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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.

Survey methodology
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.

About CREFC
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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CREFC’s First Sustainability Summit Draws a Standing-Room-Only Crowd to Discuss Climate and Commercial Real Estate

June 27, 2022

On June 15, the final day of CREFC’s June Conference 2022, CREFC’s Sustainability Initiative hosted a Sustainability Summit (Summit), a half-day of programming focused on the intersection between ESG and commercial real estate (CRE) and CRE finance. CREFC Managing Directors Sairah Burki and Kathleen Olin kicked off the Summit with an overview of CREFC’s Sustainability Initiative and its three subcommittees: advocacy, education, and transparency.

Notably, the transparency subcommittee is identifying climate reporting data for the CREFC Investor Reporting Package™ (IRP) which likely will be finalized by the end of the year. Additionally, CREFC’s ESG efforts are now expanding to include the “social” in ESG, including a focus on housing affordability. (CREFC hosted an Affordable Housing Roundtable on June 23, which will be followed by a series of webinars.) CREFC also highlighted that the results of its second ESG survey will be released tomorrow, June 28.

The Sustainability Summit featured a Fireside Chat, followed by two panels:

• ESG Fireside Chat – Marilyn Ceci, managing director, and senior advisor to the Center for Carbon Transition at J.P. Morgan, and Eric Duchon, managing director, global head of ESG at Blackstone Real Estate, opened the Summit sharing their perspectives as issuer, lender, and investor. Ceci and Duchon discussed several ESG-related topics, including the role played by international standards and certificates (e.g., LEED), key metrics, and reporting and disclosure. They covered the differences between green bonds, social bonds, sustainable bonds, and sustainability-linked bonds. They also noted that a pricing benefit, or “greenium”, for sustainable bonds might be emerging, largely driven by issuance oversubscription. In the U.S., greeniums seem to fall between 2-3 basis points, while in Europe they have reached 10 basis points or more.
  
  
• Owning Sustainability: Managing the ESG Revolution – this panel included real estate owners and operators across several different property types. Panelists noted that Australia and Europe are at least five years ahead of the U.S. in terms of efforts related to sustainability, with investors shying away from companies that do not have robust sustainability plans. Tenants are also demanding that properties have a sustainable footprint and commitment to net-zero goals. In the U.S., most sustainability pressure or requirements currently stem from local laws and ordinances. In order to move forward with environmental goals, however, panelists emphasized the importance of obtaining data, with property waste, energy, and water metrics being the bare minimum, and talked through the pros and cons of relying on tenants for this data vs. installing building metering devices.
  
  
• Sustainable Lending: Opportunities and Pitfalls – this panel, consisting of lenders and fixed income investors, focused on the lack of standardization related to ESG reporting and disclosure. Some panelists shared that they have been taking part in CREFC’s project to update the IRP™ and recommended that interested parties join that effort. In terms of pricing, some panelists suggested that ESG is already factored into valuations and that bonds backed by lower quality properties would be priced at a brown discount. However, other panelists said they have noted no real pricing differential between green bonds and traditional bonds. The panel concluded with a discussion of the pros and cons of commercial property assessed clean energy (C-PACE) financing and what features lenders need to be more comfortable with this type of financing.

At the end of the Summit, CREFC hosted several members on a tour of One Vanderbilt, known for its iconic design, sustainability features, and connection to public transportation. The tower maintains one of the lowest carbon footprints across similarly-scaled buildings in New York City and was built using steel rebar made of 90% recycled content, features cutting-edge technologies including 1.2-MW cogeneration and 150,000-gallon rainwater collection systems, and regulates insulation for heating and cooling through its high-performance glazing.

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CREFC Policy Agenda

June 27, 2022

CREFC’s members and Advocacy Team work to shape the commercial real estate finance industry via its advocacy initiatives. Our goals are to ensure that this important sector of the U.S. economy remains on solid ground and able to provide liquidity to commercial real estate owners and investors.

Through a collaborative process with our members, CREFC develops official policy positions that are presented as needed to legislators and regulators.

We are pleased to present CREFC’s 2022 Policy Program, which outlines key advocacy issues for the commercial and multifamily real estate finance industry.

Click here to read the 2022 CREFC Policy Agenda.

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