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Sustainability Soars Up Corporate Agenda Real Estate Provides Natural Platform for New Priorities
November, 2008
By Richard Kadzis
Recent research shows sustainability as one of the fastest rising issues ever placed on the corporate agenda, and corporate real estate executives have increasingly adopted the tenets of the triple bottom line. This was conceptualized in the Corporate Real Estate 2010 (CoRE 2010) report - a major research project that the international association, CoreNet Global, released in 2004 - as People, Planet and Profit.
Now, follow-up findings from CoreNet Global's inaugural State of the Industry Report, 2007/2008, reveal an intensified focus on sustainability with a dramatic shift to issues like the price the oil, energy use, global warming, reducing carbon emissions, carbon credits and carbon regulation.
In the popular sense, sustainability equates to the 'planet' piece of the triple bottom line. The 'people' aspect is often addressed through workplace, location and community reinvestment practices, while the 'profit' driver has always been an essential component of corporate real estate. Within the triple bottom line, it is tied to affordability and return on investment.
From a corporate real estate standpoint, energy prices and carbon emissions are the two big issues to emerge over the past two years. Sustainability is now a business driver and, by extension, a fast-rising part of the global corporate agenda. However, the sustainability focus differs from one global region to another.
In Canada, Europe and Australia the focus leans toward reducing carbon emissions - going beyond buildings to commuting and other ways of reducing individuals' personal footprints. Government regulation is a primary driver in these jurisdictions.
In the United States, in contrast, the focus has been more on energy prices and managing use. Meanwhile, Asia's focus is on resources. In China, that's construction materials; in India, it's water.
LEVERAGING ENERGY FOR A LEADERSHIP ROLE
Reducing energy costs, consumption and emissions are viewed as a prime leadership opportunity for corporate real estate. Commercial buildings account for 40% of all energy consumption so it is logical that the real estate sector should drive the agenda. The widespread global understanding of the importance of sustainability is no doubt reinforced by evidence that it costs less than many decision makers once thought and return on investment tends to come sooner.
A 2007 survey of sustainability perceptions and trends in the corporate real estate industry identified the following themes:
( Energy efficiency is growing in importance, but corporations don't have the management structures in place yet to realize improvement effectively.
( The responsibility for energy efficiency is given to facility managers.
( Fewer than half of surveyed corporations have energy policies or consumption targets in place, and fewer have active energy management systems that track data, identify problem areas and help managers react to needs.
( While most corporate players recognize the importance of energy efficiency, they do not recognize the risk of inaction, nor the ease with which effective energy management programs can be enacted.
( Most barriers are just perceived barriers that can be easily and profitably overcome with smart design, integrated solutions, the right management structure and the appropriate implementation strategy.
In the future, it's projected that the value of non-sustainable properties will decrease, while a green building's value increases by at least 10%. It's also anticipated that green leases will be commonplace and regulatory requirements in North America will begin to catch up with Europe.
Sustainability includes, but goes beyond energy management and green buildings, extending across the supply chain supporting corporate real estate. Within the broader corporate context, a new senior position - Chief Sustainability Officer or CSO - is emerging, and corporate real estate has a key opportunity to play a partnership role, especially through its leadership in energy management. Plus, corporate real estate executives already drive community reinvestment, location strategies, workplace practices, life cycle asset management, supply chain, construction, development and other functions that are part of the sustainability and social responsibility spectrum.
INDUSTRY LEADERS IDENTIFY OPPORTUNITIES
The firm linkage of profit to people and planet - mainly through energy management related issues - has indeed helped corporations rationalize the business case for sustainability. Yet, there are still gaps in perception to close and, thus, even broader adoption and wider practice levels to attain. There's a higher awareness of the value and a willingness to pay more, but the actual cost of sustainability is perceived as being higher, as is the cost of access to the so-called green supply chain.
Observations from an industry leaders' roundtable discussion reinforce that sustainability has quickly become embedded as an accepted business practice within the global enterprise. There is a growing level of acceptance of practices that point to a larger application of sustainability as a continuum, or as a holistic supply chain practice.
Roundtable participants identified several leading-edge energy practices that have been or could be implemented in their corporate real estate portfolios. Including:
( carbon footprint reduction
( sun/solar generation
( wind farms
( hydrogen fuel cell generation
( re-engineered buildings
( automated lighting control
( space allocation/utilization
( flexible workplace strategies, such as mobility
( public transit proximity/access
( grey water for irrigation, cooling, flushing
( green and white rooftops
( carbon and energy offsets
Other identified green practices with the corporate real estate function include recycling, material reuse and travel demand management. Roundtable participants noted that the desire and ability to develop sustainability within a portfolio differs depending on whether space is leased or owned. Ultimately, they noted that reducing space and the size of the portfolio would have the biggest impact on ROI and affect all other aspects of the business.
Roundtable participants also pointed to some notable shifts in values as corporations increasingly make public statements about carbon footprints and sustainability. In some cases funding for sustainability is coming out of marketing budgets with a new reordering of priorities to long-term cost-benefit value versus big-ticket advertising tied to spectacles. New employees graduating from universities and colleges are similarly factoring non-traditional and non-monetary priorities like sustainability into their employment choices.
Richard Kadzis is Director, Special Projects, with CoreNet Global, an international association of leading corporate real estate and workplace executives. The preceding is an excerpt from its State of the Industry Report, 2007/2008. For more information see the web site at www.corenetglobal.org.
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