12 September 2013 — According to Paul Edwards, who recently took the sustainability reins at Mirvac, it’s too late for Australians to think they are playing a local game in sustainability. Especially in the listed property market.
Edwards, fresh from a UK point of view where he’s worked in a similar role with property giant Hammerson for five years, says Mirvac might be Australian but its investors are not.
“We are an Australian property company,” Edwards says, “but we are funded globally.
“We’ve got investors from Dutch pension funds, Canadian pension funds, we’ve got Korean partners in the Keppel REIT (real estate investment trust, based in Singapore), we’ve got the Singapore Government and Norwegian pension funds.
“These funds, in particular the state Norwegian pension funds, have got very strict and strong [environmental, social and corporate governance] requirements
“As a property company I’ve got to think, what makes me attractive to these? If you’re not doing sustainability you’re not attractive to the Dutch and the Canadian and the Norwegian pension funds.”
In Holland, he explains, some of the investment houses have an “investment universe”.
“If you don’t qualify for that when we meet the analysts you don’t get a look in.
“In some cases the sustainability person holds the investment key. If you don’t get through the screening you can’t even get a look in.
A small investor, the ASN Bank based in Holland, has only seven billion euros in its portfolio but its very strict investment requirements means that some of the bigger players – even the size of APG, the government pension fund – will follow the guidance issuing from ASN.
“The big players read the newsletter to see who got into the universe and see that as a strong indication of your sustainability credentials.
“It’s a really interesting thing,” Edwards says. “We did a lot of work on it in the last three years.
This is something new chief executive Susan Lloyd-Hurwitz – also freshly from the UK – understands, Edwards says.
“Susan is very committed and passionate [on sustainability] from a personal and business level,” Edwards says.
It’s the kind of support that Edwards is used to.
“At Hammerson the initial motivation came from the board – and I think it’s the same here. The board said this is going to be important.”
He reported to the CEO. “Essentially we went through the process together.”
Edwards, by training and background, is a mechanical engineer, which you could expect means his skill set is more tailored to technical matters than political and business negotiations on sustainability strategy.
But in an interview two months into the Mirvac role, Edwards reveals the truth in the old axiom – that engineers know how things work.
So how did he handle the Hammerson challenge and what does he plan to do at Mirvac?
First things first.
“At Hammerson we sat down and looked at where their strengths were. We looked at a consistent language, where we could get traction and we looked at the [European Union] and the UK and what was going on.
“The process stays the same wherever you go.”
It was a “chance to sit down and take a company that was doing nothing [on sustainability] and take it through the whole process and to integrate it to the business”.
He worked with retailers providing a sort of laboratory where they could test LED lighting and other innovative elements that could help their business. But he also worked with the broader industry, through the Better Buildings Partnership made up of the UK’s leading property companies.
Edwards recently was recently appointed co-chair of Sydney’s BBP, along with Emlyn Keane, from AMP Capital Investors.
- See our article Better Buildings Partnership appoints new chairs
Talking to Edwards on his UK experiences reveals a sustainability world quite different to Australia’s, where the climate and green issue have become politicised.
It’s true, he says.
“In the UK the other driver [outside of the business] was the government and it was very clear there was a cross-party agreement on climate change, and it didn’t change even through the GFC.”
Sure, some of the government policies were poorly implemented. One mistake was the carbon reduction commitment, which he says was “overcomplicated” and is now in review.
But during the GFC, when government commitment started to wane, “there was the EU in the background, saying, ‘You’ve committed to this and you need to continue to commit to it.’”
It also helped that in the UK detractors on climate change didn’t have much impact. They were there, “but few and far between” he says.
(Perhaps they all came to Australia?)
From the company perspective of course the GFC brought its pressures.
Up to 2009, Hammerson delivered five big new projects in quick succession.
“And then it stopped – for three or four years. Suddenly sustainability was a great thing because it was a way to create value. Value was not coming from capital as in the past where properties were going up and up in value, it’s where you were reducing outgoings – the cost of staff and energy and water.
In the UK the cost of energy typically rises 25 per cent “pretty much year on year”, he says.
The cost of landfill likewise rose strongly.
One of the smartest pieces of legislation the government brought in was called a landfill tax, Edwards says.
