25 October 2011 – The forecast for sustainability in property is: prepare for takeoff, and don’t bother holding back.

In an incisive and wide-ranging report from Jones Lang LaSalle’s  October issue of the quarterly Global Sustainability Perspective, the view is that property will be at the pointy end of the social, ethical and environmental changes already under way and set to accelerate.

Among key the findings in the report is the need for transparency, driven by the rise of digital and social media in a climate where trust in governments and business has been eroded by the global financial crisis. The way to manage potential brand damage in social media is to be transparent about impacts on society and the environment.

The report points to examples of highly candid revelations from a UK landscape company, s Marshalls, which has taken a “very honest and upfront approach to child labour.”

Where the state and big business has failed social stakeholder expectations, individual businesses will be asked to pick up.

In Europe, for instance, demands on the private sector, will likely include the services provided bythe state before austerity measures kicked in, the report says.

In France new developments must promote eco-friendly materials and include electric charging stations for cars, while local authorities will no longer be able to ban green elements such as photovoltaic installations on building roofs.

At the upper end of the corporate sphere the massive demands of creating meaningful sustainability reports are about to get more difficult with analysts and shareholders demanding integrated reporting that measures the intangibles.  (See our recent coverage of this.)

Chairman of energy and sustainability services at Jones Lang LaSalle Dan Probst said: “Organisations like the Global Reporting Initiative and Carbon Disclosure Project have facilitated improvement in the quality and consistency of corporate sustainability reporting. The combination of better data and increased investor attention is driving several key trends in sustainability and responsibility reporting.”

Sustainability is also top of mind in most places for real estate decision makers, said Peter Hilderson, Head of energy and sustainability service at Jones Lang LaSalle Asia Pacific.

“Though sustainability’s role in a real estate decision may vary greatly from Tokyo to Bangalore, an ever increasing number of managers are depending on sustainability practices to deliver results,” Mr Hilderson said.

Following are some of the highlights from the report.

Transparency and trust are critical.
Expansion of digital media expands brings new opportunities, but also 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.”

The report notes that “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. ”

It advocates a high level of transparency about impacts on society and the environment as a way to reduce the risks.

Examples of actions include:

  • Inviting stakeholders to post direct feedback on a company’s website
  • use stakeholder panels composed of external experts, inviting members of the panel to provide critical feedback in a sustainability report.
  • 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, which has taken a “very honest and upfront approach to child labour.”

“At the moment, the lens of transparency focuses on environmental impacts during the development, operation and occupation of real estate. ”

However, “the requirement for transparency is likely to spill over increasingly into social impacts, especially in Europe, where the private sector may be expected to fulfill some of the social obligations formerly provided by the state before austerity measures took hold. ”

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 Brazil.

Sustainability Legislation for the Real Estate Sector

Global / United Nations
At the beginning of October, Panama hosted the last of three meetings held since the Cancun Climate Change Conference last year in preparation of the Durban Conference starting at the end of November.

The executive secretary of the United Nations Framework Convention on Climate Change, Christiana Figueres, stated during the Panama meeting that Governments “have recognised very clearly that the current level of effort is not enough and that it is important to increase both the level of emission controls on greenhouse gases as well as the capacity of countries to adapt to climate change”.

However, there were some positive outcomes in Cancun, notably the creation of a $100 billion a year Green Climate Fund to help developing nations adapt to climate change and to facilitate technology transfer mechanisms between industrialised and emerging economies.

UK
Introduced in March 2011, the UK Energy Bill aims to encourage investment in energy efficiency measures for homes and commercial real estate.

The “June amendment, supported by a number of organisations such as the UK Green Building Council and the British Property Federation – to require Display Energy Certificates for commercial buildings was not retained by the UK government during the September session.”

“The question therefore remains if the UK government will put into practice the Carbon Plan, a UK government-wide plan of action on climate change that sets out initiatives and deadlines for the next five years, its commitment to extend DECs to commercial buildings by October 2012, and what the next step will be to boost the uptake of commercial green buildings.

“The UK government also intends to launch a number of consultations this autumn on energy performance certificates as well as building regulation changes.”

France
A continuing stream of decrees is being published as part of the French “Grenelle” Environment Laws. This includes a decree on what to report in greenhouse gas inventories requires companies with over 500 employees to report greenhouse gases from direct and indirect emissions (such as electricity and district heating).

The urban planning law will contain a new requirement to further the use of eco-friendly materials and products in building construction. The new decree will no longer allow urban planning laws to prohibit the use of eco-friendly construction materials or installations, such as photovoltaic installations on building roofs.

