The Commercial Real Estate Finance Council, a trade group representing the commercial real estate finance industry, has been working to phase in data around sustainability and other ESG principles into its widely used Investor Reporting Package.
The move comes as ESG principles are becoming more important for commercial real estate stakeholders, driven by a combination of anticipated tighter regulatory guidelines and feedback from investors, says Sairah Burki, managing director, regulatory affairs and sustainability.
Adding this information to the IRP is a significant step forward for the commercial real estate finance market, which has been exploring ways to benchmark and report ESG-related data. “We are planning to start off with what will be a phased-in approach with data that is already available and vetted that people are comfortable with providing and then move toward data that is more difficult to achieve,” Burki says.
Many of the efforts to enhance the IRP have been driven by investors. “Investors want to see a broad range of disclosures but understand that some data can be really difficult to get now,” Burki says, noting that it can be challenging for property owners to get data on energy or water consumption.
“This interest reflects the changes we are seeing in the world as people become increasingly interested in sustainability, the increased severity of climate change and how it affects the buildings we work, live and go to school in.”
The commercial real estate finance industry is unusual in that the same stakeholders who worked together on the first IRP continue to be part of what is a collegial effort that benefits the entire industry.
“The overarching kind of sense is, let’s all do the right thing. Let’s all work together in a way that we come up with the best product and most realistic product possible to move the industry forward,” Burki notes.
CREFC has been working closely with its constituency on ESG issues, which includes completing an annual survey. In its most recent study, it found that 55 percent of market participants had an in-place ESG framework, while another 67 percent view property-level data as the most critical aspect to making an investment decision.
Disclosure sea change
The changes are part of the sustainability initiative CREFC kicked off in 2021 that operates through a trio of sub-committees on advocacy, education and transparency. In 2022, the group allocated substantial time and resources to responding to the Securities and Exchange Commission’s March proposal on enhancing climate-related disclosures.
Percentage of market participants with an in-place ESG framework
“That is a sea change in the disclosure of information that organizations would be required to provide and most of that is climate-related,” Burki says. “Given the intersection between commercial real estate and climate change, this is an important effort underway for us that will continue into 2023 and beyond. We are in the beginning stages of figuring out what lenders and investors really care about when it comes to climate and what information [can be provided by] borrowers and owners.”
Pillars of the community
In addition to the SEC’s climate disclosure proposals, CREFC is also evaluating a recent listing of regulatory priorities from the Community Reinvestment Act that are expected to be published in March. “There has been a lot of discussion around affordable housing, and it will be interesting to see what banks get credit for in terms of investment. There is also a new category on energy efficiency measures and green apartments, which could be eligible for some CRA credits,” Burki adds.
As ESG evolves, Burki says CREFC is finding that its members are more engaged in all aspects of the acronym. “When we launched the sustainability initiative, the E was something our membership was most focused on,” Burki says. “While most of our focus has been on climate change, our surveys of our members indicate social impact is moving up, particularly affordable housing.”