REALtalk - Conversations with Commercial Real Estate Leaders
Enhancing the Value of ESG Data – with Neil Pegram
On this episode of REALtalk, Neil Pegram joins Kris Kolenc, REALPAC’s Manager of Research & Sustainability to discuss ESG data, its current state and usability, areas for improvement, and what the future of ESG data will look like.
The episode covers:
- The main data points for ESG, and their importance
- Financial and nonfinancial impacts and risk data
- Data around energy, wastewater, carbon emissions, climate resiliency
- Data-based decision making for investors
- Challenges with ESG data and how Measurabl fills the gaps
- Achieving consistent metrics, and auditable, actionable and timely insights
- Tools and data specifically for site managers or property management
- Future of ESG data and the role of technology
About Neil Pegram:
Neil’s focus is on engaging the global real estate industry on ESG data for disclosure, and on business/product development particularly for capital markets players such as institutional real estate investors. Neil has been working in sustainability disclosure specifically in commercial real estate for well over a decade. Previous to Measurabl, Neil was the Director of Americas at GRESB, and was the Head of Sustainability at Morguard Investments. So, he brings a unique combination of perspectives from inside a large vertically integrated real estate company in Canada, from a European industry standards and ratings organization, and from a US ESG technology company.
Michael Brooks (REALPAC): Hello, everyone, thanks for listening and welcome to REALtalk, the show that brings you unique insights from leaders in Canadian and international commercial real estate. I’m Michael Brooks, CEO of REALPAC.
Kris Kolenc (REALPAC): Hello, my name is Kris Kolenc. I’m REALPAC’s Manager of Research & Sustainability, and I’ll be hosting today’s podcast. Our guest today is Neil Pegram, VP of ESG Industry Engagement and Development at Measurabl. Measurabl is a REALPAC corporate partner and the world’s most widely adopted sustainability or environmental social governance ESG data platform for commercial real estate. Measurabl helps 55,000 buildings totaling 11 billion square feet of commercial real estate in 80 countries, bringing their ESG data from building meters through to capital markets. Neil’s primary focus is on gauging the global real estate industry on shared ESG data. He’s also involved in business development and product development, particularly for capital market players such as institutional real estate investors. Previous to Measurabl, Neil was the director of Americas agrees and was the head of sustainability at Morgan Investments here in Toronto. Neil has the unique perspective of working in sustainability, specifically in commercial real estate, for well over a decade. He understands the challenges of implementing a sustainability program in a large, vertically integrated real estate company in Canada. He knows the European investment industry’s perspective on sustainability and is now focused on ESG data for real estate at a U.S. tech company. I think he’ll bring a wide range of insights to today’s conversation. Welcome, Neil.
Neil Pegram (Measurabl): Awesome. Thanks, Kris. Thanks for the great introduction and thanks for having us be part of the REALPAC podcast.
Kris Kolenc (REALPAC): We’re really excited to have you, and let’s jump right into it. So today we’re talking about enhancing the value of ESG data. Neil, to start to give context to our listeners, can you describe the main data points when it comes to ESG and their importance?
Neil Pegram (Measurabl): Yeah, it’s a good question around the term ESG. So sometimes we use the term sustainability also, but increasingly the business markets and financial markets are using the term ESG, as you mentioned, to clarify those three different categories of non-financial risk. So we’ve got the environmental, the social and the governance risk. So they are non financial impacts and risk data. But we’re not saying that ESG impacts don’t have a financial impact, but there’s already a pretty big global system of capital markets and reporting and managing to financial data. So we’re really focused on those other non-financial impacts and risks. So I guess really the primary ESG data point that’s most material to real estate management is still the energy data. Then, of course, the other building performance indicators, such as wastewater and resulting carbon emissions. We also provide data on climate resiliency by geo locating each building and then overlaying that location with physical risks such as a flood map or forest fire map, which allows an investor or manager to assess the physical climate risk of their portfolio. And then they can prioritize and take actions to mitigate that risk. So both a debt and an equity investor or an insurer want to know if the assets they’re investing in are right in a floodplain, of course, especially if the mechanical systems are below grade, that’s a big risk for them, and they want to be able to mitigate that. In the end, every player in the real estate industry, from property managers to investors, want to reduce risk. They want to increase efficiency, they’re trying to attract tenants and they’re trying to get great long term returns. And to do that, they need to understand their ESG impacts.
