Commercial real estate sustainability goals have a glaring blind spot

If you take a long-term view of investing, the success of a business is determined by what the business does for the environment, how it interacts with society, and how it is set up to be managed. The investment world has shortened this idea to three letters: ESG. They represent environment, social and governance and now represent priorities that make a company both sustainable and resilient in the long term. The popularity of these types of investments has grown in many areas of commercial real estate in recent years. Everyone from developers, owner-operators and private equity firms has been quick to loudly proclaim their new commitments to sustainable and fair business models. Once considered a fringe strategy, investors have increasingly demanded that their money not only continue to generate significant profits, but also play a role in mitigating the climate crisis and other societal ills.

While property owners big and small have made bold promises about reducing carbon emissions, diversifying boardrooms and other initiatives, it’s only recently that many have begun to share details on how they plan to achieve these goals. Only now are we beginning to see both concrete plans for achieving these often ambitious goals, as well as the reporting methods they will use to measure their progress. These early returns show that there is much to be encouraged, while leaving plenty of room for concern as to whether these measures, focused almost entirely at the property level, will ever have a significant impact beyond the sum of their different parts.

In all honesty, there are a lot of positives in the real estate industry’s move towards sustainability. Institutional investors such as Ivanhoé Cambridge and Norway’s Sovereign Wealth Fund are among dozens of major players who have pledged to implement aggressive net-zero carbon emissions policies in their portfolios over the coming decades. Large-scale owner-operators like Oxford Properties now regularly report on the ESG impacts of their businesses, describing each year how they have improved and what they are committed to doing in the future to improve even further.

Builders have also shown considerable and rapidly increasing interest in sustainable building practices in recent years. The US Green Building Council reported that LEED-certified green homes grew 19% between 2017 and 2019 to an all-time high of nearly 500,000 LEED-certified single-family, multi-family, and affordable homes worldwide. . (More than 400,000 of them were in the United States.)

A separate report showed that a growing number of property developers are undertaking green projects and a growing number are becoming fully dedicated green builders. For example, in the United States, the percentage of single-family home builders focusing almost entirely on green projects was 19% in 2017 and is expected to reach 31% by 2022. Among multi-family developers, the percentage making the majority of their green projects increased from 23% in 2014 to 36% in 2017 and is expected to reach 47% by 2022. Even more encouraging, multi-family developers carrying out more than 90% of their green projects are expected to increase from 29% in 2017 to 40 %. in 2022.

When it comes to ESG initiatives, however, the same holistic approach has not yet taken hold. The vast majority of measures to make real estate more sustainable focus exclusively on the building level, but ignore the myriad ways in which their developments influence occupant behavior that has a far greater impact on the climate as a whole.

In fact, all of these ostensibly well-intentioned lawsuits suffer from a major blind spot that, if left unaddressed, threatens to render them largely inconsequential.

The most glaring problem with all of these seemingly well-intentioned initiatives is that the modes of transportation of building occupants (residents, employees, buyers and others) are virtually ignored. This is particularly problematic because transportation-related impacts, particularly greenhouse gas emissions, outweigh those from building energy systems, but the latter receive much more attention. Take Ivanhoé Cambridge’s recently released pathway to achieving net zero carbon by 2040. The company is pushing the boundaries when it comes to implementing sustainability into its real estate investment decisions.

Ivanhoe’s path to net zero engages in a host of initiatives to reduce the carbon footprint of its portfolio, including dramatic improvements in building energy efficiency, increasing the reliance of properties on renewable energy sources, improving the use of more sustainable building materials and Suite. Yet it does not document or commit to reducing the enormous downstream carbon footprint generated by the transportation habits of residents and tenants.

Tricon Residential offers another example. Tricon has approximately $8 billion in residential developments in the United States and Canada, and is particularly active in the rental market, including single-family rentals. In its 2020 ESG Roadmap, Tricon reported on performance across a range of environmental and social factors, but all but ignored the vital question of how residents travel to and from their homes to work, play, shopping, going to school, etc. . Tricon’s report highlights sustainable building materials and energy-efficient systems, but doesn’t say much about how their construction and operating practices make certain types of transportation choices more likely than others. others.

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These omissions could easily be overruled by some, transportation impacts are ultimately the responsibility of the occupants, not the investors or developers. But the reporting practices of Ivanhoé Cambridge, Tricon and others in the industry already make it clear that they also consider other occupant-generated environmental concerns to be within the jurisdiction of the owner. In particular, real estate investors and developers are dedicated to improving the efficiency of building energy systems, even though these emissions are ultimately driven by the daily actions of residents.

Transport-related emissions are also caused by occupants, but vary considerably depending on the choices of developers and investors. By choosing the location of their development, its design and whether to equip their buildings with large expanses of on-site parking, electric vehicle stations and other features, they play a major role in encouraging or discouraging the use of traditional gasoline. vehicles which are among the main sources of harmful greenhouse gases.

As an urban planner, I am acutely aware of how development affects major patterns of human behavior. This is especially true in the way people move as part of their daily lives – as evidenced by the massive emphasis and resources placed on access to public transit and the creation of walkable neighborhoods over the past two last decades. Yet these factors are conspicuously absent from ESG plans and subsequent reports, and the real estate industry as a whole has yet to fully embrace the role transportation plays in these dynamics.

The increase in ESG-related targets in commercial real estate is undoubtedly a positive development, as the pursuit of profit without considering the wider impact has created a multitude of problems for society. But by ignoring how developments shape transport patterns, the industry risks being caught in an endless cycle trying to solve the problems it simultaneously continues to fuel.

If what we really want from a long-term investment is to have a truly lasting impact, commercial real estate companies need to start considering the overall effect of their products. This can only be done by thinking beyond the building level when assessing not just sustainability factors, but their overall responsibility to their communities. Helping to shape more sustainable transportation models would represent a significant first step towards a more holistic approach to the real estate industry. Making our buildings safer, cleaner and healthier to come and go can truly change our cities and our world for the better. That’s what I call a good investment.

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