Sustainability isn’t just about decarbonization

With the 2050 deadline forv the Paris Agreement fast approaching, and with real estate responsible for around 40 percent of global greenhouse emissions, it is not surprising that decarbonization has become the primary concern for investors and managers. However, sustainability is a much broader topic, and there is more to environmental, social and governance best practice than reducing energy use.

Even within the broad remit of environmental sustainability, topics such as water use, waste and materials recycling, and biodiversity are important additional factors.

Water conservation is important throughout the world, but even more so in cities and regions where water supplies are stressed. Measures to conserve and recycle water are considered as part of most green building certification schemes and so are widely used by ESG-conscious developers and investors. However, relatively few projects make good use of rainwater and grey water, for example by using it to boost greenery onsite.

Waste reduction and recycling is sometimes glossed over because asset owners need tenant help to track it and because recycling of waste is not mandated in many cities. However, asset owners can make a difference: for example, providing adequate drinking water in offices reduces the use of plastic. Collaboration with tenants can boost efforts in this regard.

Recycling also feeds into the wider concept of circularity, in which resources are constantly re-used, rather than being discarded when finished with. Circularity, as well as reducing waste, aligns with the real estate industry’s recent focus on embodied carbon. Re-using materials – and indeed buildings – can drive a significant reduction in lifetime emissions.
More neglected is biodiversity, the variability among living organisms, including diversity within species, between species and of ecosystems. It represents a significant global resource, but has suffered due to the environmental pressures caused by humankind, such as habitat loss, pollution and climate change.

Biodiversity is becoming a greater focus for real estate investors, thanks to greater awareness of the benefits of biodiverse green space and to increasing regulation. More and more developers are building projects billed as biophilic – designed to connect with nature.
Meanwhile, the UK has introduced the concept of biodiversity net gain, which is now a requirement for larger real estate developments. Developers now need to prove that they have enhanced biodiversity, for example by planting a wider range of trees or by creating environments that attract and harbor a wider range of animal life.

Andy Haigh, director, climate positive solutions at sustainable neighborhood specialist Grosvenor Property UK, says: “Biodiversity loss is the other great crisis, and it doesn’t just affect rural areas. Urban biodiversity is also in decline, and supply chains have far-reaching environmental impacts on the natural world. As a sector, we all need to work far harder to mitigate our impact and help restore nature.”

Social climber

The S in ESG is becoming a greater focus for real estate investors and managers – in response to stakeholder pressure, rather than regulation. Social sustainability sometimes causes headaches because it is not always easy to measure and report progress.

However, Cristina Garcia-Peri, head of corporate development and strategy at Madrid-based manager Azora, says: “Because of our long-standing focus on residential strategies, we are very aware of the impact that our investments can have in the community.”

She also makes the point that ESG measures cannot be considered truly sustainable if they work to exclude people and businesses. Energy targets and other measures must not “negatively impact tenants by pricing them out of upgraded ESG assets. We should be careful not to build an ESG economy which is affordable only for the rich.

“We need to cater for the whole community, and this will require nuances that cater for a wide mix of tenants. In some cases, this may also require exceptions, a longer calendar and, potentially, subsidies and support from the public sector.”

“[‘Social value’] disguises the greater failings of the built environment sector to properly contribute to creating a fair society”

Dixon
Aviva Investors

There is an increasing move among real estate investors to address underserved markets such as affordable and retirement housing. Affordable housing is a hot topic everywhere in the world.

Even in a less land-constrained market like the US, there is a shortage of 7.3 million affordable housing units, according to the non-profit National Low Income Housing Coalition. Managers including Aviva, Azora, Blackstone Group, PGIM Real Estate and Nuveen Real Estate have targeted affordable housing.

While real estate companies have been working to improve diversity and inclusion within their businesses, these considerations are less often factored into the development and management of real estate itself. However, asset owners are finding that opening up assets to the community – via “private public space,” for example – are widening the appeal of their assets.

At the heart of social sustainability measures is the acknowledgement that real estate owners have responsibility toward communities in which their assets are located. Ed Dixon, head of responsible investment at Aviva Investors, points out that the benefits of real estate tend to accrue to the wealthy minority and perpetuate income inequality.

“This is a market failure,” says Dixon, “and it should be corrected through responsible management of supply chains, engagement with local authorities to develop sustainable developments, and community involvement in those projects. We might have referred to such topics as ‘social value,’ but that is something of a euphemism, which disguises the greater failings of the built environment sector to properly contribute to creating a fair society.”