Real estate has the chance to go from environmental sinner to saviour

Environment, Social and Governance (ESG) is a hot topic at the moment, with the term widely bandied around the real estate industry as a core feature to the future of development. Whilst ESG is being rightly recognised as critical to creating long-term real estate value and all three elements are important, it is perhaps the ‘E’ component – environmental – which is most critical. Scientists the world over agree, climate change poses an imminent and existential threat to humanity. Carbon emissions are the main catalyst and unfortunately, real estate is a major contributor to the problem.

But with the right approach, it could be a key part of the solution, too.

The challenge is daunting

Real estate is a major emitter, accounting for around 40% of global greenhouse gas emissions, according to the UN. Around three-quarters of this comes through building operation – heating, cooling, lighting and so on – and one-quarter from embodied carbon in the materials and construction process.

These astounding figures show the scale of the challenge we face. It also shows the size of the rewards on offer if we as an industry embrace this challenge. Few other industries offer the potential to influence positive environmental outcomes as directly as real estate does.

With so much at stake, the role of real estate investors, landlords, policymakers and occupiers as responsible stewards of the land has never been more important. Each and every one of us in the industry has a starring role to play.

Operational performance: Asset-specific solutions

Modern technology enables new buildings to be highly operationally efficient. Rainwater and greywater harvesting can lower freshwater requirements. Smart sensors ensure lights and equipment are off unless actively needed, whilst on-site renewables can power internal operations without drawing from the energy grid. Green roofs and clever design can assist to optimise the internal environment without needing intervention to heat, cool or ventilate the building.

That is all very well for new developments, but the majority of real estate already exists. It is much harder, and more expensive, to drive operational efficiencies in standing investments which are in active use. Many older buildings in particular are extremely energy inefficient and power hungry. It is improving the efficiency of existing built stock that is necessary to deliver truly impactful environmental benefits. As every piece of real estate and every occupier is unique, this will require an individual solution tailored towards each property.

• Upgrade Hvac – A/C
• Incentive – save money over time
• Incentive – landlords of older buildings, gov and blue chip tenants unless it has a minimum NABERs rating – limiting tenant pool

Materials & construction: Innovation is key

The good news is, the pace of evolution in material and construction techniques has been impressive. Computer generated design has reduced the demand for material prototypes and maximises site efficiency. Modular off-site construction allows for quicker development, fewer associated traffic or noise pollutants and fewer mistakes. Sustainably sourced wooden materials not only enhance internal building environments but also yield a net positive carbon benefit. New types of concrete – traditionally a major emissions source due to its energy-intense construction process – are even under development, designed to absorb more carbon than they emit.

Each of these innovative steps compounding to a greater overall result for environmental progress.

This is great news for the environment, but faster innovation is needed. Best-practice experience must be shared more widely. Investors and landlords may need stronger incentives like taxation, development permission, rebates, grants or other government-led approaches to ensure environmental outcomes are weighted as heavily as financials.

However, the bulk of real estate emissions come from other sources, so material and construction innovation can only do so much.

Intensification: Doing more with less

The simplest way of reducing the negative environmental impacts of real estate and to create greater benefits may simply be to do more with less. Brownfield sites and the buildings which already exist on them should be maintained as long as possible without the need for refurbishment or demolition. Reduce, reuse, recycle has long been a mantra for climate-conscious consumers and the real estate industry should adopt this too. Buildings should be designed and used for the long-term – far longer than the traditional 25 to 30-year lifespans.

Maximising the unrealised potential of existing buildings lowers the demand for new land or construction elsewhere. Investors, landlords and occupiers should work together to deliver incremental operational efficiencies in each property, which together create meaningful change. Flexible, adaptable buildings which can be recalibrated easily over time as occupier demand shifts will be immensely valuable.

Opportunity: An irrefutable imperative

Real estate has a formidable challenge ahead to mitigate its sizable environmental impacts. In taking on this challenge it has an unprecedented opportunity to make a meaningful impact on one of the most pressing issues facing humanity – the climate crisis. Getting it right is a moral imperative but it makes good business sense, too. Land supply will be more constrained in the future and development increasingly difficult, benefiting investors and landlords who own existing stock. More operationally efficient buildings lower the utility bills of resident or business occupiers alike.

The real estate industry literally builds cities and regions. With a greater concentration on reducing our impact through innovation and the vision to implement smart solutions that do more with less, we can build the future Australia needs.

And with an increasing appetite in the market for more environmentally robust structures – and customers with the willingness to pay – what’s not to like?