By Cameron Jewell
5 February 2014 — Some of Australia’s property companies are gaining top global accolades for their sustainability performance but according to a damning new report the commercial property sector as a whole is failing to meet even basic sustainability benchmarks.
Just four property groups – Stockland, GPT, DEXUS and Mirvac – had reasonable sustainability credentials across most indicators and appeared to have “integrated environmental and social issues into their business performance and evaluation”, the report stated.
“This report reveals the overall [environmental, social and corporate governance] performance of the sector is lifted by a few key players, while most companies are failing to meet even modest sustainability benchmarks.”
Jo-anne Schofield, executive director of not-for-profit organisation Catalyst Australia, which undertook the report in partnership with union United Voice, said that even among the leadership group there was room for improvement – with the top two groups reaching a score of only 13 out of a possible 24 in the index.
“Unfortunately, the stronger attention to environmental, social and corporate governance by this group was dwarfed by the poor performance of the sector overall,” Ms Schofield said.
Ms Schofield said the report, Building sustainability: A review of company performance in the commercial real estate and property sector, was produced after large discrepancies appeared between two property companies, Stockland and Westfield, in a former report of 32 large Australian companies across broad economic sectors.
She said her organisation partnered with academics, stakeholders and sponsors, who included a number of unions and individuals, to produce analysis of market sectors.
Retail drags the chain
While in other sectors, it was the biggest players leading the way on sustainability, in the property sector the two largest players – Westfield Group and Westfield Retail Trust — were dragging the sector down, with below average results on most indicators.
“With a market capitalisation of $33.3 billion, making up 34.2 per cent of the market capitalisation of the sector, these poor results impacted significantly on the performance of the sector as a whole,” Ms Scholfield said.
The leadership group of Stockland, GPT, DEXUS and Mirvac had a higher proportion of office stock, the report stated, pointing to the relative sophistication of sustainability in the sub-sector and the need for further sustainability progress in other property areas, particularly retail, as was illustrated in Westfield’s poor results.
Taken in the sample were 19 commercial property groups, accounting for a market capitalisation of $97.5 billion – 7.1 per cent of the ASX 200.
In order of market capitalisation, companies included were: Westfield Group, Westfield Retail Trust, Stockland, Goodman, Mirvac, Lend Lease, GPT, CFS Retail Trust, DEXUS, Federation Centres, Commonwealth Property Fund, Australand, Investa Office Fund, Cromwell, BWP Trust, Charter Hall Retail REIT, Charter Hall, Abacus and SCP.
The report looked at sustainability criteria including environmental impact, sustainability engagement, supply chains, gender equality, labour standards and community investment, each consisting of multiple indicators and sub-indicators.
On carbon emissions and energy efficiency the property sector was underperforming, however, again there was substantial variation between leaders and others, and the poor results of some sub-sectors were dampening the significant efficiency savings implemented in areas like commercial offices.
Energy consumption in commercial buildings was expected to rise by 24 per cent by 2020, with the contribution from retail expected to rise and that from offices expected to fall.
“Given that the retail sub-sector already accounts for 4-5 per cent of total national emissions and is projected to continue to grow, more rigorous uptake of ’green’ and energy saving initiatives, as has taken place in the office sector, would make a significant difference to energy use in this sector overall,” the report suggested.
Westfield and DEXUS – having the two highest valued retail and office portfolios – were singled out for having increased energy consumption.
“The performance of these two, along with other underperforming companies, is worrying considering the projected increase of energy use in commercial buildings, which is likely to be accompanied by increasing carbon emissions,” the report stated.
A DEXUS spokeswoman said that “while DEXUS increased its energy consumption on an absolute basis in FY13, this was due to acquisitions made during the period”.
“We achieved a 1.6 per cent reduction on an intensity basis in FY13 compared to FY12, which is a more reliable measure of energy consumption. These improvements were a direct result of our commitment to improving the sustainability of our properties achieved through our NABERS Energy Rating Improvement Program.”