This included an in-built escalation of fees, so the rise in fees was known and expected.
“When I joined it was 32 pounds per tonne and when I left it was 72 pounds per tonne.
“It was an important piece of legislation and, I think, well implemented, even though people said it would cost us more money. Business reacted to it, because it knew what it would be and you could plan together. And that’s what business likes – consistency and a common language, because you can plan for it.”
Hammerson’s shopping centres went to 85 per cent and as much as 96 per cent recycling rates in three months, he says.
Edwards also saw a lot of collaboration in his industry, especially in his role as chair of the UK’s BBP.
A big advantage of collaboration was the ability to benchmark with peers, he says.
Partly it was “recognising that we’re all trying to hit the same targets”.
“Sure there are things that aren’t shared, but there is also a lot that can have mutual benefit.
This was especially important in the UK because it lacks a NABERS rating system, which Edwards says is brilliant. “It makes life easy.”
A common green lease for Marks and Sparks
One highlight of the BBP was a “common green lease” the BBP signed with the retailer Marks and Spencers.
This meant that the BBP, made up of the 14 largest property owners in the UK, would offer the retailer exactly the same green lease deal wherever it went.
So how did they achieve this?
“We took the lawyers out of the room,” laughs Edwards.
Initially, anyway. The problem, he explains, is that the representatives of the owners and the tenants will try to remove green lease clauses because they are typically not as committed to sustainability as their clients and they see it as a risk.
“A lawyer will be in the room and they’re saying, ‘No my client is not interested in sustainability,’ and the landlords’ rep says, ‘My client is not interested and they’re taking it out because it’s a risk and they don’t know it and they don’t understand it.’”
“When it comes down to it both [parties] want it and because they’re not in the room it gets taken out.”
Edwards saw the evidence himself via an email trial with a famous US California-based fashion retailer who had to fight its own lawyers to have a sustainability agreement form part of the lease in a Hammerson-owned shopping centre.
In the end three leading lawyers helped developed the BBP green lease framework. There was also a suite of free tools that could be downloaded for tenants and landlords onto an iPad.
So with Mirvac, what’s the plan?
Hammerson, which not long ago divested from substantial holdings in Australia, runs a $6 billion portfolio.
Mirvac is larger, with an investment portfolio of $6.8 billion and development portfolio is $1.5 billion. But it’s also highly diverse in terms of assets, ranging from office and industrial to “complex apartments” and communities.
“It’s a very diverse business and a very interesting one,” Edwards says.
First step is to map the company’s existing initiatives, the current status, benchmark against peers and develop a new strategy.
Then Edwards will embark on “materiality study” with stakeholders to see what’s important now and what they want from the company.
“We’re seeing a big takeup in ESG from investors, and investors are our key audience,” he says.
“So what do they want to see Mirvac do in five years time? It’s the same with customers and suppliers.”
There’s a lot to do, a lot of people to meet, but Edwards says he’s “very impressed with Mirvac to date”.
There’s the Harmony 9 sustainable house in Victoria, the follow up, with Kimberley Zero, and the way the learning from the design unit in the company and elsewhere can infiltrate and inform all areas of the business.
Residential – who cares?
These exemplar houses might be wonderful, we say, but residential in general must be the hardest area to tackle. There are constant stories that the consumer doesn’t really care.
“You are absolutely right. With residential the consumer still doesn’t get it. But you’ve got to make it such they don’t need to get it.
“People are not going to change their lifestyles. Anyone who thinks people are going to start wearing hair shirts is mistaken. You’ve got to make it part of what you do and how you live.”
Is this happening?
Edwards says no. Not with Mirvac nor with Lend Lease or anyone else.
A good thing that stands in Mirvac’s favour, he says, is commitment to quality, and it has a “great reputation” with many second buyers and recommendations.
“It’s a great brand.”
Part of this, he says, will be to think ahead to what consumers will want in the future – it needs to “future proof” the properties.
“We have to be ready with the right products to help them achieve what they want to achieve, property that is going to last and be ready for a new market where energy costs will be ridiculously expensive.”
The housing industry doesn’t want to end up like the American car industry that turned up to the US Congress for a handout, arriving in private jets and hulking energy guzzling cars, “oblivious that the world had changed”, he says.
