GRESB Real Estate

Scoring Methodology

© 2016 GRESB B.V.

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 Contents

About GRESB 3

2016 Data Validation Process 4

GRESB – Scoring Model 7

GRESB – Score and Rating 9

Products and Services 11

Governance 13

Enhancing and protecting shareholder value

by evaluating and improving the sustainability
performance of real assets

© 2016 GRESB B.V. 2

 About GRESB
GRESB is an industry-driven organization committed to assessing the environmental, social, and governance
(ESG) performance of real assets globally, including real estate portfolios (public, private and direct), real
estate debt portfolios, and infrastructure. More than 250 members, including 58 pension funds and their
fiduciaries, use GRESB data in their investment management and engagement process, with a clear goal to
optimize the risk/return profile of their investments. For more information, visit www.gresb.com.

GRESB Assessments
With assessments for both standing investments and new developments, and for both equity and debt
investments in real estate, GRESB has created tools that can be used globally by property investors, lenders
and managers to improve the ESG performance of portfolios. Leading companies have shown that this can
provide bottom-line benefit through lowering operating costs, attracting and retaining desirable tenants, and
in some cases commanding premium rents. GRESB data are collected on an annual basis, using a consistent
format for both private and publicly traded real estate and infrastructure investments across the globe. The
data are subjected to a multi-layer validation process and the result is high quality, investment-grade data
that investors can use to benchmark their current and future investments against both absolute standards
and industry peers.

Real Estate 2009

The GRESB Real Estate Assessment provides the basis for the systematic
reporting, objective scoring, and peer benchmarking of ESG management
and performance for property companies and funds around the world. The
Assessment covers ESG management and policy, as well as implementation and
operational performance indicators. The benchmark results provide participants
with the opportunity to identify the areas in which they can improve sustainability
performance, both in absolute terms and relative to their peers. Moreover, it
provides real estate investors and banks with actionable information and the
tools they need to accurately monitor and manage the sustainability risks of
their portfolios, and to prepare for increasingly rigorous ESG obligations.

Real Estate Debt 2015

The GRESB Real Estate Debt Assessment is a sustainability engagement,
performance assessment and benchmarking tool for types of real estate
lenders. This ESG assessment contributes to more valuable investments backed
by more efficient, more desirable assets. The Debt Assessment results provide
an opportunity to identify areas in which ESG performance improvement can be
made, both in absolute terms and relative to peers.

2016
Infrastructure
GRESB Infrastructure applies GRESB’s well-established expertise in
assessment, scoring, and benchmarking to an increasingly important, emerging
asset class. GRESB Infrastructure gives institutional investors the tools needed
to understand and engage funds and assets covering a wide range of business
activities, such as energy generation, transportation, telecommunications, water
resources management, and social infrastructure (e.g., aged care, convention,
and similar).
The first GRESB Infrastructure assessment took place in 2016. Assessment
criteria are based on input from the GRESB Infrastructure Advisory Board,
comprised of representatives of global infrastructure investors and infrastructure
operators and managers.

© 2016 GRESB B.V. 3

 2016 Data Validation Process
All GRESB Assessments include references to and requirements for rigorous third-party reviews an
important step towards investment-grade data. In addition to this, GRESB’s internal, three-layer data quality
control process is designed to encourage and ensure submission of high quality information.
Validation of data starts before a response is even submitted. The GRESB Portal includes a variety of
automated data checks. These tools provide users with warnings about potential problems and, in some
cases, prevent submission of errors.
Following the submission deadline and prior to analyzing the data, GRESB validates participants’ input data.
This process continues from the date of the first Assessment submission until July 31.

Figure 1 - 2016 GRESB Real Estate Validation

All data submitted in the benchmark goes through GRESB’s data validation process. 2016 was the third year
in which GRESB operated its three-layer data validation process, developed in consultation with PwC, and
introduced over a three-year period (2014-2016).
In 2016, the topics covered by the validation process and the number of participants selected for Validation
Plus and Site Visits, increased significantly. In addition to increasing the number of assessments included in
the data quality process, GRESB expanded the data validation team with resources from its parent company,
GBCI, and further developed the IT infrastructure used for validation, and refined and expanded on the
participant selection process for Validation Plus and Site Visits.

