How real estate can build a more sustainable future

Wednesday, 25 September 2024

The built environment contributes 20% of the country’s carbon emissions.

Successive governments have done nothing to address the climate change emergency in the building space, but introducing two simple policies would make a huge impact, one property expert says.

Climate change, and how to tackle it, was one of the big issues at the recent Responsible Investment Association of Australasia conference in Auckland.

While commercial real estate might not be the sector that springs to mind on the environmental, social and governance (ESG) front, the built environment contributes 20% of the country’s carbon emissions.

Investors are increasingly aware of their influence on the impact of real estate assets and that is why the conference featured a panel on what the real estate industry is doing to improve ESG outcomes.

The panel featured representatives from Property for Industry, Goodman Property Trust, Argosy Property and Precinct Properties, some of the country's biggest real estate companies.

Argosy Property chief executive Peter Mence says governments have done nothing around climate change requirements for buildings.

They talked of how their companies were reducing carbon emissions in new builds, reusing existing buildings to better fit sustainability goals and improving energy efficiency.

Considerations around biodiversity and weather resilience, and the benefits of working to green building standards and ratings, particularly when applicable across asset classes, were also discussed.

But one panelist, Peter Mence, chief executive of NZX listed commercial property landlord Argosy Property Limited, threw down the gauntlet to the Government.

Successive governments of all colours had “let the country down shamefully” in the building space with lots of “ifs and maybes” about what was required, and there had been a lot of confusion as a result, he said.

“We had a bit of an earthquake issue so you got 25 years to correct those buildings that are deemed to be seismically prone. We then declared a climate change emergency, and we did nothing.

“There are so many easy, simple things that could be achieved, but there are two real simple ones that could be done at virtually no cost and which could happen overnight.”

The first was to put the Green Building Council’s set of rules, which would enable the mandatory rating of buildings, up there with the building warrant of fitness at the front of every building, he said.

Commerical property tenants and investors are interested in ESG matters when it comes to buildings.

“So how does that building perform? We do know that if we don’t measure it we won’t manage it.”

The second was to remove the “basic idiotic impediments” to any property owner in installing solar panels, which would be easy and could happen overnight, he said.

“When you are sitting with solar panels on your building, if you are sending that power back to the grid you are only getting about 50% of what they are going to charge you to sell it back to your own tenant when it doesn’t actually leave the site.

“So if you were to abolish the line charge and increase the consumption charge, bingo - solar and wind makes sense.”

Mence added that they were now getting inquiries from tenants who specifically wanted to reuse buildings, rather than having new builds, because they were worried about embodied carbon (the the amount of carbon emitted during the construction of a building).

Goodman Property Trust chief financial officer Andy Eakin said there was a range of interest from the the general population in ESG matters, and they did see it when talking to investors.

But while some investors were very focused on ESG, others remained more focused on the financial performance of the company, he said.

Eakin also had a message for the Government as he would like to see some appropriate mandatory energy and water reporting for commercial properties.

In terms of the tools available, industrial was the poor cousin in the commercial real estate world, and they were looking at voluntary public reporting and benchmarking in the industrial sector, he said.

“But having an agreed measure used for asset classes across the board, and being able to compare one property to another, would be beneficial for occupiers coming in.”

Panel moderator Shane Solly, from Harbour Asset Management, said a lot of hard, meaningful work was going on within the real estate sector, and while there was a long way to go, investors were supportive of the efforts.