The Major ESG Opportunities for Commercial Property Development
In commercial property ESG presents a major opportunity to meet the growing expectation of investors for cleaner, greener, more socially conscious and well-governed investments, according to Damien Connell, Principal: Circular Economy at boutique consulting firm, Ratio Consultants.
Speaking at a recent Property Funds Association of Australia Masterclass, Connell said each ESG challenge also provides enormous opportunity for the property and development industry. “We know buildings account for a large percentage of carbon emissions, around a quarter of our emissions, but many buildings nowadays also provide some of the lowest cost carbon emissions opportunities.
“Many of these buildings are achieving this with Green Star and NABERS ratings. This is a positive start but there is still much to accomplish and more we can ask of the sector in terms of compliance and demand from investors.”
Connell named four major ESG challenges which provide the most opportunity for commercial property developments.
Social Impact
The Australian property sector has a significant workforce and far-reaching supply chains. “We know social impacts are difficult to measure or quantify. I would question whether supply chains are being analysed as much as they could be.
“There is an opportunity to investigate our supply chains. We’re starting to implement simple measures that can achieve social impact from investing in procurement from Indigenous businesses and social enterprises through to ensuring our contracts include clauses to guarantee modern slavery practices are not part of the supply chain. There is also great opportunity to explore ways we can measure and improve social impact as part of our reporting practices.”
Materials and the Circular Economy
Materials provide huge scope for improvement via the circular economy, with opportunities to re-use and repurpose growing in popularity as an industry best practise. “Adopting a circular economy approach is one way to reduce supply chain bottlenecks.
“We know construction and demolition accounts for about 40% of total waste with all the embodied emissions that become lost and regenerated through virgin material use. But we know innovation is starting to look at these circular solutions and ways to design and deconstruct new buildings. We need to better measure embodied carbon and to link these impacts to the building space.”
Governance and Improved Transparency
Governance has a huge impact on the decisions which impact the environmental and social performance of commercial property development. “There is an opportunity to operate with more transparency. Some important governance factors include establishing shadow price for carbon and ecological services.
“We don’t have a carbon price at present but we know, at some point, it will likely be implemented so preparing for these prescribed measures puts us in a much better position. Embracing corporate transparency makes for better investments and is key for attracting local and offshore capital.”
Reporting
Mandatory climate-relating financial reporting is being introduced from 2025. “The trajectory for ESG reporting is ratcheting up, with an emphasis on environmental sustainability as well as financial metrics for investment.
“But even those who do not need to report right away there is opportunity to put the systems in place to measure environmental performance and get ahead of the curve.”
While reporting demands are on the rise, Australian commercial buildings are well placed to meet reporting targets. “There have been years of environmental reporting in place in our national industry. Over 90% of properties have net zero targets by 2030 or earlier, so that’s worth celebrating.”
In Summary
Ensuring ESG practices are followed removes a degree of risk from your future investments. ESG practices are gaining significant attention across the globe and are viewed as mandatory requirement for many international investors. ESG practices often enhance property investments but can be overstated from a regulatory compliance standpoint. It is recommended to seek out expert advice if you wish to know more about the ESG status of your current or future property investments under consideration.
For more information visit: Ratio Consultants
Please contact pfa@propertyfunds.org.au with any questions.