The extent and quality of the built environment – the man-made structures, features, and facilities that make up the environment in which people live and work- significantly impact society and the planet. According to one estimate, the built environment is responsible for 30%-40% of greenhouse gas emissions.
The commercial property sector forms part of the built environment and is therefore also a major contributor to natural resource and materials use, greenhouse gas emissions, landfill waste generation, unsustainable water use, while it can also impact tenants, building users and society in a myriad of ways.
On the flip side sustainability-linked factors such as energy, waste and the environment can present serious business continuity risks, as evident in South Africa currently.
In recent years, the sector has made significant advances in all manner of theories, practice, tools, certification and other measures to achieve sustainability and to embed ESG measures within. Impressive sustainability leaders are emerging among real estate companies in Africa and beyond.
Is your company one of them?
If your company ticks most of the boxes below, you can count yourself among the leaders that are creating a revolution, transforming the world for future generations and reaping the fruits of sustainability. If you do not, it is time to get yourself a seasoned sustainability travel companion, who can partner with you on your journey to net zero. They can provide expertise, guidance and tools, and can help you drive business performance and positive change.
1. Leadership and governance: Do you have the right people in the right roles driving sustainability?
The most critical and powerful element of ESG leadership is leadership! Sustainability vision and implementation need to be led from the top, and having committed, qualified individuals in the correct executive positions are critical for long-term success.
A board that is aware of ESG risks and opportunities is another essential element that has been driving ESG transformation in recent years – seasoned board members are now aware of the need for change to secure capital and to satisfy investors, clients/customers and suppliers.
The CFO has become a key stakeholder in the sustainability journey, and their attitude towards and awareness of sustainability is generally a critical success factor of any sustainability program.
A CFO needs to understand the value and not only costs clearly. Mervyn King has suggested changing the title from CFO to CVO, Chief Value Officer. For more on this, see a webinar facilitated by GCX CEO Kevin James: Is your CFO your company’s next sustainability champion?
If your C-suite (group of chiefs, including your CEO) includes a Chief Sustainability Officer, give yourself a pat on the back and two bonus points!
2. Executive incentives: Are the remuneration and bonuses of your executives tied to sustainability performance?
The introduction of executive incentives linked to sustainability performance has been one of the most successful triggers in getting companies to set and achieve ESG goals and targets. Every company should be doing it.
According to a recent report by Harvard Law School, most listed companies in the US now have ESG-related executive compensation measures in place. Approaches differ and companies should learn from their competitors, set specific and measurable goals, and draw on reliable data to support meaningful decision making, measurement and reporting.
3. A baseline and goals: Have you established your baseline performance, set science-based net zero goals, and goals for water and waste management?
To understand where you can and want to go, you must first develop the right strategy. This means understanding which sustainability issues are material to your organisation. These could include issues such as climate change, resource use, waste, human rights, health and safety, diversity and equity and more. Once these have been agreed, the action plan will bring your strategy to life and get you started on your sustainability journey.
A key strategy development component is the metrics and data points required to manage performance against strategy. In South Africa, the newly-released JSE sustainability disclosure guidance outlines core and leadership sustainability metrics for organisations to track and report on.
4. Understanding climate risks and opportunities: Do you know what impact climate change will have on your organisation in the long term?
The physical impacts of climate change, and transitional impacts associated with carbon regulation and changes in client and investor appetite pose significant risks to the real estate sector. Understanding how climate change may impact your organisation and assets will inform your long term group strategy and planning.
Real estate companies want to build out future-proof portfolios that will still be attractive to tenants in the long term. Organisations will need to consider the resilience of their portfolio by taking into account various potential future climate scenarios. With risk, there are opportunities and companies can take advantage of energy efficiency, renewable energy, enhanced reputation and market share, to name a few.
5. Carbon accounting, reporting and disclosure: Are you mature enough in carbon foot-printing to set emissions reduction targets?