In the housing industry, too, the change is coming.
“It will come because eventually bills will be too much.”
Water too will be important and Mirvac has some good initiatives at a project in Victoria that Edwards will not yet discuss in detail.
Wider change is needed
There is a need for the public at large to understand what sustainability is but also the need for other elements to come together to enable the change, he says.
Sustainable building materials, for instance, in enough quantities that they can change the market, he says.
It’s happening with LED lighting.
“LED was too expensive. Now we’re putting them into nearly all of our houses and putting them into all our [office] firestairs and in the three levels of our car parks at Broadway shopping centre. And we’re testing them in offices in Melbourne.
“That’s a big step change. It requires products to be available and that are understood in the business. You need engineers to understand what those benefits are.”
Governments at all levels need to step up to plate as well. If trigen is a good idea then they could all work together to enable a transition, Edwards says.
If LED lights are a good thing, then why not roll them out across government? It would help the market grow and “then it helps us as well”.
“We’re all driving to the same outcome.”
Mirvac has a trigen plant at 101 Miller Street in North Sydney, and at 20 Bond Street, and what the company is learning from these is helping with trigen in its new 8 Chifley Square building, which also has blackwater recycling.
On cities, all levels of government need to come together to plan for the future of the cities, he says. It would help to take a helicopter view of the cities and see that they have limits.
There are a lot of good things going on in the business but one thing Edwards wants to work on is the “consistency of approach and a common language and a good communications strategy that is linked to it”.
The Marks and Spencers sustainability strategy – “Plan A because there is no plan B” – is a good example of clear communications backed by delivery, he says.
“It’s important that the customers understand what they’re doing and that it’s very clear – what their strategy and actions or targets are and how they’re going to get there.
Unilever is another company that Edwards admires and it has, he says, the “strongest commitment by any company I know to change the way they do things”.
There are other initiatives that could occur, Edwards says.
Among the projects he worked on at Hammerson was “connected reporting”, which is putting a financial number on to environment and social elements the company was involved in. Not so much to determine a value to Hammerson but simply to value the work and note the value.
“We say we’re saving this much carbon and this much water and energy and doing this or that for the community and schools, but we never talk about it in the thing everyone understands, which is money.”
It means the CEO can say, “I understand why you are in the business. It’s a common denominator.
“If you say you saved 400 tonnes of carbon, it’s all good but if you say I saved you $100,000…”
What about things you can’t quantify, such as social benefits?
You agree on some common metrics there too, says Edwards. The London Benchmarking Group, which is used by some Australian companies, attempts to find agreed value for things that clearly exist but which no-one has measured or quantified, such as the value of contributions that employees might make to the community in time and in kind.
“They can put an hourly rate on it, and you can agree with your peers on that rate.
“It doesn’t necessarily means you look at the payback. You just put a financial lens on the contribution.”
There is a social return on investment in broader property development as well that can be of benefit to the wider community, he says.
“Yes, you’re providing jobs in construction and in operations, and then those people are paying tax, which means there is generally an impact on social welfare and it can reduce crime. These are benefits that are not always captured.”
It doesn’t always have to be monetary. It can be in brand and public relations, he says.
Some of this social value is going on at Mirvac’s Harold Park residential development in Glebe in inner city Sydney.
The project seemed to sail through the development process without the fuss and bother that plagued other projects such as Fraser’s Central Park Broadway project, which admittedly was much bigger. But still, Harold Park is in the centre of a quiet almost suburban park-like setting.
It had its detractors but stands apart for the limited protest as well as for the story of one protester who said she attended an information day for the site and was so charmed with the images of farmers markets in the old tram sheds and shopping baskets brimming with produce that she bought a unit.
Edwards roars with laughter and says the project has many “unsung initiatives”. The development team has engaged closely with the local Police Citizens Youth Club.
“They don’t just donate money and ‘see you later’. The guys there are actively going and eating there – they’ve got a café where young kids are learning the skills of running a café – they play basketball with the kids and they’ve offered to help with CV writing and being involved in many different ways.”
Edwards is not new to Australia. He arrived here in 1996 as a backpacker.
As a mechanical engineer for Arup he worked on Aurora Place and then 30 The Bond, Australia’s first 5 Star Green Star building.