Kris Kolenc (REALPAC): Great. Thanks, Neil. It’s a really good overview. Of course, as we know, ESG data is not always perfect. So what are some of the major challenges industry has with ESG data and how is Measurabl looking to fill those gaps?
Neil Pegram (Measurabl): Yeah, good question. So we’re talking a lot more about how to get data from that building meter level up through those property and asset management teams and all the way up to a capital markets player, such as an owner or an investor or a lender. And if you think about those different layers throughout the industry, each one of them requires a different level of granularity in the data. So if you’re trying to go from an interval meter, that’s in a building and it might be giving you energy consumption every 15 minutes, and then you’re going all the way up to an investor who just wants to screen a portfolio of listed REITs, and they’re looking for some type of energy risk. So that’s obviously a much different level of granularity. One of the analogies I’d like to make sometimes is when you think about it from a traditional financial market, it’s like trying to follow an individual transaction at a cash register in a mall. So we roll that data up daily in a mall, then weekly, then monthly, and then maybe look at things like a revenue per square foot of that retail space. And then you go all the way up to a financial report that comes out annually. And eventually you’re rolling all that data up to a theoretical effect on a share price of that business. So it’s a lot of data, and it takes a long way to go from that one cash register all the way up to an investor disclosure.
Neil Pegram (Measurabl): But we do it in financial markets all the day long. And so why are we not really doing that for the ESG data? So what we’re doing right now is looking to see if we can set those consistent metrics and get auditable and actionable and timely insights on that issue data to go all the way from meter to market. And so we do have. A lot of capital market players who are engaging with us, and we’re trying to deal with those challenges to that industry. So 10 years ago, we were still trying to deal with data coverage issues. We were just trying to link up a utility meter and trying to figure out where that clearly link to a tenant space. And we were also on data quality, which is still a big push for us and trying to ensure that data is accurate, complete and consistent. But now I think the biggest one is pushing timely data, so frequency is becoming the big push. And as we always say, you can’t manage a portfolio’s data based on something that’s a year old, just like you can’t manage, manage financial data, that’s a year old also. So when I worked back at a real estate company, we did third party asset management. We would provide quarterly reports, we’d provide annual business plans and even do three or 10 year capital plans. And it’s that level of financial reporting that investors are requiring of their managers, and that’s why companies have hundreds of accounting and leasing staff working on it.
Neil Pegram (Measurabl): But for some reason, the ESG data is often only managed by one or maybe even three people at most, and they’re working to not only implement things and get the sustainability report out, but so they’re pretty busy people. So we think the data is material and it should be collected and audited and reported more frequently and in line with financial data. But frankly, most real estate companies don’t have the systems in place for that yet. I guess nobody really wants to disclose any data to their investors unless they’re really confident about it, so the data quality and accuracy is going to be critical. Yeah. So I guess overall, one of the biggest challenges that, like a limited partner or a fund managers have is that they’re really not assigning the resources to dig into that data regularly. It’s happening in some organizations we’re particularly seeing in European groups, but that data is not getting looked at necessarily throughout the year to manage to it. But you know, it is coming and investors want that better insight to reduce the risk. And so they don’t want to have a stranded asset somewhere. Also, the regulators want more transparency, and real estate industry groups really want a level playing field and consistent metrics. So I think the managers want to be able to differentiate their portfolio based on all the hard work they’re putting into their buildings also, and that’s where we try to come and help.
Kris Kolenc (REALPAC): Thanks, Neil. That’s super interesting. I think that really resonates with both REALPAC and all of our members. So you mentioned the user’s overall. Has there been changes in who your customers are measurable? And are there tools and data specifically for site managers or property management rather than for sustainability reporting?
Neil Pegram (Measurabl): Yeah, it’s a good question. So, you know, our core customers are really still that fund manager and our point of contacts tend to usually be someone like the head of sustainability or something. But during the procurement process, we’re seeing a lot of new internal players getting involved in those ESG decision making. What used to be maybe a fairly siloed process now involves not only the management side of the business, so property management or the site management, obviously sometimes the communications teams get in there because it relates to reporting. We’re seeing the legal team get into there too. And now, of course, investor relations is really starting to engage more because they see the connection between ESG data and capital markets. Sustainability reporting is still important, but just like producing your financial report itself is not the most important thing. The actual return you made and the improvements you did in the portfolio are really the objective of the business, not just reporting for reporting sake. I think the other thing we’re also seeing more is that the rating agencies are putting a lot more pressure on the big listed companies, not just the sustainability rating organizations like Institutional Shareholder Services or ISS or Sustainalytics, but it’s those big traditional ones like Moody’s and Fitch and S&P.
