Investors Call on Real Estate Industry to Step up Sustainability Practices

The real estate industry, like others, is being summoned to accelerate its sustainability practices, especially as investors pay attention to potential impact of climate risks on asset value. With that awareness, they are calling on the industry to not only deliver more resilient assets, but to leverage return on investments (ROI) generated from sustainability practices to strengthen their businesses.

In this Q&A, Breana Wheeler, US director of Operations for BREEAM, discusses the company’s platform to help inform sustainability decisions across real estate sectors. BREEAM is a science-based standard supporting the benchmarking and certification of building sustainability performance. 

Wheeler goes on to discuss challenges in achieving sustainability that are unique to the real estate industry. She shares her take on what “thoughtfully executed” sustainability efforts can deliver in terms of value for assets and other stakeholders. And she touches on just what investors are looking for.

Waste360: Tell us about BREEAM’s standard around building sustainability and what you considered in developing it.

Wheeler: The standard is developed and maintained by the Building Research Establishment (BRE), a profit-for-purpose organization with over 100 years of building science and research expertise.

BREEAM’s sustainable building standards have helped improve asset performance at every stage — from design and construction through use and renovation.

While most building certification systems are developed through consensus and utilize self-reporting practices, BREEAM standards are developed using the best building science available. Performance benchmarks are created based on research into the sustainable built environment.

Waste360: How does BREEAM measure performance?

Wheeler: BREEAM measures performance through nine categories, such as Energy (carbon emissions per square foot), [Tenant] Health and Wellbeing (ventilation rates and requirements, acoustic levels), Resilience (physical risk assessments with climate change scenarios incorporated), Water, Pollution, and more.

Our standards measure building performance using metrics such as renewable energy generation capacity, proximity to public transport, local air quality, natural hazards risk assessment, etc. These are used to understand how assets are contributing to climate change and other environmental, social, and governance (ESG) issues.

Waste360: How do you support the real estate industry in its sustainability work?

Wheeler: BREEAM methodology considers sustainability performance across the full asset life cycle. So, whether the asset is being designed, built, operated, or renovated, BREEAM provides owners and managers actionable insights to better understand the asset’s performance to inform sustainable decision-making.

Waste360: What are some sustainability issues unique to the real estate industry?  

Wheeler: Each sector within real estate brings unique challenges. 

Industrial assets, for example, are typically triple-net leased, which means the tenants are responsible for all asset costs. Any upgrades to the facilities relating to sustainability and/or energy efficiency benefit the tenant but not necessarily the owner. Additionally, owners don’t have access to data that could inform them on how the asset is operating or have any control over improving the performance.  This creates an opportunity for owners/landlords to collaborate with tenants to reduce environmental impact while lowering the cost of sustainability initiatives – for example, identifying projects where both parties could benefit from the investment and share costs.

Now let’s look at multifamily as another example: the challenge with this sector is similar, but in this case, we’re talking about peoples’ homes, and there are many more individuals to engage with as opposed to what may be one representative in the industrial sector.

With multifamily, each resident unit needs to be engaged with and there may be hundreds of individuals. Another consideration: obtaining tenant consent for data sharing brings with it a whole other set of challenges.

Waste360: Who is calling on the industry to respond?

Wheeler: Stakeholders from across the sector have been increasingly vocal about growing ESG demands and expectations. Leading the charge are global investors. As awareness around the potential impact of climate risks on asset value has risen within the investor community, these stakeholders are calling on building owners and operators to deliver more resilient assets that protect the long-term value of assets while leveraging the short-term ROI offered through new sustainable initiatives and incentives.

There is great financial opportunity in facilitating a more equitable, sustainable, and decarbonized future, and investors are looking for real estate companies pursuing strategies to address climate change risks while maintaining competitiveness in global markets.

The traditional “bottom-up” demand coming from tenants who want to work and live in more sustainable buildings has remained strong — especially as more socially-driven tenants from the Millennial and Gen Z audience have a growing voice in the conversation.

Additionally, while in the past renters and tenants have understood climate change more conceptually, we are now seeing the impact play out in real time. Even just in the past several weeks facing Hurricane Ian, it is clear that the worsening climate risk is no longer abstract. 

Waste360: What are the challenges in addressing these issues?

Wheeler: One roadblock has been the view that sustainability is only for a certain sector or class of assets. At BREEAM, we have worked actively to change this narrative and to communicate that thoughtfully executed sustainability efforts can deliver significant short- and long-term value for assets and stakeholders of all types. 

Another key issue is data. Lack of data means making assumptions that may not be true. Poor-quality data can lead to erroneous conclusions and incorrect choices. Either or both of these also present a risk for companies who are disclosing their performance.

BREEAM certification requires data be verified by an assessor through an on-site visit, providing confidence to the asset owner about the quality of the data informing business decision-making and managing the risk to the organization.

Further, as greenwashing has been a principal concern — especially as it pertains to benchmarking and reporting — we have encouraged clients to tell their stories transparently, and to not be afraid that their buildings may not always be the most picturesque or sustainable. The key is to focus on progress and to emphasize learnings for future reference. We don’t let perfection become the enemy of progress.   

Waste360: Who in real estate is stepping up to demands that they become more sustainable?

Wheeler: Owners and operators across the sector have stepped up in response to the demand for more sustainable building performance. The number of BREEAM-certified assets in the US more than doubled in 2021, and as we near the end of 2022 we are on par to achieve even greater growth. These are growing fastest in the industrial sector, which has been pivoting to meet the demands of their investors for them to manage climate-related risks. The next step will be for organizations to treat climate change as an opportunity and embrace decarbonization to capture additional value.

Waste360: Where does the industry fall short, and what needs to happen to fill the gap?

Wheeler: The relentless pursuit of operational efficiency and serious consideration of an impactful, portfolio-wide net-zero carbon strategy still needs to be done. 

The scale of change required to prevent more than 1.5 Celsius degrees of global warming — a climate goal outlined within the Paris Agreement — remains massive. Miniscule reductions of carbon emissions will not spur lasting change and cannot be deemed acceptable by companies and investors if we want to achieve meaningful carbon reductions.

With this in mind, the focus needs to be on “zero” rather than “net”— buildings can fully decarbonize with existing technology, and the “net” needs to be saved for the parts of the economy that don’t have any alternatives and need time to develop technologies or solutions that address their unique needs.