All Participant Checks

• Checks on all benchmark submissions, for selected data points;
• In 2016, the All Participant Check was applied to 232 data point checks across all Assessment Aspects;
• Validation per question with a secondary review system;
• Focus on open text boxes and open fields, including service providers, standards, and green building
certificates and energy ratings;
• Supplemental checks to confirm the existence of supporting evidence for questions requiring documentary
evidence (hyperlinks, uploaded documents, or details of the name and date of the document);
• In 2016, GRESB validated more than 27,000 open text boxes and open fields;
• In 2016, GRESB validated more than 3,300 outlier messages, triggered by automated outlier checks in
the online Assessment Portal.

© 2016 GRESB B.V. 4

 Validation Plus
• An additional desktop review on a selection of all Assessment submissions;
• Automatic, random selection via the GRESB Portal, using a pre-defined algorithm;
• In 2016, Validation Plus was applied to 138 Real Estate assessments (18% of total);
• Validation per entity with a secondary review system;
• Document review of supporting evidence for selected indicators. Where no document was provided, the
GRESB team contacted the participant to request the document;
• In 2016, GRESB validated more than 16,000 uploaded documents.

Site Visits
• In-depth assessment of data, performed either in-person or over the phone by GRESB on a selection of
all Assessment submissions;
• Random selection of participants using a system that analyzes criteria based on 2015 Assessment
submission data. The system automatically picks participants based on a profile that takes into account
2015 Assessment validation decisions, outliers, and performance;
• In 2016, Site Visits included 95 data point checks per selected participant;
• Focus on the mapping of the portfolio (Reporting and Entity Characteristics), and supporting evidence.

Quantitative Data Quality Control

Based on statistical modelling, GRESB identifies outliers in all reported quantitative data. This analysis is
performed to ensure that all participating entities included in the benchmarking and scoring process are
compared based on a fair, quality-controlled dataset.

Identification of outliers
GRESB identifies reported consumption values as outliers, if the corresponding consumption intensity
(consumption/area) and/or its change over time is abnormal relative to all reported data for the particular
property type. Through an in-house developed statistical program, GRESB groups and benchmarks values
within their property type, which allows for the identification of consumption values that fall outside normally
observed ranges. In the example below, the data point to the right clearly falls outside the normal consumption
intensity (consumption/area) of this property type. Beyond reviewing the intensity of consumption, the like-
for-like development of consumption over a two-year period is also used to identify abnormal data points.

Figure 2 - Data Quality Example: Screenshot of data validation by reviewing energy intensities

© 2016 GRESB B.V. 5

 Data Quality Example: Screenshot of data validation by reviewing energy intensities

Once the overall portfolio consumption and/or its consumption change over time are identified as abnormal,
all underlying data points are reviewed. All GRESB reporting entities go through the same data review and
all decisions are automatically protocolled by the system, such that data decisions can always be reviewed.

Elimination of outliers
GRESB acknowledges that some identified abnormal data points are not the result of incorrect data, but
rather the result of unusual business development. To account for this explanation, outliers are not removed
if a reasonable explanation by the respondent exists. Once participants enter unusual data points, the
GRESB Portal requires a written explanation for those reported values. GRESB reviews all explanations for
outliers and considers those before making a final decision on removing the outlier from the dataset. If a
data point is identified as outlier and no reasonable explanation is provided, the data point is removed from
the participant’s assessment, both for scoring and reporting purposes.