Neil Pegram (Measurabl): They’re the ones who are really putting the pressure on as rating agencies now. So it’s hard to be a REIT these days without having a good sustainability program because the rating agencies are assessing those organizations and they’re using things like grasp, and they’re really starting to differentiate between just greenwashing or actually real implementation. At a property management level, we’re definitely seeing a desire for more analytics and internal benchmarking. This year we overhauled our internal benchmarking tool, which is called cohort insights, so it allows our customers to set the parameters and then ping their buildings off our large data lake of over 50 thousand buildings globally. So it means a site manager, they can take one of their buildings into our system, compare it to a unique subset of buildings that are in their region that are maybe similar size and similar asset type. And then they can see real time how it performs on energy or carbon, for instance. So that’s a big advantage over waiting for a certification process or maybe going through a whole energy audit or waiting for an annual results for some type of global benchmark. Of course,
Kris Kolenc (REALPAC): Reit. That makes a lot of sense. And thanks for digging into that, Neil. So we talked about, you know, the current state of ESG and ESG data. But what about the future going forward? What do you think the future of ESG data will look like?
Neil Pegram (Measurabl): Yeah, good question. I will try to look into my crystal ball here and make some predictions. Twenty twenty two, you know, personally, I think we need to see the ESG data to get the point of paralleling and comparable to the quality of financial data before we get too far ahead of ourselves on on, you know, solving all the problems. I also think the other real assets or infrastructure is going to have a lot more pressure on ESG data. A lot of the time those assets are more unique than the standard office towers, so they can be harder to benchmark. But those long hold investors are also increasingly concerned about ESG risk, especially in international infrastructure projects and especially in like a climate resilience. So we’re also looking at those infrastructure assets more. There’s an opportunity for ESG data to make a technology jump, I think. Just like how we all saw the cell phone use proliferate in a developing country, they skipped building that old landline infrastructure. So there is a unique opportunity right now for ESG data to skip a lot of the old financial industry processes and maybe even jump to using some type of decentralized ledger system or what everybody’s talking about, you know, on blockchain. So we’ll see what happens there.
Neil Pegram (Measurabl): I think from a technology perspective, we’re also using more machine learning to let the computer find the error. So rather than having an engineer dig through spreadsheets for days looking for outliers or missing bills. There’s still a, you know, a place for professional services advisory team to help a company on strategy and implementation. And but I think we’re also wanting to focus on the data and the tech solutions where possible and therefore reduce that human error in time. So I guess in the meantime, until we get full ESG data coverage of the entire investable global real estate market, estimates are also going to come and, you know, come and play their part. So we’re selling data as a service also by using machine learning to create those models and we base it on anonymized data and our data lake so we could take a whole building and estimate that and provide that to a capital markets player. And it’s a surprisingly accurate estimation of the performance of that building. So we’re also using those same models to find and estimate missing data or utility billing error. That way, our customers don’t have to try to fill in gaps in their data on their own. Our models can help with that.
Kris Kolenc (REALPAC): Fantastic. Thanks so much, Neil, for sharing those insights and really covering the past, present and future of ESG data. Great to have you in. And it’s also been a pleasure just working with you for the past four and a half years through REALPAC. So I look forward to continuing the relationship and continuing to solve some of these very challenging problems.
Neil Pegram (Measurabl): Thanks so much, Kris.
Kris Kolenc (REALPAC): We’ve been speaking with Neil Pegram, Vice President, ESG Industry Engagement and Development at Measurabl. Thanks very much.
Michael Brooks (REALPAC): Well, this is Michael Brooks and that’s it for this week’s episode of REALtalk. Be sure to visit us at realpac.ca/realtalk and subscribe wherever you get your favorite podcasts. If you have an idea for a topic or a guest, please send me an email at firstname.lastname@example.org. And if you like what you hear, give us a 5-star rating. Thank you for listening and tune in next time.