Unlike most people relieved that a challenging year is ending, Phil Cowling, chief sustainability officer at Cromwell Property Group Global, finished 2020 on a high.
Fresh from signing off the company’s sustainability report, he expected to be writing a summary that was Covid-impacted. Instead, this property owner and fund manager with $11.3 billion in assets in Australia and Europe, had better than expected news to report on sustainability, even overachievement in some cases.
“By the time I finished [writing the introduction] I had to change it quite dramatically,” he said by phone on Thursday.
“While it was an incredibly challenging year, when I looked at it, we had a really successful year and we achieved the majority of the objectives we’d set ourselves.
“We still kicked a number of really good goals and continued to improve on a number of our metrics.”
But it was his impression of the wider trends in sustainability and property, and its awareness of the rising concern about climate impacts, both directly and through the financial markets, that most resonate.
The growing number of discussions with stakeholders and investment analysts were among the standouts shifts during the year, he says.
Questions became more probing, detailed, with increasing appetite for forecasts of longer-term trends and action plans.
From this, he says, came the realisation that there are parts of sustainability the analysts “get” and parts that are a mystery and need explanation.
It’s an entirely different scenario than the “tick a box” environment of just a few years ago.
He points to the Global Real Estate Sustainability Benchmark, which the industry takes very seriously, as an example of the shifts under way.
This year, says Cowling, the benchmark radically changed its methodology, causing a fairly “tumultuous” reaction and challenges for many people with its increasing focus on asset performance and asset data, instead of its previous portfolio-level approach.
Cowling had to field questions from grateful analysts keen to gain the far more nuanced understanding of what the changes meant, as well as more probing questions about his own company’s “boundaries” and approach to sustainability and ESG in general.
They know about the broad commitment to net zero targets, he says, but now they want deeper insights.
“Increasingly, I’masked to talk to financial analysts advising retail investors with funds under management.
“Once upon a time you might send a report and it might be a couple of tick the boxes: quite bland. Now they are ringing up and saying, ‘what are you doing in the next five years, and what about climate? What are you doing to make sure our investors’ money is safe?’
“It’s more about climate impact and risk. The building might be really efficient and the annual returns looking good but what’s it doing to get to net zero? Is it a building that will get there readily or will there be an impact on expenditure? Can it get to fully electric? Is it positive for us or negative?”
For Cowling, that’s an easier ask for the company’s Australian assets than for its European operations. In Australia, there are clear guidelines and metrics through Climate Active to demonstrate carbon neutrality, but in Europe it’s way more challenging.
“Try finding an authority in Europe to cover 15 countries,” he says.
Then there’s the challenge of dealing with Scope 1, 2 and 3 emissions when the latter involves knowing what your tenants are doing, without having any influence over them. “We don’t have any control even though we own the property.”
Another issue is the different mandates the funds the company manages in Europe, where again, “we don’t have control”.
“For each different type of asset, we have to set objectives and targets and goals and report on those. “
At least some of the appetite from the analysts and investors is coming from growing numbers of boutique investment firms focused on sustainability.
The talk around financial balance sheets are expanding to concern about environmental balance sheets, he says.
Questions such as: are you reducing the resources you use, and what are your long term plans? With a horizon of five years, at least, not just the next year’s earnings.
“We spend a lot of time and sweat and tears to explain as much as possible to the reader [of the report] and in the online data. It’s quite a big job.”
But it’s paying off. “They say we’ve made their job so much easier.”
Is climate affecting where the company is buying or holding property?
Not so much, Cowling says, but it certainly does a lot of due diligence using all the available climate forecasts it can find.
For instance, two years ago, it signed off on a property in Townsville in tropical far north Queensland.
It was just two weeks before severe flooding hit, but the property was unaffected. The company also carefully scrutinises Brisbane for flood risk and takes a conservative view to make sure its properties are safe.
“We’d seen increasing concern around the planet and that will continue to grow” along with reporting around that, he adds.
He tips the big influences in 2021 will continue to be the Task Force on Climate-related Financial Disclosures.
“It’s the catalyst for thinking carefully about what those climate impacts are and whether you’ve made the [related] financial declaration. You must do certain things and you must disclose.
“It’s been a game changer.”
“The analysts are starting to say, I need to respond to the banks, who are starting to say, you don’t get a discount for strong ESG but you won’t get the loan if you don’t have it. It’s about ‘can you get the loan’ and ‘is your building insurable’.”
The other big driver is the receding baby boomers and the advance of younger stakeholders who have strong views about where they invest their pensions and where they put their money.
Yet another is the modern slavery legislation that’s come into play and requirements that big companies make their statements by the end of December. It will prod much bigger thinking on supply chains “and the way we think about procurement in terms of human life, the circular economy and the supply chain.”
These are big challenges, but he says his company is well placed to deal with them.
Sustainability is strong on management’s agenda, demonstrated by the elevation early on of Cowling’s position to the C suite within the company.
And that’s not a bad place to lead action.