© 2016 GRESB B.V. 6

 GRESB – Scoring Model
The GRESB Scoring Model is based on an automated system, which uses a technology platform designed
for GRESB by a third party that specializes in data analysis software development. The scoring is completed
without manual intervention after data input. The maximum score for each Aspect is a weighted element of
the overall GRESB Score. GRESB takes into account the unique characteristics of different property types,
not only in benchmarking absolute scores, but also in the scoring of a selection of questions.
There are generally two types of indicators in the
GRESB assessment: multiple choice indicators
and table-based indicators. For the multiple choice
indicators, scores are calculated based on the number
of relevant check boxes selected and, where evidence
is requested, the validation of evidence is used to
determine a multiplier for the indicator score. This
multiplier limits the number of points a participating
entity can achieve if the evidence provided is partially
accepted, not accepted or not provided. Most indicators
have a maximum score lower than the number of
points achievable by selecting all the check boxes, such that it is not necessary to select all check boxes in
order to achieve the maximum score. It is also common for indicators to have a section for “other answers.”
These answers are validated manually, and if not accepted, are not awarded any points.

Points per Indicator

For indicators where you can select one or more options, GRESB awards points cumulatively for each
individual option and then aggregates to calculate a final score for the indicator. For many indicators, this
final score is capped at a maximum, which means that it is not necessary to select all answer options.
This scoring mechanisms allows for reflecting the diversity among property companies and funds and the
variety of their sustainability-oriented activities. Open text boxes (where participants answer through a
descriptive text), and indicators for which participants select ‘other’ answers, are manually validated. Points
are awarded for valid responses, based on the quality of the responses.
Every indicator where evidence is provided in a table is scored slightly differently. Generally, the number of
data points provided and, if present, the coverage percentage reported (i.e., what percentage of the reporting
entity is covered by the data) form the foundation for the calculation of the score. Where possible, GRESB
uses benchmarking in its scoring algorithms, such that the threshold to obtain a specific score changes as
the data provided to GRESB changes. There are two types of table indicators in the GRESB assessments.
• Coverage-based indicator tables, which include indicators related to certifications and implementation
of efficiency measures. These indicators are scored based on the reported coverages in the tables and,
for building certification indicators, the validation status of the different building certifications. The
coverage of a building certification which is fully accepted will lead to a higher score per percentage of
coverage as compared a building certification which is only partially accepted.
• Performance indicator tables, are scored per property type and take into consideration two scored
elements: the data coverage and the like-for-like percentage change in consumption levels. Data
coverage is defined as the part of the portfolio for which data is available, per area of the building and per
fuel type, relative to the maximum floor area for which consumption data could have been collected. Data
coverage is calculated separately for managed assets and for indirectly managed assets and is scored
separately. Benchmarks are always constructed within property type and management control. In the
case, GRESB further refines the benchmark at the regional level, but falls back to a global benchmark
in case of an insufficient number of regional peers (minimum of 12). If the global benchmark does not
include a sufficiently large number of peers (minimum of 12), it uses a static model with cutoff points at:
25%, 50% and 75% coverage. Once scored, the results for individual property types and for the managed/
indirectly managed parts of the portfolio are aggregated into an overall score, using the values (measured
by Gross Asset Value, GAV) completed in the reporting characteristics section of the GRESB Assessment
to weigh the individual scores.

© 2016 GRESB B.V. 7

 Other information
• Open text boxes - GRESB awards full, partial or no points for open text box responses. Responses are
assessed based on compliance with indicator requirements.
• Document uploads – GRESB uses uploads in the data validation process in two ways: (a) uploads requested
to validate the response to the Assessment indicator are either accepted or rejected, and (b) uploads
requested as standalone answers to Assessment questions are awarded full, partial or no points.
• Role of validation in scoring – Points are awarded per indicator using the methodology published in this
Reference Guide. During the validation process, GRESB checks question responses and allocates a final
score for the indicators that take into account whether an answer is accepted in the validation process.
• Indicators with multiple sections – for some indicators, participants must complete multiple data points
within a single question e.g. Q17 (energy efficiency measures implemented), where participants must
include (i) number of measures implemented, (ii) percentage portfolio covered and (iii) percentage
whole portfolio covered. For these indicators participants must complete all sections, as all of these are
included in scoring.
• Benchmarked questions - some questions are benchmarked either through:
◦◦ a dynamic benchmark based on relative peer group performance (peer group based on property type
and region);
◦◦ a static benchmark using pre-defined intervals – the answer receives points depending on the position
relative to four pre-defined interval points;
◦◦ a combination of the previous options.

