Taming the Lion: How to approach sustainability reporting in South African real estate

Real estate companies face increasing scrutiny with regard to their sustainability strategies. Sustainability consultant Anelisa Keke offers some practical pointers on what to consider when preparing a sustainability report.

Sustainability reporting can be daunting. The myriad associated acronyms are confusing, and the more widely known frameworks are based on differing philosophical approaches to sustainability reporting – for instance, the IFRS Sustainability Reporting Standards emphasise the disclosure of risks and opportunities that are “useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity”.1 However, there are many stakeholders in the South African context that have a vested interest in the trajectory of corporate sustainability strategies – not just providers of capital.

As buildings are responsible for about 39% of global energy-related carbon emissions2, real estate firms face heightened examination regarding their environmental sustainability practices – but owing to a lack of comprehensive reporting guidance for local real estate companies currently, there is no clear reference point for them to follow.

Less nomenclature, more substance

Real estate companies that are starting the journey should take the time to fully understand certain technical reporting terms and frameworks, and assess whether they are fit for purpose – and then decide on how to incorporate them into their reporting. For example, with the United Nations Sustainable Development Goals (UN SDGs)3, companies should not just use the icons or refer to their short-form headings as indicative of their true meaning. They should consider how they can guide the company’s long-term vision of sustainability. The company could, for instance, contribute to SDG 2 (Zero Hunger) by using underutilised roof space for on-site rooftop gardens. In addition, the debate regarding the difference between “sustainability” and “ESG” is quite contentious4, but companies should not let it distract them and instead focus on demonstrating progress made against their strategies, as well as future focus areas.

Avoid copying and pasting

While a company can refer to good examples from its peers in the sector, it should not copy and paste disclosures unless they are clear on whether they make sense within their context. So, instead of simply disclosing a list of all buildings with solar PV installations and/or sustainable building certifications, they should carefully assess the per-building sustainability characteristics that are useful to their stakeholders. Disclosure of rainwater harvesting and water backup facilities, as well as water-efficient equipment and smart water meters installed in buildings located in drought-stricken areas, for instance, could be useful for commercial brokers and prospective tenants operating in those areas. Similarly, a comprehensive per-building record of sustainable building certifications could attract potential funders who prefer to refinance buildings with strong sustainability credentials. Ultimately the disclosure should reflect the stakeholder-specific sustainability strategy that the company has in place.

What do stakeholders actually want to see?

A mature sustainability report should include at least three years of comparable sustainability-related data, to show the reader the trajectory of its sustainability performance over time, and allow them to determine if current sustainability targets are sufficiently stretching5. In addition, it should include the following:
● Case studies, with illustrative examples of on-site implementation of selected initiatives.
Where there are operational or systemic challenges impeding progress – such as an increase in load shedding, leading to an increased usage of of diesel generators as a business continuity measure, thus hampering the achievement of scope 1 emissions reduction targets – this should be made clear.
● Reporting frameworks, which make the sustainability performance of the portfolio easy to understand and compare.
For a diversified portfolio, for instance, it can be difficult to understand how its carbon footprint compares to its peers whose portfolio composition is different. Applying SASB standards, which require the disclosure of key environmental information on a per-sector basis, may increase comparability.6 In the use of prescriptive standards, however, the company should be clear on whether or not it has achieved full compliance with those standards or not.
● Proof of implementation, which should include granular disclosure of the extent to which sustainability initiatives have been implemented in the property portfolio.
For example, making a blanket statement like “the entire portfolio is green” is unhelpful. Does this include properties that are outside-managed? Is this “green” credential based on an internal self-assessment, or is it supported by third-party certifications? Disclosing the types of certifications obtained per sector, whether these are mandatory or voluntary, and whether they are evergreen or must be renewed every few years, provides greater clarity to key stakeholders.
● The extent to which non-financial information has been assured should be disclosed at the beginning of the report.
If certain portions of the report (or underlying data) have been externally assured or verified, this should be made clear. Where information has only been internally assured, the details regarding the rigour of the process applied should be disclosed.
● Returns on investment should be made clear on initiatives that are expected to increase revenue or reduce operating costs.

There should be an explanation of the extent to which some of the financial benefits are applied downstream in the value chain – for instance, solar PV savings on electricity tariffs passed on to tenants. In lieu of financial returns, the commercial rationale for an initiative should be clarified – for example, the mitigation of a potential risk or pursuit of an opportunity.

Sustainability reports should be pithy and focus on material issues, showing investors and other key stakeholders, such as tenants, whether the company is adequately managing its sustainability-related risks and opportunities and creating long-term value.