News from the front desk issue 441: If NABERS ratings don’t make shopping centres more energy efficient, and if their industry body rejects outright the Commercial Building Disclosure Program, then why not cut to the chase and mandate better energy performance?
Industry observers – the experts who know these things really well – are flummoxed.
The disclosure of NABERS ratings through the Commercial Buildings Disclosure program has transformed the commercial property sector. When it was expanded from 2000 square metre offices to 1000 sqm, the move was almost seamless.
The famous 80 per cent of smaller property owners in the lower tiers of the sector who “didn’t know, didn’t care” are starting to transform as well. People in the property industry who vehemently opposed the introduction of NABERS and the CBD are now their most enthusiastic champions.
Now NABERS is being exported to the UK, and Australia is increasingly recognised as a global leader in building management, spawning the growth of global analytics companies, and the rating tools are increasingly important to the rise of investment benchmarks such as GRESB.
This in turn has fueled a bigger appetite for more sustainable property as long term institutional investors know they can ask ever more probing questions on the environmental performance of real estate investment trusts. They want to know and they know they can know.
Pity those who don’t know what they don’t know. They are the ones truly in the dark. The phenomenon known as the Dunning-Kruger effect.
Hotels used to have it (some still do). They had freezing cold rooms in summer and stuffy overheated rooms in winter but they thought they were doing a fantastic job because they didn’t know any better. There were no metrics to benchmark against their peers, let alone an expectation of what’s acceptable given the predicament of the climate emergency.
Now this is a sector where change is hard and the split incentive is deep. Yet hotels are moving to take up the challenge of energy ratings and the CBD program.
Some have likened the CBD program to public shaming. If so, it’s worked with the owners of commercial property and revealed an appealing touch of humility in the way they’ve first admitted their carbon footprint and next seized the challenge to do better.
Of course there’s a lot of payback. Their work appeals to investors because they’re de-risking their assets, they appeal to their corporate tenants by meeting the tenants’ ESG benchmarks and they’re appealing to an increasingly aware public by becoming more responsible participants in the economy and above all doing their bit to help Australia meet its Paris climate targets.
Even more impressive, the leaders have audaciously stated they will go carbon neutral. One after the other they have done the Kennedy thing when the president of the US said, “we will go to the moon”. No-one knew how his country would get there but enormous willpower spurred huge innovation and, even more precious, a feeling that “if we want to, we can do anything”.
Today the Green Building Council of Australia has set a goal with its industry members to mandate carbon neutral for all its 6 Star Green Star buildings.
So here is a movement spreading wide and spreading deep to so many sectors of the built environment, everywhere you look.
But not shopping centres.
No, not shopping centres.
A report that has been obtained by The Fifth Estate is a rendition of all the excuses that have been trotted out by the Shopping Centre Council of Australia over the best part of a decade to avoid the CBD program.
Everyone else in all the other sectors might be persuaded to do their bit for the planet and become part of the program but not shopping centres.
Shopping centres are special. They have their reasons.
For instance, they say, it’s totally ridiculous to think that shoppers will choose another location to shop if they don’t like the ratings. Agreed.
Likewise, clearly, tenants who choose to enjoy the security of the steady foot traffic and other benefits they receive in shopping centres to make their business viable, rather than taking their chances on the high street where it seems one in three shops is vacant.
These arguments also makes sense.
Here’s another reason the SCCA offers and the report repeats: the 46 per cent of shopping centres already voluntarily rated with NABERS are not better energy performers.
The draft report, which is authored by the Centre for International Economics, says shaming is a quite good motivator.
Its authors say they “cannot rule out that mandatory disclosure may act as a shame factor for some shopping centre owners, thereby driving some change.”
But not in this case, or the 46 per cent of NABERS rated centres would be doing better than their peers.
There’s a chance there’s a Dunning-Kruger effect here too and that we don’t know everything we should know about the 46 per cent. What if they are on a transition path? You’d have to assume that institutions and pension funds care about the environmental performance in their retail property assets as much as they do about their commercial assets and will push for better.
There are some outperforming retail property owners
There are several shopping centre owners doing great work with solar installations to shave energy costs, (Vicinity, Stockland, GPT and so on) and others working on social sustainability programs that create an inclusive productive impact with their customers. Then there are the broader sustainability goals such as ridding centres of single use plastic and reducing waste – such as Lendlease with its green mandates for retail food tenants and AMP Capital trialing green leases for the same.
So why is the industry body being so recalcitrant on mandated disclosure of energy performance?
OK, so public revelations/shaming doesn’t work with shopping centres. Understood. And it’s daft to think tenants and shoppers will change their behaviour because of NABERS. Got it. But maybe we’re being distracted by not looking at the right reason to stimulate change.
But what about this reason? Right now Australian retail operations account for around 41 per cent of total non-residential carbon emissions per year, yet occupy only 14 per cent of all floor area, the report says.
Still, CBD is not for this special sector of the market, the report suggests, and the issue doesn’t need to be revisited.
So what’s the real reason the CBD program has been rejected?
We’ve asked many people over the years what the motivation could be for the intransigence towards the CBD program. They don’t know.
Most likely closest to the truth is: Just because. That old ideological opposition to rules and regs.
The last time the CBD program was about to be mandated for shopping centres the idea was suddenly ditched, just weeks after Tony Abbott ascended to his anti-sustainability anti-climate post as PM in 2013.
So here’s the thing. If voluntary NABERS CBD programs are unlikely to result in better performance then why not cut to the chase and simply mandate better energy performance?
Wouldn’t that be ironic? That the sector most opposed to regulations and any attempt to control its disclosure was mandated to better performance.
While everyone else does it because it’s the right thing to do.
Following are some of the comments we’ve gathered this week from experts on the rejection of the CBD program for shopping centres. (For obvious reasons they don’t want their names attached.)
- “I don’t understand it. It’s perverse.”
- When NABERS was first mooted it was vehemently opposed by people in the property industry – who soon became its biggest fans. (Same with the CBD program)
- “What’s being underdone in all this consideration of the CBD program is the broader consequences of not being realised.”
- “When you look at the all the skills and businesses that have grown up and around NABERS, companies such as Bueno, CopperTree Analytics, Switch Automation and Envizi. NABERS and CBD created a demand for services that otherwise would not exist and now these are global businesses.”
- Australia is recognised as a global leader in building management. By putting those benchmarks in place it has created a level of skills and demand for skills that is not experienced in other countries.
- CIE has taken a neo classical approach.
- NABERS is not as simple as you think. It informs building owners to make themselves better and then acts as a disclosure tool, which improves value for tenants.
- The CIE review has misunderstood the value of the disclosure tool.
- The Dunning-Kruger effect is relevant here. People who don’t know what they don’t know. This is clearly dangerous.
- NABERS allows tenants to express a preference, whether it’s cost or greenhouse gasses, we shouldn’t get in the way of that.
- Hotels for years have over heated and overcooled their rooms but they had no idea until they could rate themselves against others (and the metrics of optimum indoor temperatures)
- It’s true that some elements of shopping centres are quite hard to fix, but don’t underestimate what fine tuning of controls and so on can achieve.
- Tenants in shopping centres are starting to show their muscle with sustainability. Don’t underestimate the power of Woolies and Coles.
- The ACIL Allen review in 2016 showed in the most conservative methodology available that NABERS is driving change.
- Industry bodies have a choice about holding back progress for the sake of a higher margins in the short term or taking their members to “the promised land”.
- “Some industry bodies don’t get that they have a real duty to their members to seek out the promised land”.