© 2016 GRESB B.V. 8

 GRESB – Score and Rating
The GRESB Score allows for comparison against the global GRESB universe – the GRESB Rating – as well
as a more narrowly defined peer group. It represents the aggregation of all GRESB indicators with their
respective weight.

GRESB Dimensions
The overall GRESB score is divided into two dimensions: Management & Policy (MP) and Implementation &
Measurement (IM). Management & Policy is defined as “the means by which a company or fund deals with
or controls its portfolio and its stakeholders and/or a course or principle of action adopted by the company
or fund.”
Implementation & Measurement is defined as “the process of executing a decision or plan or of putting a
decision or plan into effect and/or the action of measuring something related to the portfolio.”

Australia/NZ
Listed
2013 2016 Office
2015
2012 2014
2011

Figure 3 - GRESB Model

Entities with a score higher than 50 on both IM and MP dimensions are called Green Stars and until 2016
received a Green Star logo to communicate on their performance. As performance continues to improve, the
average score also climbs every year. In 2016, approximately 60% of the real estate participants received a
Green Star status, leaving fewer opportunities for differentiation between truly exceptional leaders. In 2016,
GRESB introduced a method for more granular differentiation: the GRESB Rating.
The GRESB Rating is an overall measure of how well ESG issues are integrated into the management and
practices of companies and funds. The rating is calculated relative to
the global performance of all reporting entities – property type and
geography are not taken into account. The GRESB Rating thus provides
investors with differentiation in overall ESG performance of the global
property sector. If certain regions systematically perform better, they
will on average have higher-rated companies and funds.
The calculation of the GRESB Rating is based on the GRESB Score
and its quintile position relative to the GRESB universe, with annual
calibration of the model. If the entity is placed in the top quintile, it will
have a GRESB 5-star rating; if it ranks in the bottom quintile, it will have
a GRESB 1-star rating etc. In 2016, the cut-off points for the different
rating categories are illustrated in Figure 3. As more companies and
funds report over time, and as ESG performance improves, the thresholds for reaching the next category
will change. The GRESB Rating is thus a relative measure of ESG performance, not an absolute measure.

© 2016 GRESB B.V. 9

 As the GRESB Rating is relative to the global universe of reporting companies and funds, the Rating is
quite stable over time. Figure 4 shows the persistence of GRESB Ratings over the 2011-2016 period, where
t can be interpreted as any given reporting year, t+1 the year after, etc. The data shows that the entities
with a GRESB 1-star rating had a 70% likelihood of remaining in the lowest category. 26% of those entities
received a GRESB 2-star rating after one year, while only 4% improved to a GRESB 3-star rating. Vice versa,
the entities with a GRESB 5-star rating had a 72% likelihood of remaining in the highest category. 22%
decreased from a 5-star to a 4-star rating and 6% of the entities decreased from a 5-star to a 3-star rating.
The GRESB Rating equally applies to the different GRESB assessments – GRESB Debt, GRESB Developer
and GRESB Infrastructure (Asset).

GRESB Rating (Global)

Year t+1 rating
Low 2 3 4 High
Low 69.52% 26.36% 4.07% 1.39% 0.00%
Year t rating

2 24.29% 44.35% 26.30% 9.72% 0.32%

3 4.29% 24.27% 41.11% 26.04% 5.68%
4 1.90% 5.02% 25.93% 44.44% 21.77%
High 0.00% 0.00% 2.59% 18.40% 72.24%
Figure 4 - GRESB Rating persistence analysis

