional questions include whether companies have sustainability standards per building, whether they have a political service threshold and if they have conducted site ESG requirements. Social-focused questions include whether a company has conducted community impact assessments?
“We tweaked our data set to make it applicable to real estate assets. We’ve got methodologies that are aligned with private equity and private debt, who traditionally invested in private companies, and then we have methodologies that are aligned for real estate and infrastructure. Each methodology is based on what information we want to recommend a fund collects,” Pitts-Tucker explained.
“Investment managers need to understand the E, S, and G aspect of a particular asset. And portfolio companies need to know how effective their own ESG policies are,” he added.
Part of Apex’s ESG advisory services will list the top three or four significant gaps, whether they are policies, procedures or processes, across environmental, social and governance areas, and provide that analysis to the investment manager.
“The investment manager can share that analysis with the portfolio company, which gives the portfolio company a list of things to do to improve. And with all of this, we hope that this leads to real action and improvement in real estate ESG,” Pitts-Tucker said.