The world is currently grappling with sustainability issues relating to climate change, income inequality, and social justice (UNDP, 2015). The role of real estate in combating these issues is becoming more profound owing to its vast resources and industry stakeholders demanding more transparency on how companies interact within the social environment where they operate. The current trend has seen businesses pursue a profit motive and become good corporate citizens. Modern companies also look to environmental, social, and governances(ESG)to determine their long-term valuation, especially for global companies (Bolden, 2020).
According to scientists, all countries, companies, and individuals must work towards a carbon-neutral world to avoid the permanent damage of climate change. Consequently, awareness of sustainability's benefits needs to be emphasized to ensure socially responsible investments and management of the real estate from developers, owners, regulatory authorities, and financiers two degrees Celcius ( UNDP, 2015). According to the World Bank, the real estate sector must reduce its Caron emissions by 40% by 2030 to help the world meet its target of reducing global temperatures to 2°c according to the Paris Climate Agreement. If the targets are not met, global increases in temperatures will increase drastically in the coming years, with irreversible damage to the Earth's ecosystem (UNDP, 2015). Sustainability pertains to using resources to meet current needs without negatively impeding future generations' ability to meet their needs.
Real estate construction accounts for 40% of global greenhouse gas emissions, which has seen governments, companies, and investors reign in on their operations to meet the carbon reduction goals toward a carbon-neutral (Bolden, 2020). In New York, the local government has established a public-private partnership targeting a 30% reduction of greenhouse gas emissions in commercial buildings as the city transitions to an 80% reduction of greenhouse gases by 2050 (Bolden, 2020). Some of the strategies employed by developers include reducing greenhouse gas emissions and focusing on energy use reduction, operational efficiency, and extension of the buildings' useful life. Some of the interventions proposed include using renewable sources, innovative technology to control energy consumption, water recycling, and limiting the amount of water used (McCandless, 2021).
As part of their corporate social responsibility, real estate companies focus on community programs such as disaster relief and preparedness, provision of affordable housing, talent development programs, and support for local suppliers. The company employees are directly involved in the programs that increase job satisfaction and loyalty to the company. The interventions from the companies have increased their public image leading to increased profits, reduced employee turnover, and attracting human resource talent. The employees of real estate and construction firms are an essential asset for the companies. As part of their sustainability efforts, companies are increasing their investment toward employee health, maternity and paternity leave, sharing options, and counseling for their mental well-being (Bolden, 2020). The interventions have increased the company's overall performance, contributed to transparency, and increased employee retention.
Many real estate companies adopt sustainability reporting as their investor and public reporting and disclosures. The aspects reported include energy conservation, Greenhouse gas emissions, waste management protocols, and diversity of their employees (McCandless, 2021). Additionally, the companies participate in external assessments of their sustainability performance, including the Global ReportingInitiative, Energy Star, LEED (North America, Asia), BREEAM (worldwide, especially UK), HQE (especially France), DGNB (especially Germany), and CASBEE (especially Japan) to benchmark and celebrate exemplary leadership in sustainability ( Bolden, 2020). The standards are designed to help investors by encouraging comparable, consistent, and financial reporting, enabling investors to make better investment and voting decisions. Key disclosure topics include energy management, water management, management of tenant sustainability impacts, and climate change adaptation.
The real estate industry has not had a standard certification or reporting system, which has complicated the valuation of various sustainability efforts and benchmarking against presumed industry leaders (McCandless, 2021). In the absence of one entirely uniform certification system, it is still challenging to measure, standardize and compare the monetary valuation of sustainability aspects. In 2018, the real estate industry reached a significant milestone when the sustainability accounting standards board ratified standards to standardize sustainable goals and communication to investors and stakeholders.
Real estate investors' major challenge has been the lack of a clear relationship between investing in sustainable developments(which is very costly) and the net value derived. However, current studies have shown that properties incorporating green features and sustainability strategies command higher rental incomes, lower operational costs, and lower vacancy rates. Real estate financiers are also moving towards funding sustainable buildings and living spaces. An example is US-based real estate investment trusts (REITs) which have issued more than $3 billion in green bonds since 2018 on new and old projects that have contributed to environmental conservation and climate change reduction innovations ( RIC, 2022). The venture has attracted more than $100 billion as investors' preferences shifted toward green bonds over common bonds ( Ibid). Another sustainable trend in the construction industry is the demand for building sustainable and energy-efficient structures. Real estate environmentally conscious clients have options for rooftop solar panels, innovative home technology, water conservation systems, and LED lighting (Bolden, 2020). Several countries have developed zero energy buildings to combat unsustainable energy use and reduce the environmental's negative impacts (McCandless, 2021).
In conclusion, as the world moves toward carbon neutrality, real estate should also participate in reducing the adverse climate change effects of its operations and the pursuit of sustainable business models. Sustainable real estate will also help investors and real estate managers analyze project performances regarding energy conservation, water use, and sustainability impacts of developments on tenants and adopt climate change combating strategies.
Reference
Bolden, K. (2020). Four pillars impacting sustainable sustainability in real estate. [online] Ernst & Young. Available at: https://www.ey.com/en_us/real-estate-hospitality-construction/four-pillars-impacting-sustainable-sustainability-in-real-estate.
McCandless, M.E. (2021). Top 10 Sustainability Topics For Real Estate in 2021. [online] Facility Executive - Creating Intelligent Buildings. Available at: https://facilityexecutive.com/2021/01/top-10-sustainability-topics-for-real-estate-in-2021/.
RIC (2021). WORLD BUILD ENVIRONMENT FORUM. [online] Rics.org. Available at: https://www.rics.org/zh/wbef/megatrends/natural-environment/sustainable-investment-in-real-estate/.
UNDP. (2015). Sustainable Development Goals. Sustainable Development Goals. https://www.undp.org/sustainable-development-goals
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