Trends in Sustainability Communications and Reporting - October 2011

Throughout 2011, Jones Lang LaSalle sustainability professionals have been reflecting on global sustainability reporting and communication trends, as well as the latest developments of specific interest to the real estate sector. A summary of these trends is provided below.

Trend 1: Use of Web 2.0 applications to engage with stakeholders

Companies are, in an innovative way, beginning to exploit the possibilities offered by Web 2.0 applications to reach out to different stakeholder groups – in particular their customers - and to engage in dialogue with them.

Encouraging dialogue can attract attention. It can also allow companies to gain useful feedback and, potentially, to promote behavioural change. For example, Timberland's Responsibility Website includes a feature called 'Voices of Challenge' where stakeholders can add comments about different aspects of Timberland's Responsibility strategy and Sustainability performance. In the property sector, use of Web 2.0 applications has focused on videos and blogs. Examples include Jones Lang LaSalle's global Green Blog and European property company SEGRO's Sustainability Live.

Of course, we may find that Web 2.0 applications are not as useful for real estate players as for those more 'consumer-facing' sectors. In real estate, 'customers' are of course tenants rather than individual consumers. But the concept of developing different sustainability communications for different stakeholder groups – rather than trying to reach all of them in one Sustainability Report – is definitely as relevant for this industry as any other. And in the real estate sector, we are already seeing a split between:

• Environmental and social accountability to investors, major tenants and employees through corporate-level communications
• Sustainability engagement with tenants, local communities, local authorities and other stakeholders at an individual property or development level.

We expect this trend to accelerate throughout the remainder of 2011 and beyond.

Trend 2: Transparency and trust are critical

While the expansion of digital media brings new opportunities, it also poses challenges. Brand value is becoming increasingly difficult for companies to control as the fast-growing use of social networks means that concerns about a company can quickly be publicised to a large audience. Coupled with this, there is a pervading loss of trust in governments and business in the wake of the global economic crisis and concerns over climate change.

There is no trust without transparency, and if companies are perceived to be withholding material information or reporting only selectively on their performance, then their trustworthiness will suffer in the eyes of the public. However, demonstrating a high level of transparency about impacts on society and the environment can help to reduce these risks significantly.

Inviting stakeholders to post direct feedback on a company's website (such as in the Timberland example mentioned above) is one way in which companies are increasing openness and transparency. Another way is to use stakeholder panels composed of external experts, inviting members of the panel to provide critical feedback in a Sustainability Report. Examples here include Lafarge and Balfour Beatty. And when it comes to reporting, readers do not expect perfect performance but they are impressed when companies tackle sensitive issues 'head on' rather than avoiding them. A leading example here is Marshalls, a British landscaping company, who have taken a very honest and upfront approach to child labour.

For the real estate sector, we consider that transparency is already important in developed markets and is likely to increase rapidly in the developing markets of the Middle East and Asia. At the moment, the lens of transparency focuses on environmental impacts during the development, operation and occupation of real estate. We can see this in the recent release of the Global Real Estate Sustainability Benchmark (GRESB), where the larger part of the score is based on environmental performance. Jones Lang LaSalle's forward-looking perspective, however, is that the requirement for transparency is likely to spill over increasingly into social impacts, especially in Europe, where the private sector may be expected to fulfil some of the social obligations formerly provided by the state before austerity measures took hold. We envision that, globally, local communities and local governments are going to be far more questioning about the socio-economic benefits of new developments, and the real estate sector will need to be ready to provide robust and honest answers.

Trend 3: Integrated Reporting

Investors are increasingly demanding that sustainability is truly integrated into corporate strategies and is reflected in companies' reporting. Consequently, the number of integrated reports – reports that demonstrate the interconnections between an organisation's strategy and financial performance and the sustainability context it operates in - is steadily growing at a global level. In particular, it is gaining significantly more traction in some markets, such as South Africa (where integrated reports are required by the Johannesburg Stock Exchange) and Brazil1.