“I love the Bond,” Edwards says. It was “a joy to work on and stands up well today”.
The appointment originated from a paper he was commissioned to write while at Arup, for Lend Lease, on the world’s best 100 buildings and why they were seen as green or low energy, entitled “How to Design a Green Building“.
On the strength of that project, he was seconded by the builder and tenant Lend Lease (the owner was DEXUS) to deliver the project and then was offered a permanent job.
But it wasn’t all his work, he says, handing praise to the collective wisdom and creativity of Arup.
Arup, he says, is “a fantastic company”.
“It wasn’t just my work, it was all these people all over the world, from San Francisco and my boss at the time Mike Bevan who now leads Arup Associates in London. He’s so knowledgeable; I could just ring him up and get all this information and pull it together.”
On the usual criticism that The Bond cost so much more than a regular building, Edwards says that this view is too simplistic. And wrong.
“There is complexity in buildings that sometimes leads to sustainability not being viewed in full.
“For instance, everyone said chilled beams cost more money but because we used chilled beams we could use pipes to deliver the cooling instead of big duct work so we increased leasing space. And we didn’t have to dig so much plant room.”
After this project, Edwards did some interesting gigs for Arup working on Heathrow Terminal 2, the MI5 UK security agency headquarters, and later in San Francisco before signing up with Hammersons.
One of his earliest experiences with sustainable buildings was the National Capital Exhibition building at Regatta Point on Lake Burley Griffin in Canberra, which included elements such as a lake water cooling system and natural ventilation.
It was a “pocket building” that achieved some good outcomes and it won an energy efficiency award, he says.
In the early days of green buildings the big agenda was not energy, he says.
“Then, people weren’t driving to massive energy savings. It was a rare thing. San Francisco saw the light, or the lack of it, because of blackouts. There was a lot more focus there towards low energy buildings.
“To be honest, being a mechanical engineer and designing a building with standard VAV (variable air volume) is a lot less interesting than designing without any airconditioning.”
Isn’t that sending mechanical engineers out of business?
Not at all, says Edwards, “it’s going back our roots”.
“The importance of mechanical engineers is more important than ever.”
Buildings around the world are moving away from airconditioning. This means engineers need to understand the contribution of thermal mass, and in the UK techniques such as earth tubes, which use tubes buried in the earth to cool air as it passes though, are starting to be used.
He also mentions Federation Square in Melbourne, which has a labyrinth, or underground piping system, for air cooling.
What does he think of Federation Square?
Honestly? “I’m not a big fan of the architecture.”
But the way it works? “Yeah, I like the way it works.”
The architects, LAB, were frustrated at the time that people didn’t understand how it worked, we say.
“I don’t think anyone knows now. I’ve told people about the labyrinth and they have no idea.
“But that’s where we’re going. We’ve got to be innovative. My mantra is that you have to design from the inside out, not the outside in.
“Until recently – and architects will hate me for saying this – it’s been a case of, ‘Let’s design a fantastic looking building.’ And then give it to the engineer and say, ‘Right, make it work.’
“It’s about people and how comfortable they are; how productive they can be; what type of space you can give them. And while it’s lovely to have fantastic looking buildings, now it’s about what you can deliver from within those buildings.”
How well do architects understand that change?
There’s a spectrum of understanding he says, just like in any business.
In the UK, Edwards thinks the work he’s done with Australian company Woods Bagot shows that’s one design firm that “gets it”.
He regrets the GFC interfered with the building that he worked on with Woods Bagot, at the Bishopsgate goods yard, because the “whole principle was fantastic”.
The project started with the inside out questions: what type of tenants could be interested in that area?; what would be the catchment and the type of office space they might like?
“As the owner and the client we said we wanted the best interior space that matches our tenants needs and it needed to be naturally ventilated. In the middle of London that can be quite a challenge.”
And it was to include a park and earth tubes.
All needed to be delivered at very low cost, to make up for the expensive cost of remediation that was needed on the site, using nature for cooling – a rock wall perhaps, as in The Bond, or the earth, with earth tubes.
In the end it’s all about being creative, innovative and finding solutions for people.
An engineer running sustainability strategy?
Not a bad fit when you think about it.