A spokeswoman for Westfield said the company did not “have a comment specifically on the report”, though said it was a regular respondent to the Carbon Disclosure Project, and had improved scores for disclosure and performance in the seven years it had participated. She also said the company had identified electricity use and its environmental impact as one of its “most material issues to consider when it comes to sustainability”, and that Westfield had been producing a sustainability report for the past three years.
“As reported in our most recent sustainability report, during 2012, Westfield Group’s total GHG emissions were 664,450 metric tonnes CO2-e, representing a five per cent decrease year on year.”
Waste management was an area commonly overlooked compared with other environmental indicators, which the report suggested was due to waste disclosure being non-mandatory.
“The review found a clear discrepancy between the reporting and performance concerning carbon emissions, energy consumption and water usage on the one hand, and waste management on the other,” the report stated. “This can partially be explained by mandatory elements of environmental reporting frameworks, which display a bias towards reporting on energy usage and carbon emissions.”
Supply chains being non-transparent – both in terms of environmental policy and labour standards – was another problem across the board, with 12 of the 19 companies providing no public information on supply chain management.
“Given the reliance on outsourcing of core functions and servicing, as well as external procurement of materials supplied for property development, greater transparency is urgently needed in this area,” the report stated.
The relatively good performance of the leadership group reflected recent accolades and a commitment to corporate sustainability strategies.
Stockland was recently announced number 32 on the Global 100 Index of most sustainable corporations at the recent World Economic Forum in Davos, Switzerland.
Mirvac just launched an updated sustainability strategy, which will soon be covered in The Fifth Estate.
DEXUS was announced Leading Energy User at the Energy Efficiency Council awards in December last year.
GPT won the Premier’s Award for Environmental Excellence and the Business Sustainability Award at last September’s NSW Government’s Green Globe Awards.
A spokesman for GPT said: “GPT’s commitment to sustainable principles in owning, developing and managing Australian commercial property is one of the reasons it has consistently been judged as a leader in sustainability in the property sector, not only at a national but also an international level.
“Whilst we are always raising the bar for ourselves, and striving to do even better, it is important to recognise the accomplishments of GPT and the small group of its peers, which have and continue to lead the way on the global stage.”
Key findings and recommendations of the report included:
- Environmental reporting patchy: the report recommended the introduction of a standardised environmental reporting framework, which includes disclosures about absolute as well per sq m averages for carbon emission, energy consumption, water usage and waste production.
- Blind-spot in reporting by subsidiaries: many subsidiaries simply relied on disclosures by parent companies, despite subsidiaries being ASX listed companies in their own right. The report recommended the reporting lines between parent and subsidiary companies should be clarified.
- Greater scrutiny needed by investors: given the growing wealth of the sector and its interest to investors, the report argued investors should consider mandating minimum reporting guidelines. In the interim, benchmarking against mature reporters within the sector and in other sectors should occur.
- Greater transparency on labour and supply chain issues: reporting about labour standards and supply chains was largely overlooked by all companies. Given the heavy reliance on external contractors across all stages of property construction, maintenance and servicing, the report recommended these areas be considered essential.
- Worker health and safety ratings an area of potential risk: more than two thirds of the companies provided minimal or no information on worker health and safety. Only two companies rated strongly in this area: Stockland and Mirvac. The lack of attention to worker health and safety disclosures was in “stark contrast” to reporting in other sectors of the economy, the report said, recommending a more proactive and transparent approach and clearer guidance, made more urgent by an expanded duty of care under national legislation introduced progressively from 2011.
- Engagement with community and stakeholders: the importance of the built environment and its footprint on where people work, live and shop warranted greater attention to reporting about community initiatives and measures to consult and engage stakeholders such as workers, unions, tenants and community groups, the report said.
- Gender equality: the sector reported and performed relatively well on gender equality, with the proportion of women on company boards above the ASX 200 average. Unfortunately this did not translate to a critical mass of women in management positions or greater attention to diversity and equal remuneration policies. Six companies have introduced numerical targets to increase the number of female employees.
See Catalyst Australia’s Property Sector Sustainability Dashboard for detailed information.
— with Tina Perinotto