La Francaise Forum Securities (“LFFS”) – response to Nareit's latest report on ESG reporting

Andrew White, Senior Consultant, Global Sustainable Real Estate Securities

Nareit's latest report on ESG reporting shows positive developments. LFFS’s own ESG research, in support of the LFFS Sustainable Real Estate Securities (SRES) fund and related GPR SRES index, shows similarly positive developments. The sector, on the whole, is making good progress, but quality of reporting also needs to be considered, rather than levels of disclosure in isolation. LFFS uses a detailed SRES model to assign ESG ratings to listed real estate and found the following results.

Within a comparable developed market global universe, in terms of representation by size, geography and sector representation, LFFS’s own ESG research found that in the three year period June 2017 to May 2020, approximately 220 of 300 listed real estate issuers improved their ESG rating score, such that well over two thirds of the universe made improvements in ESG policies, initiatives, and performance in other words.

However, 70 of these companies were starting from a rating grade considered weak enough to exclude them from an 'alpha pool' of the best issuers, i.e., those attaining an ESG investment quality grade, and despite making improvements in their ESG approach, still did not achieve an investible rating grade on ESG measures.
A further 80 or so companies, which already had good ESG ratings three years ago, received improvements to their ESG ratings, so the best companies continue an upwards trajectory. The remaining 70 'improvers', therefore, went from non-investible in ESG terms to investible on ESG measures.

Across the full universe of 300+ names LFFS’s own ESG research found that 32 issuers were making reference to the TCFD in Q2 2020. Whereas 109 issuers made reference to the SDGs, which seem to increasingly be guiding ESG strategies in real estate. 130 companies make use of the GRI currently, such that ESG reports are becoming far better structured and consistent.

However, despite the mostly positive trend referenced above LFFS’s own ESG research has also revealed companies where we consider that ESG performance has stagnated or not advanced as expected or promised, or where performance has deteriorated and the outlook appears weaker on ESG.

For further information on LFFS’s approach to sustainable listed real estate investing please contact Jana Sehnalova (jana.sehnalovanull@nulllf-fs.com) CEO of La Francaise Forum Securities.