Sustainability has been a focal point of businesses for more than a decade, but often companies consider it as a nice-to-have measure and for years it did not foster any major change in business practices.
The real estate industry in particular has been trying to incorporate a more holistic approach to environmental, social and governance (ESG). The impacts of climate change have already influenced real estate markets on a global scale, with 65% of investors expressing their motive for considering ESG issues to help manage investment risks, as 35% of Real Estate Investment Trusts’ (REITs) properties are exposed to climate hazards.
In fact, the World Green Building Trends report has shown that about two-thirds of owners and developers believe that green building will increase a new building’s asset value by 6% or more.
Across the board, for developers and investors, this trend creates a clear business case, there is heightened financial opportunity from the asset value of sustainable buildings. Committing to action on sustainability across all built assets makes financial sense.
Why reducing energy consumption in buildings makes financial sense
Reducing energy consumption in buildings makes financial sense, but also has a strong social and environmental impact. Having an accurate record of positive ESG performance has been proven to help real estate buildings.
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Firstly, decarbonising and digitising buildings can save businesses over 12% on energy costs. As digitalisation expands, there are opportunities to optimise energy use and decrease greenhouse gas emissions. This can be done through energy management systems, smart heating and cooling systems, and connected appliances and equipment which can improve the comfort of occupants while reducing energy use.
Secondly, low-carbon, efficient buildings and cities are more resilient to changing energy prices and demands. Every dollar invested in energy efficiency saves about two dollars in energy supply.
Thirdly, connected, technical buildings provide new and enticing jobs for the emerging workforce. The jobs created across the design, engineering, manufacturing, construction and operations industries will bolster the “green economy.” These jobs will provide practical experience in high-performance technologies, green construction and building operations.
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Lastly, intelligent (smart) buildings offer improved health and well-being of tenants. Sustainable design is not just about cost. Good smart buildings offer economic, environmental and societal benefits. Careful construction techniques can reduce the amount of construction waste that reaches landfills.
Challenges and opportunities for green finance
The primary challenge in the real estate industry when it comes to ESG standards is that the reporting landscape has constantly evolved with continual reporting methodology and framework changes.
There are also too many standards where corporates end up choosing from an “alphabet soup” selection which precludes investor comparability.
Corporate leadership will have to support the drive towards sustainability reporting as a journey in overall enterprise risk management and process refinement instead of a short-term reporting exercise to distinguish themselves in front of investors, both current and prospective.
While it is understood that at least 50% of global asset owners are currently implementing or evaluating ESG considerations in their investment strategy by 2025, the level of senior management and Board of Director buy-in is also critical. Change management will have to be driven from the top.
Industry captains within the built environment will need to rationally evaluate how they can be sufficiently forward-thinking to navigate the spectre of climate risk, the evolving requirements of ESG reporting, and the transformational effects of technology on their business models. This is to ensure adequate access to capital markets which are increasingly looking to allocate capital to green and sustainable investments.
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The need to foster eco-friendly buildings
Companies should not be deterred from going green and explore ways to decarbonise their building's footprint for a sustainable built environment.
Some of the steps include determining the baseline energy consumption, cost, and carbon emissions for a single building or an entire portfolio. There needs to be a single solution for tracking energy efficiency across a multi-use portfolio.
There also needs to be a system to benchmark against the baseline to determine the process day over day, week over week or month over month
After these steps, the journey to energy efficiency is unique for every building, site, and owner. Involving technology and data from the start makes that journey a profitable and rewarding experience for everyone involved.
Singapore and the built environment
With the implementation of the Singapore Green Plan 2030 and the Green Building Masterplan, energy efficiency and healthier buildings are increasingly prioritised.
The public is becoming more and more aware of this, and governments are imposing steep fines on energy-draining buildings.
It’s no longer good enough to make energy efficiency claims without the reports and data to back it up. The developed world is evolving, and expectations for real estate require a significant change to the current management and operation of buildings.
Technologies to reduce energy consumption already exist but are slow to be widely adopted by building owners, operators, developers, and financiers. However, with the recent spike in energy prices, increased social push for sustainability, and the global warming crisis, the cost of doing nothing increases daily.
Deb Noller is the CEO and co-founder of Switch Automation
