ESG Ratings, ESG Benchmarks, ESG Reports, ESG Indices. All these terms sound the same, but they are not. There are many similarities between them, but they are very different. They each describe how a company or portfolio is evaluated during an ESG evaluation and how that particular evaluation was performed.
There are many ways to score a company’s ESG performance, from in-depth surveys, rigorous research, direct site visits to short self-assessment quizzes. Some ratings measure scores based on very specific metrics, while others measure specific performance areas in comparison to peers. There is currently no standard metric used to score ESG, which can be very confusing.
ESG is not necessarily a new topic, but it has been in the limelight in recent years, and this new focus is forcing companies and portfolios to adapt, requiring ESG scoring services and research firms to build consensus among them. . Today, we expect the ESG landscape to continue to be fragmented and inconsistent, but that’s not necessarily a bad thing.
ESG experts say there will be consensus in the future, but it’s still early days for ESG, so it’s hard to predict when that will be.Some industry figures represent the state of ESG ratings in a sort of Wild West (U.S.) at this point. ESG has also been likened to the dawn of blockchain. In summary, there is no consensus on how to value companies and facilities as each service provider operates in its own way and on its own basis.
Without consensus, what’s the point?
No matter how you look at it, ESG is becoming more relevant. Focusing on the long-term sustainability of business environmental, social and governance strategies, it is clear that ESG will play a key role in building a sustainable and equitable future. It doesn’t really matter whether you choose a benchmark study or an evaluative analysis. The key is to take positive steps in the right direction and start putting together a viable ESG strategy.
Lack of standard methodology is both a blessing and a curse. Without a common methodology, results and findings may offer little comparability. This can be especially problematic for companies that have enlisted the help of prestigious research institutions, paying large fees for results that may not be comparable to other findings. However, these very same research bodies can be hired to look at specific standards that can be compared and contrasted with other industry measurements such as BREEAM, LEED, DGNB and ratings provided by certain EU regulations. increase. This is beneficial.
Another advantage of the lack of standardized methodologies is the rise of benchmarking. These ratings measure companies and portfolios against the performance of peers rather than charting individual metrics. Interestingly, some benchmark studies provide ratings focused on specific his ESG areas, such as GRESB’s comprehensive environmental study. No matter what type of research he chooses, from assessments to benchmarks, and from focused criteria evaluations to broader benchmark studies, comprehensive measurement is the most important step in his ESG journey. So which type of his ESG service should you choose?
Below we look at the two most popular types of ESG services: ESG ratings and ESG benchmarks. Both have their pros and cons, and both are incredibly valuable. Here’s what you should know:
ESG evaluation
An ESG rating is a comprehensive assessment of a company, portfolio or building. Often conducted by reputable research agencies, they focus on providing detailed reports on all aspects of ESG. These studies draw on a wide range of sources from public and private data and feature detailed questionnaires of up to 300+ questions. Such assessments are conducted by an experienced consultant who visits sites, conducts research and measures all aspects of his ESG criteria for a company or portfolio.
This kind of service is expensive and labor intensive. However, the results provide unparalleled insight into his ESG progress at companies. The results are used by a consultant to develop further insights and design his ESG roadmap that addresses the company’s most pressing sustainability goals.
Given the scale and cost of these projects, full ESG rating assessments are a smart option for large companies with the capital to invest in these studies, and are likely to yield greater returns in the long run. increase. The results are also highly complex and best understood only by ESG professionals or used only by companies with dedicated sustainability teams.
Strong Points
- An in-depth evaluation is performed using extensive private and public data pools.
- Provide insights focused on specific criteria
- Professional consultants providing industry insights and trend forecasts
Cons
- Such detailed investigations are very expensive
- This is a huge undertaking that requires a lot of time and resources.
- The results are often confusing to those without ESG expertise.
ESG benchmark
ESG benchmarks are very different from traditional ESG rating research. In short, ESG benchmarking is a less invasive way of measuring his ESG for a company or portfolio. Generally speaking, these assessments are carried out on simple questionnaires that can be completed by the company owner or portfolio her manager. These results are then measured, scored, and compared to peer results to create a benchmark.
“Benchmarks” may not be as accurate as traditional ratings, but they are not as valuable. In fact, it’s better viewed as a separate product rather than as a competing form of learning. Benchmarks, for example, provide a wider range of results. This is especially beneficial for a smaller company, perhaps lacking the investment in in-depth ratings research, or a portfolio manager beginning his ESG journey looking for an overview of the state of an asset. .
ESG benchmarks are a more affordable alternative to in-depth rating assessments and offer a wider range of results. Perfect for those looking for a starting point for ESG. However, it does not yield the same results as a detailed investigation.
Strong Points
- Relatively inexpensive compared to ESG ratings
- Fewer resource-intensive evaluations
- Results can be measured against those of peers for easy benchmarking.
Cons
- Results are less detailed than comprehensive ESG rating surveys
- In many cases, the research does not include a strategic ESG roadmap, but often provides recommendations for improving ESG performance.
- As with all ESG services, there is no uniform methodology
The conclusion is
ESG ratings and ESG benchmarking tools are very different, but both offer excellent value. For large portfolios seeking in-depth analysis of ESG performance, seeking the assistance of an established advisory firm such as Savills will yield the best results. However, for SMEs seeking an ESG overview and initial assessment, eco core We offer the best value for money and ensure a great start to your ESG journey.
Both methods provide unparalleled insight into the state of ESG compliance. However, it’s easy to get confused by all the jargon, mainly because there’s currently no consistent taxonomy or uniform standard. Starting with a benchmark study is a smart way to familiarize yourself with the ESG world, especially since his ESG ratings are still a new product and the accuracy of their results is not yet known. If you are new to ESG, benchmarking is the ideal place to start. If you already have a comprehensive ESG strategy in place, a detailed assessment may be a better option.
Both are important tools that the real estate business can leverage to advance the industry towards a more sustainable future.
Read our executive summary on ESG in real estate.
This executive summary on ESG in real estate covers the key things real estate decision makers need to know from ESG compliance to leveraging ESG as value drivers in their real estate portfolios.
Related article:
