Last December in Paris at the 21st Conference of the Parties (COP21), 195 countries reached an unprecedented agreement to combat climate change. The Paris Agreement came into effect November 4, 2016, with an objective to hold the global average temperature increase to well below 2 C above pre-industrial levels. Today, the World Economic Forum considers climate change “the greatest global risk among business leaders”; nowhere is this truer than in the real estate sector.
Many issues connecting the real estate industry and climate change have developed from the Paris Agreement that we in the industry must proactively recognize, understand and take action on. Since buildings account for one-third of global carbon emissions, any major changes to new and existing buildings will help to mitigate climate change. It also is still critical to adapt the built environment to withstand the effects of a climate that is already changing profoundly.
Investors, asset owners, leaseholders and developers who proactively respond to the Paris Agreement will help ensure their portfolios remain competitive and see bottom-line benefits, since strategically improving building performance and efficiencies results in cost savings and is considered a cost-effective measure for addressing climate change.
National and local responses
In response to COP21, the Canadian government is transitioning to a low-carbon, climate-resilient economy with its “intended nationally determined contribution,” requiring more accountability, transparency, investment in adaptation and emissions reduction.
Locally, British Columbia adopted the Climate Action Plan and the City of Vancouver created a net-zero energy policy – a first for a North American city – with buildings to achieve net-zero energy by 2030. With these new regulations, governments are demonstrating their commitment to tackling climate change.
The good news? There’s a strong business case for real estate companies to undergo the necessary retooling to comply with the Paris Agreement – including greater efficiencies, cost savings and an improved corporate performance and bottom line. As investors are increasingly asking for significant information about environmental, social and governance (ESG) performance, industry-leading companies are developing and implementing ESG strategies to transform their potential risks into opportunities.
Those companies who are at the forefront, with the strategic and exponential mindset required to respond to the new climate reality, will be more successful than those who are pulled up from behind.
Green investment
A recent Bentall Kennedy report links sustainable real estate investment with positive financial returns, providing strong evidence that sustainable buildings outperform similar non-green buildings. Results also show that investors earn 8% to 10% higher value from sustainable-certified buildings, while tenant renewals are 5.6% higher and occupancy rates are 4% higher.
Employee retention
Along with tackling climate change, implementing an ESG strategy can help companies attract the best employees, retain them longer and stay competitive in tight markets. Considering that staff turnover costs employers anywhere from 50% to 200% of an employee’s annual salary, adopting an ESG strategy can help the overall bottom line.
Improved relations
Many cities have already adopted policies to help strengthen their energy and carbon standards for new and existing buildings. Adopting your own strategy demonstrates your company’s commitment to addressing these goals, creating opportunities to strengthen relationships with local policy-makers.
Operational cost savings
A sound ESG strategy is guaranteed to reduce your requirements and costs for electricity, water, heating and ventilation. The Urban Land Institute’s Greenprints program, implemented by property owners across 39 countries and 5,400 properties, found operating costs were reduced by 13% for energy and water through improved ESG practices.
First steps
A comprehensive ESG strategy is a critical framework to help companies retool to turn the risks into opportunities in addressing climate change. For real estate companies, the first priority of the ESG strategy is to conduct an audit of the risk exposure for their assets, and the capabilities and expectations of their investors.
An ESG strategy can help your company minimize risk in this new climate reality, find your competitive advantage and improve overall performance. Companies that successfully navigate change are the ones that adopt those changes faster than their competition, customers and industry. These changes are inevitable and the response can unlock new value.•
Carla Guerrera is principal of Purpose Driven – Planning, Strategy and Development (www.purposedrivenroi.com) and a winner of Business in Vancouver’s Forty under 40 award.
