Ming Long, newly appointed fund manager of the Investa Office Fund, after several years as joint managing director and finance director, wanted to know a bit more about the green bond that Stockland issued a few weeks back for 300 million Euros.
We were meeting in the ground floor coffee shop of 126 Phillip Street in Sydney for a catch up on the state of play in the green property industry, her new role and her instigation of the Property Council’s Champions of Change, which recruits male leaders to help shift the agenda for women in the industry. Joining us, at Long’s suggestion, is general manager of corporate sustainability, Beck Dawson, who has made frequent appearances in our Tenants and Landlords Guide to Happiness ebook series on green leases.
Our initial aim was to probe a little further into Long’s view of the sustainability world from a more politically nuanced point of view. What pricked our interest was her feisty comments during the chief executives’ session at the Property Council Congress in August when she made it quite clear she thought dumping the carbon tax was a bad idea. There was hardly a stampede of concurrence in the room. A lone clap (from The Fifth Estate) said enough. Or did it? We learned later that the issue of sustainability was only flagged because Long insisted. So at a CEOs session in front of a national audience of the most powerful property people in the nation, sustainability had somehow not been able to make it to the top of the list as an issue for discussion.
Interesting. And either good news or bad news depending on your point of view.
Does this mean it’s been totally absorbed into the DNA of the industry’s leaders? Hardly, though many make that claim.
Our sceptical side took the view that the sustainability had slipped down the industry’s totem pole of high ambition, pushed, perhaps understandably, by the leaden weight of political trashing of the climate agenda and sustainability, particularly the federal government’s appalling destruction of environmental issues at every turn. Not to ignore the mishandling of the issue by the previous incumbents.
But Long is both and an optimist and champion of sustainability. She didn’t agree the industry had dropped the ball. In fact, she was “surprised” at the suggestion.
In her view there is no back-off at all. The industry is strong and committed in its fight, and she can see it in the committee meetings she attends, her conversations with other leaders and also with the evidence of a continued push to green buildings.
It’s not the picture we’ve tuned from our end. Sure, the industry has kept delivering highly rated green buildings, and it keeps winding back its energy consumption thanks to the driver of saving costs. It’s even started scaling the Everest of poor leasing practices. Hence our “Happiness” ebook series.
This is all logical prudential behaviour that leads to better financial outcomes and no one today would expect anything less of our leading landlords and developers.
No, what we were concerned about was something a little more insidious – the deafening silence that contrasts with the earlier days when green was an item for the loud hailer. Along with complaints that there is an erosion of standards in rating standards, that industry lobby groups are far too powerful (the Vinyl Council, for instance) and the other dead weight – of pragmatism – always an enemy to visionary change.
Interestingly, in the time between the PCA Congress and our meeting with Long, there seems to have been a shift in the agenda.
There’s been a swathe of good news that the capital markets are shifting, out of coal and into green and climate bonds.
The federal government’s flat earth stance on climate has been humiliated on the global stage, thanks to an inspiring and powerful commitment between the US and China to take the climate fight seriously. And the aggressively anti-climate, anti-green Victorian government has been dumped, with polls showing these issues are on the rise nationally, not just in the south.
And there was that green bond from Stockland which stunned the market and was followed within weeks by NAB’s $300 million climate bond for renewable energy, double the amount initially flagged.
Green bonds
As a sustainability champion Long’s ears pricked up at the mention of the first green bond. As a good financial officer she wanted to know what the margin was.
It turned out it was at the market rate, with only an annual audit fee adding to the regular cost, plus a currency conversion cost.
- See additional information from Stockland chief executive Mark Steinert.
Long is not really surprised that green bonds are stirring so much interest. In her view sustainability has the potential of “creating new businesses that would be a fantastic addition to the Australian economy given our loss of manufacturing”.
On the carbon tax Long sees a missed opportunity – as much for its ability to influence broad numbers of people as for any potential to drive new market dynamics.
“I saw with the introduction of that that people would understand the cost of what we’re doing – that there is a cost at some point in time – an impact, an absolute cost coming through,” she says.
“It was really pulling the whole country along with the thinking.
“Getting rid of it was unfortunate.”
The whole world is getting there now, she says.
“It’s a shame we took a step backwards.”
The problem with relying on markets alone, though, is the short-term nature of market thinking.
“Corporates are sadly short-term focused. To be honest, the market is short term – six months at most.”
Regardless, in Long’s view the investment community has “absolutely come a long way”.
Organisations not starting to address the issues may well regret it, she says.
“The cost will come through, just running the buildings, the impacts will flow through – how you run the airconditioning.”
