The benefits of ESG reporting: a case study on the implementation of GRESB reporting
Matteo Quatraro, Director at Gravis, writes about GCP Infra’s implementation of GRESB reporting and the benefits of doing so.
As stated in its annual report, GCP Infrastructure Investments Limited (“GCP Infra”) continues to develop its strong commitment to sustainability. Whilst GCP Infra was launched before sustainability was considered an investment theme, all the assets owned by the Fund make a positive sustainable impact; in fact, renewable energy generating assets represent c. 67% of GCP Infra’s portfolio (31 December 2022). Gravis Capital Management Limited (“Gravis”), the Investment Adviser of GCP Infra, and the board of GCP Infra believe that by ensuring that the assets make a positive environmental or social impact, the investment risks are reduced and returns to investors are enhanced.
In terms of new investments, Gravis includes an assessment of environmental, social and governance (“ESG”) characteristics in every investment proposal submitted to GCP Infra’s investment committee for approval. This process ensures that the fund can effectively identify, monitor and manage potential ESG-related risks and opportunities in new investments.
In relation to operational assets, we recognised that it is increasingly important to investors and customers that a business or an asset is managed under robust environmental, social and governance standards. Therefore, in 2022 Gravis undertook a data collection exercise which aimed to develop, quantify and report material ESG metrics from the underlying portfolio. This has proven useful in identifying strengths and weaknesses of the assets and helped to monitor and improve ESG characteristics. Following advice from independent experts, Gravis is implementing additional assessment tools that can both provide more insight on the extent to which ESG metrics are met and to identify opportunities for improvement during the operational life of a renewable asset.
As investors in renewable assets, it should be relatively easy to determine, and prove, the achievement of ESG metrics when compared to other hard assets. However, Gravis also recognised the benefits to investors of ensuring that the data is collected in a consistent and standard format and that the reporting is verifiable by a third party.
Gravis identified the Global ESG benchmark for financial markets (“GRESB”) as an excellent tool and benchmark to measure ESG performance through annual assessments. Gravis, with the co-owner of a wind farm (Temporis) and professional advisers (ITPEnergised) are submitting one asset through GRESB assessment during the April to July 2023 assessment window, with the intention that other assets will be assessed in future. This way, investors and professionals can feel reassured that assets’ ESG assessments are driven by robust industry standards and validated by an independent and reliable third party
The chart below shows that the number of companies participating to GRESB with the aim of recognising the assets they manage are in line with ESG values, has more than tripled during the past years, increasing from 160 assets in 2017 to 652 assets in 2022. The majority of the assets are based in Europe, but an increasing number are also in Asia and the Americas.
The average score achieved for assets in the 2022 submission was 79/100 (an 8% increase compared to 2021) and overall the gross asset value (GAV) reporting to GRESB more than doubled since 2019. Both increases indicate how the industry is maturing in its approach to ESG and is strongly focused on improving performance.
Below we show a summary of the main data from the 2022 GRESB submissions - GRESB data is now used by 170 institutional and financial investors with more than USD 51 trillion in assets under management:
GRESB Asset assessment and benefits of reporting to GRESB
The GRESB Infrastructure Asset Assessment provides the basis for methodical reporting, objective scoring and peer benchmarking of ESG management and performance of infrastructure assets around the world. The process of gathering and reporting the information leads to deep data insights for investors, fund managers and asset operators.
The data set is self-reported by participants between the 1st of April and the 1st of July each year and is subjected to a multi-layer validation process, after which it is scored and benchmarked. The result is high-quality data that asset managers, investors and their professional advisors can consider in their investment and decision-making processes.
The primary benefits in participating in GRESB are as follows:
- enables the identification of areas of risk, opportunity and impact to infrastructure assets;
- provides reporting in a consistent framework to facilitate comparability and transparency;
- provides a clear picture of ESG performance, comparison to peers and possible improvements;
- provides validated ESG performance information which can be reported to investors using a global industry standard; and
- is a sector-specific assessment that is evaluated and updated annually to ensure all material ESG topics are incorporated.
The GRESB asset assessment process is structured in two main components, “Management” and “Performance”.
“Management” evaluation is split into 5 themes which address ESG management information at the organisational level:
“Performance” evaluation focuses on twelve aspects that measure the entity’s performance at the asset level:
Once submitted, data is validated through a systematic quality control process by an independent, third party. The scoring is completed objectively through an automated scoring system which takes place without manual intervention after the data input process. GRESB assigns each participant to peer groups based on region, sector and investment vehicle to provide a peer comparison of performance.
Renewable asset identification and process
Gravis identified Blackcraig wind farm (pictured below) as the first asset of the GCP Infra portfolio to undergo a GRESB assessment in 2023. It is a 52.9MW onshore wind farm located in Scotland and it is 50% co-owned with another investor; Temporis Capital Ltd (“Temporis”) who is also the day-to-day asset manager of the asset.
The active involvement of Temporis as a co-owner in the management of the asset allowed us to gather information and data more easily and ITPEnergised Ltd, a consultancy company offering energy, environmental, engineering, technical advisory and renewables asset management services, has been engaged to provide a gap analysis to help identify and improve both Management and Performance before the final submission.
In September 2022, Gravis and Temporis started to gather information and data using data collection templates and scoring tools from the GRESB 2023 Infrastructure Asset Assessment.
In December 2022, we then started working on the gap analysis provided by ITPEnergised in relation to the data submitted in the assessment tool, to improve the quality of the data and to identify the aspects that could be improved. This exercise has ensured both that the data collection process is robust and supported by evidence and has helped Gravis to identify further opportunities to improve the ESG impact of the asset.
Gravis is currently working on the data for Blackcraig with the aim to submit for GRESB assessment before 1 July 2023. This is the first step of GCP Infra receiving a GRESB score for a renewable asset in the portfolio, with the purpose of replicating the exercise for other renewable assets in future years. We intend to share the benefit of the lessons learned through this GRESB submission across the portfolio. Whilst all GCP Infra’s assets make a positive social and/or environmental impact, we believe that the GRESB process will assist Gravis in further improving the impact, reducing risks associated with the asset and improving the risk adjusted returns. By using a third party, verifiable standard to report this, we hope to give investors and their advisors comfort that their investments really are making a difference.
Important Notice. Gravis 2023.
This report is published for general information only and is not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Gravis for any loss or damage resultant from any use of, reliance on, or reference to the contents of this document. As a general report, the views and opinions contained herein may not necessarily represent views expressed or reflected in other Gravis communications, strategies or funds. Reproduction of this report in whole or part is allowed with proper reference to Gravis.