Carbon accounting is a set of methods underpinned by energy protocols, frameworks and standards that measure and tracks a company’s direct and indirect carbon emissions. This is critical to achieving carbon footprint reductions and is frequently obligatory from a regulatory perspective. In addition, the availability of capital is increasingly tied to the carbon emissions of a borrower.
The first step in understanding your organisation’s environmental impact is calculating its carbon footprint. Many organisations have done annual carbon footprint assessments for years; if you still need to, it’s time to start.
With enhanced regulations such as carbon tax and NGER reporting, as well as increasing investor and market pressure, your company needs a solid understanding of and well-presented carbon disclosure: this can be done by reporting your carbon footprint in your integrated report or using frameworks such as CDP, TCFD, and GRI for disclosure.
The baseline carbon footprint provides the benchmark for measuring progress on your organisation’s journey to reducing carbon emissions and setting emissions reduction targets aligned to science. Setting targets aligned to science, through the Science Based Targets Initiative, for instance, is becoming the industry standard across all sectors.
6. Continuous monitoring and performance management: Do you monitor and measure your sustainability performance by using the right platforms and tools?
Once your baseline has been determined and specific and measurable targets have been set, the hard work starts. Monitoring and management approaches differ and depend on what you will be measuring and whom/which bodies you will be reporting to.
The truth is that there is no management without proper measurement and this is where most companies fail. The buck stops with data and having a source of reliable data that you have confidence in is absolutely vital to success and to executives and your board having confidence that the sustainability reporting they do publicly is rigorous and can withstand scrutiny.
7. Green building certification: Do you intend to certify your properties in development or under management?
Green building certification, credibly and objectively, confirms that a building’s design, construction, and management meet specific environmental, social, and other standards.
Several bodies and tools are available for getting properties certified as sustainable such as BREEAM, EDGE, and the Green Star Certification from the Green Building Council of South Africa (GBCSA). The LEED (leadership in energy and environmental design) rating, used by the US Green Building Council, is the most widely used and recognised certification.
A green building certification approach will provide opportunities for tenant attraction while providing building operational efficiency.
ESG rating agencies such as MSCI and Sustainalytics rate real estate companies favourably for certifying their portfolios. With more favourable ratings, these companies can attract more liquidity in their shares, which positively impacts the share price.
8. Active tenant engagement: How aligned are you with your tenants on sustainability?
No matter the design or technology used in your building, tenant behaviour and stakeholder buy-in can make or break sustainability targets.
Tenant behaviour is influenced to a large extent by successful tenant engagement, creating win-win solutions, and excellent communication about the various benefits to the tenant of sustainable actions and measures.
The relationship between landlord and tenant has traditionally been quite challenging. The main reason is that there were always questions about whose responsibility sustainability was, who would pay for it, and who would benefit from it.
With reliable information, tenant engagement becomes more accessible. Being able to guide the tenant on energy, water, and waste benchmarks within the portfolio provides an idea of what performance means in each relevant tenant and property category.
9. Community engagement: What role do your properties play in their local communities?
Community engagement involves a variety of activities such as holding meetings and public forums to gather input from local residents, building relationships with community organisations and leaders, and actively working to address any concerns or issues that may arise in relation to the company’s properties or developments.
This could also include contributing to local initiatives and causes, such as through charitable donations or volunteer work, as well as incorporating environmentally-friendly and sustainable practices into the company’s operations. Additionally, transparency and open communication with the community is important to build trust and maintain positive relationships.
10. Responsible supply chains: Do you maintain strong supplier relations and understand your material consumption?
Responsible supply chains and supplier engagement are top priority areas for real estate companies due to their reliance on raw materials for building development. Alignment between you and your suppliers is crucial to achieving your sustainability objectives.
Proper procurement and supplier policies that include sustainability requirements such as circular economy principles, labor, and human rights will strengthen your supply chain and provide strong supplier development.
I hope you enjoyed our quiz. Let us know what other key sustainability aspects you think could or should be included.