Environmental, social and economic factors are integral to creating and sustaining value, as well as managing risk, says Josh McHutchison, managing director, Lendlease Investment Management, Australia. The Sydney-headquartered developer and property investment manager has long been an advocate of responsible investing. But, with its latest developments, such as Barangaroo South in Sydney, the firm is moving from the creation of sustainable buildings to what McHutchison calls “sustainable precincts.” He tells PERE how these projects are using environmental and social best practices to create long term value.
PERE: How did you first decide how you would approach responsible property investing?
Josh McHutchison: In 2007, we were the first global property fund manager to become a signatory to the PRI (Principles for Responsible Investment), and very soon after we came out with our first responsible property investment policy, which basically set the scene for our unlisted funds management platform.
That policy calls for a number of things, including factoring environmental, social and corporate governance (ESG) into all of our investment decision-making. It calls for every fund we manage to have a sustainability strategy that is the responsibility of the fund managers and is part of their deliverables.
Added to this we follow a very comprehensive due diligence checklist, with specific sections on health and safety, and sustainability, which we run through on every acquisition. Sustainability is a key factor in decision-making, not only whether we proceed, but the price we offer and upgrades needed to meet our sustainability standards and goals.
PERE: What do you consider to be the key environmental concerns in property investing?
JM: Our focus is on efficiency, to make the assets operate as efficiently as possible. Lendlease’s development at Barangaroo South targets carbon neutrality and water positivity and zero waste to landfill by 2020. Once you have those commitments in place that gives you a clear design goal.
We’re proud that at Barangaroo we’ve achieved 20 percent reduction in the carbon intensity of building materials used for the project, 99 percent of construction waste is being recycled, and we have included 6,000 square meters of solar panels. We also have a cooling system that uses Sydney Harbor rather than cooling towers as a water source, on-site water treatment and waste recycling service. We are generating renewable energy through solar PV on site, which will be enough to offset the carbon emissions arising from the public area lighting and the recycled water plant.
All of these initiatives drive operational efficiency. We also invest in our people to get the best outcomes – we have a sustainability team and train operators of the assets to understand what makes the building efficient and how to maintain that efficiency. Tenants are also critical to this success. We work with them on how they use their space – changing air-conditioning settings just two degrees warmer in summer and two degrees cooler in winter to save energy, using recycled water for flushing toilets through to irrigation, and ensuring retailers and suppliers avoid packaging, reduce waste and offer healthy food choices from locally and sustainably produced food.
Our sustainability focus is also about future-proofing. We believe that climate change may present a long-term risk to our assets and, on this basis, we completed a comprehensive climate change resilience assessment before we put this precinct together. As a result, the whole precinct was raised by 900 millimeters to cater for future storm surges and sea level rises and the storm water of the local area was re-designed to account for future climatic conditions.
PERE: What about in terms of social considerations?
JM: Another critical aspect of responsible investment is social sustainability. We are extremely focused on our customers, be it residents who live in these precincts or clients who will work or play there. We want to ensure we are aware of what creates the most vibrant precinct. For instance, just over 50 percent of Barangaroo will be dedicated public space, including a 2.2 kilometer foreshore walk and the vibrant, naturalistic Barangaroo Reserve.
There is also an increased focus on human health and wellbeing. We consider the amount and quality of fresh air that goes through a building, daylight availability and glare control, thermal comfort and avoid internal sources of air pollution. We use the National Australian Built Environment Rating System (NABERS) Indoor Environment rating tool which rates the space inside our buildings. At Barangaroo South, we implemented design for dignity guidelines that were created which go beyond code in terms of providing disability access.
Beyond that we believe it is important to foster community and the Barangaroo South Community Partnership is an important way of bringing together organizations in the precinct, with a shared vision for a sustainable and inclusive community.
There are also initiatives like the Barangaroo Skills Exchange, which is a learning hub situated adjacent to the Barangaroo South construction site. It was established to provide the thousands of construction workers on site with nationally recognized training programs. This has resulted in many workers being more qualified than when they first started working at Barangaroo.
PERE: And how do you know exactly what tenants, occupiers and investors want with regards to ESG?
JM: Before we develop a precinct we undertake a comprehensive process with our potential future tenant customers to make sure we understand their needs. This covers a range of sustainability innovations like flexible floorplates, to create flexibility and drive desired workplace behaviours, proximity to transport, access to natural light and open space, and high quality end of trip facilities, which provide the flexibility to travel actively to work. Once complete, we undertake annual tenant surveys to gauge satisfaction.
Sustainable world-leading workplaces provide our tenant customers a way to attract and retain the best global talent – a key consideration for any thriving business.
It’s also clear that investors demand ongoing excellence in this space. Approximately 68 per cent of the equity invested with our funds is from investors with public commitments to responsible investment practices. Our outstanding performance in the annual GRESB survey is the proof point our investors are looking for.
PERE: Where to next?
JM: Large urban regeneration projects like Barangaroo South provide the opportunity for us to deliver ambitious sustainability goals which are best achieved when identified right from the outset.
This is a key reason why Lendlease has a strategy to focus on urban regeneration in global gateway cities – and with a global development pipeline of close to A$50 billion (predominantly in urban regeneration projects) we have a unique position to deliver lasting sustainable legacies to many great cities around the world.
The urban regeneration projects we are now delivering in Singapore, Malaysia and London have built on years of developing highly sustainable buildings. The lessons that we learnt at Barangaroo South are also being applied.
We obviously couldn’t achieve this without having the extensive support of our investment partners which share in our vision to create highly sustainable assets which will stand the test of time.