In March 2023, PCAF (Partnership for Carbon Accounting Financials), CRREM (Carbon Risk Real Estate Monitor) and GRESB published Technical Guidance for the Financial Industry on Accounting and Reporting of GHG Emissions from Real Estate Operations.
AREF's response to consultation
PCAF, CRREM and GRESB published draft Technical Guidance for the accounting and reporting of real estate-related operational emissions in May 2022. With the assistance of AREF’s ESG Disclosures Working Group, AREF submitted the following response to the public consultation on the Guidance:
7. Are the recommendations and guidance clear to inform practical implementation?
We welcome the recommendations and guidance provided within the revised draft Technical Guidance for Real Estate Operations (“Guidance”). We support the Guidance’s aim to standardise accounting and reporting of GHG emissions for financed real estate operations.
We share the view that there is a need for appropriate, consistent, and harmonised real estate metrics for reporting GHG emissions – endorsed by relevant regulatory authorities - that support robust, transparent and comparable disclosure for investors to understand both climate–related, sustainability and holistic ESG performance for the real estate asset class. We agree with the whole building approach for real estate.
The Guidance mentions that where energy consumption data is not available, this should be estimated. We would ask that there is more clarity on which emission factors should be used for estimation to ensure there is consistency in the approach. For instance, should the market use PCAF emission factors and will these be made publicly available? Differing sources of emission factors can cause significant variances in reported emissions.
The Guidance acknowledges the importance of obtaining credible data and the fact that there can be challenges in data collection given the different stakeholders involved and each of their agendas. One of the main challenges is data privacy rules which can hamper the sharing of data. These vary between jurisdictions and in some cases, there can be variation in how these are interpretated. Also, the further away a party is from the source of the data the harder it can be to obtain it; for example, debt providers sometimes struggle obtaining data provided by landlords and tenants.
Data coverage, particularly tenant data collection, and quality are key challenges for the real estate sector. There are significant data protection complexities for institutional residential landlords and operators in collecting energy data even where they can arrange access with the utility company and/or tenants/occupiers. It is not always possible to collect the data required as in some jurisdictions there is no statutory requirement for residential tenants and commercial occupiers to provide energy and other utility data to the property owner. Although contractually in the terms of the leases under which the asset is held or by virtue of a memorandum of understanding, many occupiers will be required to share such data, this is generally only in newer leases (i.e., “green” leases) or occupational arrangements. This problem is going to be exacerbated with GHG Scope 3 requirements when data on indirect emissions will need to be collected such as tenant demise, common parts, embodied carbon across the life cycle and arguably associated transport emissions.
Actual data is preferred over modelled or benchmark/proxy data. This presents practical challenges in a landlord-tenant and occupier scenario and raises policy issues on appropriate voluntary or mandatory disclosures. Changes to government regulation will most likely be required to achieve this goal.
We take the view that ESG metrics for real estate GHG emissions should be freely available (meaning no fee or charge basis applying) for all industry stakeholders to enable consistency of disclosure.
It is useful for the Guidance to provide the benefits and drawbacks of both the location- and market-based methods for GHG reporting in real estate. It states within the Guidance that financial institutions should report using both these methods and GHG emissions shall be reported separately for each method. Is there a particular method that PCAF would recommend? We understand that the market typically recommends location based.
8. Do you believe that the Technical Guidance works to mitigate greenwashing of financial portfolios and supports raising the ambition level?
We agree that greenwashing does need to be addressed and that a harmonised and consistent set of metrics for reporting GHG emissions for the real estate asset class will certainly assist in tackling this issue.
9. Are there any important topics that are not addressed that you feel need to be included for the document to be effective?
We are surprised that there is no reference to PCAF’s emission factors database within the Guidance.
Our members have concerns that they are being overwhelmed with best practice and recommendations for reporting ESG factors from several different bodies. We acknowledge that when producing the Guidance, the requirements of GRESB, CRREM and TFCD have all been taken into account. We are keen that there is, in addition, alignment with regulatory requirements too, such as the EU’s Sustainability-Related Disclosure Regulations (SFDR) and the FCA’s Climate-Related Disclosures rules and their proposals for Sustainability Disclosure Requirements (SDR). Along with other real estate associations, on 13th April 2022, we submitted to the FCA, TCFD and ISSB a paper (“paper”) on the proposals for ESG metrics for real estate (a copy of the paper can be found here. The principles and real estate specific metrics within the paper aim to facilitate consistency of disclosure internationally; for example, we are planning to share the paper with the Securities and Exchange Commission in the US, who are currently consulting on their own Climate-Related Disclosures rules.
Within the paper, it is noted that the TCFD weighted average carbon intensity (WACI) metrics are not aligned with current weighted average carbon intensity reporting in real estate. The TCFD metrics are based upon income whereas, for real estate it is more appropriate to base carbon intensity upon floor area. We would suggest that the calculation of WACI metrics for real estate should be mentioned in the Guidance. for consistency. To align with good-practice energy use intensity per square meter (GIA) should also be included.
We understand that the FCA plan in July 2022 to issue its consultation document on Sustainable Disclosure Requirements (SDR). We are collaborating with other industry associations to ensure we submit an aligned response providing a consistent message from the real estate sector. We invite PCAF to join, and actively participate, in this collaboration and we will follow-up with PCAF representatives on this.
It states, in the introduction to the draft Guidance, that the purpose of the document is to provide financial institutions (banks and investors) with transparent, consistent, and harmonised guidelines for the accounting and reporting of real estate-related emissions. However, it doesn’t make it clear how the Guidance will be promoted by PCAF, et al, to ensure financial institutions are aware of the guidelines.
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