Currently, companies take different approaches to integrated reporting. Some (such as the Portuguese property company Sonae Sierra) report on their financial, environmental and social performance separately, but within the same report to demonstrate the importance of all three aspects. Others (including Hammerson of the UK) have focused more strongly on communicating the value they derive from their sustainability strategy by applying Accounting for Sustainability's Connected Reporting Framework. We expect to see greater consistency in the future with the development of an integrated reporting framework, led by the International Integrated Reporting Committee (IIRC). This is an important landmark in the evolution of integrated reporting and the IIRC recently released a discussion paper which sets out an initial proposal for the framework.

The IIRC proposes five guiding principles which should underpin the preparation of an Integrated Report:

• Strategic focus
• Connectivity of information
• Future orientation
• Responsiveness and stakeholder inclusiveness
• Conciseness, reliability and materiality

With reference to the 'Trend 2' described above, 'transparency' also merits being a guiding principle in its own right. One of the main challenges which organisations are likely to face when beginning their journey of integrated reporting is that there are sometimes genuine disconnections between economic priorities and environmental ones; particularly in the property sector. Any form of new development – and in particular new development on previously undeveloped land – has significant environmental impacts. As new development can be a core part of the overall business strategy, openness about these kinds of challenges is therefore important.

Trend 4: Real estate sector specific reporting standards - EPRA and GRI guidance

In the March 2011 edition of Jones Lang LaSalle's Global Sustainability Perspective we reviewed key developments in corporate ESG reporting requirements at a global level and in different regions worldwide.

Since then, two key developments have taken place with important implications for the property sector: the launch of EPRA's Best Practice Recommendations on Sustainability Reporting and the launch of the Global Reporting Initiative's Construction and Real Estate Sector Supplement (GRI CRESS).

EPRA Best Practices Recommendations (BPR) on Sustainability Reporting was launched during the EPRA Annual Conference in London in September 2011. EPRA's aspiration is for its sustainability BPR to provide a consistent way of measuring sustainability performance in the same way that EPRA BPR on financial reporting make the financial statements of listed real estate companies in Europe clearer and more comparable. The sustainability BPR are based on GRI CRESS guidelines, and comprise two key components:

• The EPRA Sustainability Performance Measures (the current version of the BPR covers environmental indicators but the scope of the BPR is likely to broaden in years to come)
• Core recommendations for sustainability reporting which should be adhered to by all EPRA members, alongside additional recommendations which are based on EPRA's observations of good practice. These observations cover issues such as: reporting by meaningful segmentation (e.g. by country or asset type); normalisation (e.g. kWh/m²); like-for-like analysis; and landlord and tenant consumption arrangements.

EPRA also introduced the EPRA Sustainability Awards to annually assess compliance by the listed real estate sector against the Sustainability BPR from 2012 onwards.

The Global Reporting Initiative (GRI) offers the world's most widely used sustainability reporting framework. In September 2011, the GRI launched its Construction and Real Estate Sector Supplement (CRESS), a version of the GRI's G3.1 Sustainability Reporting Guidelines tailored for the construction and real estate sector. The CRESS includes new requirements and general guidance on the Guidelines' content, so as to ensure that sustainability reports by construction and real estate companies effectively cover the sector's key issues. It also introduces eight new sector-specific performance indicators.

In particular, the CRESS covers the following key issues for the sector, expanded from the G3.1 Guidelines:

• Design, operation and retrofitting of buildings
• Building energy intensity, water intensity, and GHG emissions relating to buildings in use
• Green building certifications
• Management and remediation of contaminated land
• Economic legacy impacts from activities and provision of facilities for local communities
• Policies and practices regarding resettlement and displacement
• Assessment of negative and positive impacts on local communities and community engagement at each stage of the property lifecycle
• Reporting of labour and 'health and safety' impacts in relation to the total workforce, including contractors and subcontractors

The content of the CRESS was developed over a two-year period through a multi-stakeholder process which was supported by Jones Lang LaSalle's in-house experts on sustainability reporting. Organisations involved included Prologis, Lend Lease, Oxford Properties, Hermes, Hindustan Construction Company (HCC), Citycon, the United Nations Environment Programme (UNEP) and the UN's specialised agency, the International Labour Organization (ILO).

With the introduction of these two guidance documents, we hope to see greater consistency and transparency in the measurement, monitoring and reporting of sustainability impacts in the real estate sector.