CREFC Survey Reveals Climate and Property Resilience Are Top of Mind for CRE Market Participants
NEW YORK, June 27, 2022 – The CRE Finance Council (“CREFC”), the industry association that exclusively represents the $5.1 trillion commercial real estate finance industry, today released new data from its 2022 ESG Survey, gauging its members’ sentiment on Environmental, Social and Governance (“ESG”) issues in commercial real estate (“CRE”) finance. The survey reveals that regulatory considerations and investor demand for transparency are increasingly important drivers behind ESG disclosure and reporting frameworks. The findings come as the Securities and Exchange Commission (“SEC”) looks to mandate, for public companies, ESG disclosure frameworks, and has taken a more watchful eye on potentially misleading ESG investment activity.
Regulatory compliance top of mind, but disclosure frameworks unclear
With an increasing focus on ESG in CRE lending and investing, CREFC’s survey finds that while 55% of industry participants have an ESG framework in place, more than half (55%) report that they do not use the ESG disclosure frameworks promoted by policymakers, primarily the Task Force on Climate-Related Financial Disclosures (“TCFD”). This framework serves as a template for many regulatory agencies, with the SEC acknowledging that its proposed climate disclosures are similar to those based on the TCFD.
“While the CRE industry anticipates increased regulatory oversight of ESG investments and offerings, the lack of standardization for compliance and disclosure requirements across different sectors, subsectors, and industries creates challenges,” says Sairah Burki, Managing Director, Regulatory Affairs & Sustainability, CREFC. “To help our members understand the regulatory landscape and adapt to new requirements, CREFC’s Sustainability Initiative is in the process of developing climate-related disclosures for our Investor Reporting Package™.” Such data fields once developed and finalized can be utilized by and highly useful to balance sheet lenders as well.
From an investment perspective, a majority of market participants (67%) view property-level data as the most important information when making an investment decision. Tenant data is also gaining significance, ranking as the second top consideration (34%), followed by sponsor ESG policies (33%).
Property resiliency at the forefront
According to the survey, environmental components rank highest among respondents’ ESG priorities, with a focus on the impact of climate on property and buildings’ ability to weather the impacts of the environment such as natural disasters and overall longevity to the elements. Nearly three-quarters (71%) rank property resilience as their top concern in their ESG assessments, followed by the impact of property on climate (64%), such as building carbon emissions.
“It’s not at all surprising that resiliency reigns supreme in terms of data requirements. Before the moniker ESG became popular, CRE investors still needed to understand the ability of collateral to withstand climate stress. Resiliency contributes to overall creditworthiness,” adds Burki. “And as the focus on climate change accelerates, many investors also want to know more about a property’s impact on climate. Therefore, it will be imperative for property owners and operators to accurately disclose relevant data in a way that is easily understood by investors, lenders and other market participants.”
Interest in the Social and Governance components of ESG are evenly split among respondents in their ESG assessments. Housing affordability dominated social considerations, with two-thirds (66%) of industry participants listing it as the most important factor in their ESG social frameworks. Such considerations are informed by the current housing affordability crisis here in the United States. .
Enhancing ESG in commercial real estate finance
As the CRE finance industry continues to navigate evolving ESG regulations, CREFC recently submitted a response to the SEC’s proposed climate-risk disclosure requirements to improve and establish clear, standardized disclosure rules. It also led a similar joint-trade effort.
CREFC established its Sustainability Initiative in early 2021 to align the objectives of its members and the CRE finance industry with the opportunities and challenges of ESG. With an initial focus on climate risk in CRE finance, the organization is launching its social effort in 2022 with a focus on identifying the social policies within ESG that are impacting the industry.
CREFC’s ESG survey comes on the heels of its first Sustainability Summit, hosted on June 15, 2022 as part of its Annual Conference. The Summit featured industry-leading speakers from Blackstone and J.P. Morgan, exploring the intersection of ESG and CRE finance and key considerations for the industry looking ahead.
To learn more about CREFC’s Sustainability Initiative, click here.
CREFC surveyed 115 of its members, which include banks, commercial and multifamily real estate owners, investors, lenders, rating agencies and service providers, among others. Respondents were surveyed online from March 29 to April 18, 2022. To view the full results, click here.
The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry with member firms including balance sheet and securitized lenders, loan and bond investors, private equity firms, servicers and rating agencies, among others. CREFC promotes liquidity, transparency, and efficiency in the commercial real estate finance markets, and acts as a legislative and regulatory advocate for the industry, playing a vital role in setting market standards and best practices, and providing education for market participants.
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