The building code receives a new obligation for building owners to install electric vehicle charging stations in new and existing buildings. Electric charging stations must be installed and cover at least 10 per cent of a building’s car parking capacity, for new buildings from 2012 and existing buildings from 2015. A similar obligation applies for bicycle storage installations.

China
China is studying how to enforce a total cap on energy consumption by setting targets for local governments, a government report stated in August. The proposed total energy gap is intended to slow emissions growth and fuel consumption by setting quotas, and some details of how China could enforce the cap have been disclosed by the National Development and Reform Commission. Any proposed projects that have not passed an energy saving assessment will not be approved for construction, it added. However, the cap would still allow for a 26 per cent increase in total energy consumption by 2015.

The central government is expected to ramp up efforts to control energy intensity.

With so much new property and the consequential energy demands pulling from an already pressured electricity grid, energy efficiency has become the urgent need of a nation which requires fast growth (8 per cent to match population growth) with strained domestic energy supplies.

On the renewable energy front, there has been an important change with the introduction of feed-in tariffs for solar power. Since August, project developers can now sell solar-generated electricity to utilities at a price of about $0.15 per kilowatt hour.

Holistic Evaluation of Sustainability Investments
The environmental and social impacts of property are rapidly becoming central to its overall performance, as investors and occupiers alike recognise the importance of sustainability to the long-term viability of their business.

Several efforts have been made during the past few years to help build a consensus within the sector about the most appropriate sustainability metrics to use. A number of industry initiatives have emerged to enable property stakeholders to track this important aspect of environmental asset efficiency in meaningful ways.

One of the most significant emerging trends in property is the shift towards an increased acceptance of open plan environments and a general move away from “private” cellular space to more agile and flexible workplaces. The goal is to reduce occupancy costs, accommodate activity growth at minimal expenses and create a collaborative space that, at the same time, increases staff productivity.

Research – Sustainability and Offices in 2020

“Based on a preliminary survey by Jones Lang LaSalle, 83 per cent of real estate professionals think sustainability is currently the most pressing issue facing office real estate and will be for the next 10 years. From almost nowhere a decade ago, this subject has raced to the top of our worry list.”

Key drivers of sustainability

  • Environmental Change – This needs little commentary these days. Acid rain, holes in the ozone layer, global warming, damage to ecosystem services, climate change, resource depletion, air water and ground pollution, deforestation, wasteful practices – the list is long and compelling.
  • Legislation – Governments have responded, slowly at first, and subsequently with a torrent of environmental legislation. From Kyoto, Copenhagen to Cancun, the issues have been discussed at the very highest political level and policy decisions taken at supra-governmental, regional, national and local levels. Two key obligations are:  by 2020 all new buildings need to be “nearly zero energy”;  by 2050 emissions from all buildings need to be as ‘near to zero’ as possible
    Ethical Busines
    s –  Ethical concerns have spread well beyond ecological issues, of course, to include things like child labour, workers salaries in the developing world, and health and safety issues in the Middle East. In short, the business of business is no longer business, but profits, social and environmental – the triple bottom line.
    Cost Control – finance directors have been quick to understand that the sustainability agenda is yet another way to squeeze costs inside the business. Whether cynical or enlightened, the fact is that being “green” is now business common sense.
    Management Levers – Sustainability is such a powerful force in our society that its influence on employees’ comfort and motivations has not been lost on HR and business managers. Overall, employees seem more satisfied to work in sustainable buildings and, in an age where finding and keeping talent and commitment is a regular HR nightmare, offices have an increasing role to play.

These sustainability drivers will ensure that the “green agenda” will continue to grow and grow over the decade. Many new trends linked to sustainability will emerge and continue to change the landscape. Each trend poses new management challenges and new risks but also new opportunities.”

And for the future:

  • Stricter legislation – every new piece of legislation at a European or national level will have the power to surprise on the downside, leading to investor frustration
  • Refurbs While the vast majority of buildings remain “non-green”, a trend towards “light” refurbishment programmes will give many more buildings a boost towards eventual conformity with legislation
  • Green leases – or at a minimum Memorandums of Understanding
  • Continual technological innovation
  • Green city governance
  • Occupiers will become far more educated about their sustainability requirements and be more imposing
  • Second hand Occupiers will be likely to push the boundaries further with a demand for second-hand furniture and non-toxic cleaning products

The list of trends is long and exhaustive. One of the things we can ascertain is that a “sustainable building” will quite quickly come to mean a “quality building”. Given the forceful, accelerating drivers and the emerging trends, it is clear that organisations would be wise to keep up with the pace of change. On the other side, there are very few inhibitors to this dynamic, if any. Those who succeed will recognise sustainability as a force for rapid change that stirs up much in the industry and which offers opportunity rather than constraint.

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We can’t wait for the future