Dawson chips in with a pointer to resilience and the work Investa has been involved in through the Australian Business Roundtable for Disaster Resilience and Safer Communities.
- See our separate story Campbell Hanan and why resilience is high on the agenda
Long says the work Dawson has done on this for the company is invaluable, and the cost will be much less than having to address it in the future.
But the property industry isn’t alone in taking action.
Long says big investors such as super funds are coming out of coal and the movement will only grow.
Roadshows
This is most clearly visible in the most recent investment roadshow for investors. This is the face-to-face meetings with leading investors that large corporates embark to better understand demand for their product.
What came through loud and clear, Long says, were questions on environmental social governance issue.
She says these issues are always part of the mix but this last round was something else and quite exciting.
“The entire conversation was around that.”
For the big institutional investors there’s a simple reason – they are responding to the pressure from their ultimate shareholders, the ordinary retail investors who want to know what their money is funding.
“Super funds are increasingly pressured.”
Not so long ago calls from superannuation members to their fund questioning investment destinations were rare.
“They’re now getting numerous questions a day.”
Older buildings
In property, Long says the focus needs to turn more to re-use of older buildings.
“Don’t forget these are long-term assets,” she says.
Older style buildings might not look so flash but they can be run very efficiently.
“Is it right to knock them down to put a six star building up?
“We need to run existing buildings so much better.”
“We need to look at capital as a scarce resource, so look at it in combination. Weigh it up in terms of creating medium-to-long-term value.”
Dawson says there is also a lot of latent energy efficiency in existing buildings that can be captured. In fact, a staggering amount if you think that tenants consume on average 50 per cent of energy in a building, and while property owners have reduced energy consumption by 30-40 per cent or more, tenants have barely started on the journey.
What’s quite feasible, Dawson says, is maybe 50 per cent savings in tenancy energy.
This is exciting, Long says, because it taps into the current hunger for sources of growth in revenue.
“Where growth is coming through in the broader Australian economy, it’s not really coming through the revenue lines, but in cost. Companies are still cost focused.”
It’s a good opportunity to influence a change in behaviour.
Of course that’s not easy. Dawson’s job is strongly based on engaging tenants in better leasing practices. The entire team at Investa is obliged to know tenants well and understand their drivers.
“Those discussions are being broadly had and it’s important,” Dawson says. “Our industry is being rated internationally. Australia needs to keep up in terms of whole building information and performance.”
The industry as a whole is engaged in that conversation, Dawson says.
“We see the whole building; they only see the big costs and it’s difficult because the drivers aren’t there for them,” Dawson says of the tenants.
Her advice is to make the data more visible.
“In my experience, when they realise what the costs are, it makes a difference.”
Property and business will push through
Long says that property, along with other businesses, has plenty of incentive to progress the case for sustainability no matter what government does.
“It’s a business imperative. And yes there is a financial impact.
“Politics is not that important. As I said, it would be really nice to have leadership at the government level.”
But it’s not essential.
So how’s the new job?
Long says she is seriously looking forward to her new role, which will take her deep into operations and away from the finance side. That’s an area, she says, that after the drama of the GFC ebbed, some of the excitement went the same way.
“I became CFO in the midst of the GFC when that was really driving everything. It was get thrown in and swim like buggery.
“So I’m used to that, but really finance should never drive real estate decision.”
What should drive property is running buildings better and “taking appropriate real estate risk”.
“That’s where we make money and drive better value,” Long says.
So as finance took a back seat to the real estate, the operational side of the business started to look more attractive.
“This job was an opportunity to test myself in a very different arena,” Long says.
“I will be in the driving seat for what happens in the IOF portfolio.”
Corporate culture and the diversity issue
The big thing that keeps Long ensconced in the company is that the “really good culture”.
Long is highly committed to good culture, diversity included, and gender in particular.
She’s the main driver of a new program, the Champions of Change, through the Property Council, which makes male leaders in the property industry the champions of gender equity in the industry.
Long doesn’t think that men consciously keep out women away from positions of leadership. It’s a question of the culture of a place, which is set by the leadership.
“If you think about leadership it’s gender neutral; but if you look at leaders they tend to be male so the organisation tends to be male-oriented.
What that means is we haven’t developed a gender-neutral leadership style.
“Our leadership style will need to evolve because we have women in the workforce and for a CEO the big question is, how do you harness that great capacity?
“It’s very good for the industry to be progressive in this way.”
The Champions of Change program intends to put some metrics on its performance, taking its cue from the sustainability sector perhaps. Ernst & Young has been commissioned to undertake some snap-shot research of the industry before the program. And after.
So beware industry, you are being monitored.