Peer group allocation

Each participant is assigned to a peer group, based on the entity’s legal structure (listed/private), property
type and geographical location of assets. To ensure participant anonymity, GRESB will only create a peer
group if there is a minimum of five peers in the group.
Peer group assignments do not affect a participant’s score, but determine how GRESB puts an Assessment
participant’s results into context. The peer group composition is determined by a simple set of quantitative
rules and provides consistent treatment for all participants.
A pre-set threshold determines an entity’s geographic location and property type:
• The threshold for property type categorization is set at 75% of the Gross Asset Value (GAV). This
means that based on GAV, 75% or more of the Portfolio must be comprised of a single property type.
If a participant does not reach the threshold for categorization in a specific sector, it is assigned to
the “diversified” category. Within this category, there are three additional subcategories: retail/office,
residential/office, and industrial/office. A participant will be assigned to one of these diversified property
type subcategories, where the combination of the two property types is at least 75% of GAV.
• GRESB assigns participants to a geographic category using a four-tier system: country, sub-region,
region and global. The threshold for assigning a geographic category is set at 60% of GAV. 15 The four-
tier systems works as follows:
◦◦ Country: Based on GAV, 60% or more of the portfolio must be allocated to a single country;
◦◦ Sub-region: If a participant does not reach the threshold for assignment to a specific country, where
possible, it is instead assigned to a sub-region, meaning that 60% or more of the portfolio must be
allocated to that sub-region. For 2016, GRESB’s sub-regional categories are: Nordics, Benelux, West
Asia, East Asia, or Southeast Asia;
◦◦ Region: If a participant does not reach the threshold for assignment to a sub-region, where possible,
it is instead assigned to a region, meaning that 60% or more of the portfolio must be allocated to that
specific region. For 2016, GRESB’s regional categories are Asia, Australia/NZ, Asia Pacific, Europe, or
North America;
◦◦ Global: If a participant does not reach the threshold for assignment to a region, it is assigned to
“globally diversified.”

© 2016 GRESB B.V. 10

 Products and Services

Scorecard
Assessment participants receive a Scorecard that provides a summary of their overall performance, as
well as information on each GRESB Aspect. The Scorecard provides information about both absolute and
relative performance. The Scorecard also provides high-level information about opportunities to improve
ESG performance.

Benchmark Report
GRESB Benchmark Report provides an in-depth analysis of the sustainability performance of a property
company or fund. In addition to the information in the Scorecard, the Benchmark Report contains an
extensive and detailed question-by-question comparison with peers. This helps participants to focus on best
practices and to develop detailed action plans in order to improve their sustainability performance.

© 2016 GRESB B.V. 11

 Customized Benchmark Reports (available on request) provide an alternative comparison and ranking
based on a customized peer group, which can be selected by participants themselves.

Portfolio Analysis
The Portfolio Analysis Tool allows members to compare their aggregated portfolio to a self-selected
benchmark, based on region, property type and management style. The Portfolio Analysis provides an
aggregated overview of the sustainability performance of a portfolio of property companies and/or funds.
This tool provides added value specifically for fund managers that participate with a number of entities.

© 2016 GRESB B.V. 12

 Governance

GRESB B.V. undertakes the day-to-day management of GRESB’s activities. It is a private limited company
incorporated in the Netherlands (registration number 55416071), with its registered office at Sarphatistraat
370, 1018 GW, Amsterdam, Netherlands. GRESB B.V. is a wholly owned subsidiary of Green Business
Certification Inc., a non-profit corporation incorporated in the United States under the laws of the District
of Columbia.

GRESB Board
The GRESB Board oversees GRESB’s governance. It includes one executive director (Chief Executive Officer)
and six non-executive directors. The Board is chaired by the chairman of the Board, who is appointed by the
Board from among the non-executive directors. Three of the non-executive directors are representatives
from GRESB’s investor members (Real Estate and Infrastructure). The executive director oversees GRESB’s
day-to-day business. The non-executive directors supervise the management and performance of the
duties of the executive director and supervise the strategic direction of the company. The GRESB Board
is administered by GRESB’s General Counsel and is supported by two additional observers: the Head of
Operations and an Infrastructure Investor member representative.

Sander Paul van Tongeren Rick Fedrizzi Mahesh Ramanujam

Managing Director GBCI (GRESB Board Chairman) GBCI

Mathieu Elshout Patrick Kanters Mie Caroline Holstad

PGGM Investments APG Asset Management Norges Bank Investment
(Investor Member) (Investor Member) Management (Investor Member)

Steven A. Wechsler
NAREIT

© 2016 GRESB B.V. 13