A sustainable future requires long-term thinking and leadership. When it comes to doing business, it’s important to move away from short-term investment models and technological advances that come at the expense of the environment or society.
The good news for the real estate sector in this regard is that investing in greener homes and offices delivers significant financial and environmental returns, while also promoting a collective sense of wellbeing .
For many years, the argument against Environmental, Social and Governnance (ESG) investing, or the so-called “green strategy”, was that it didn’t offer enough of a return on one’s investment.
But against the backdrop of $117 billion of new green bonds launched on the US market in the first six months of 2019, and Verizon’s first green bond issue being eight times oversubscribed, it’s clear that things have changed, and for the better.
What might previously have been seen as an investment fad has become mainstream. Green securities are being snapped up by more conventional investors that want to integrate ESG principles across their portfolios, prompting companies in all sectors to take on more social and sustainable projects.
In response to tenant demands and investor requirements, BNP Paribas Real Estate Investment Management supports sustainability strategies through its Next Estate Income Funds (NEIFs), targeting office investments which achieve a ‘green label’ status.
Real estate’s environmental impact
In terms of the real estate industry, we should consider data from the World Economic Forum (WEF), which shows that buildings consume around 41 per cent of the world’s energy and contribute over 20 per cent of greenhouse gas emissions.
In 2015, BNP Paribas’s parent company became an early adopter of the United Nations’ Sustainable Development Goals (SDG) standards, aimed at “eradicating poverty in equality and justice and protecting the planet, to get human beings to live in peace and prosperity, by 2030”.
In practice, this has led to a 25 per cent reduction in carbon emissions across our real estate portfolio over the last 10 years. This progress puts the the company in strong position to achieve carbon neutrality without offsets across its core business premises by 2030.
While many real estate professionals and investors might still see the “green agenda” as a negative, there is a growing body of evidence to support the argument that green buildings make for better investments. A recent report by the London-based World Green Building Council found that those engaging in sustainable building technologies benefitted from reductions in energy consumption, greenhouse gas emission and air pollutants. Improvements to occupier wellbeing, satisfaction and productivity were also noted, as well as stronger financial returns for companies owning or occupying green buildings.
So what are ‘green’ buildings? Also known as ‘smart buildings’, they are properties with higher energy efficiency as a result of their intelligent management. This may involve power-producing and storage equipment that minimises energy consumption, through the use of software that monitors and responds to changes in environmental conditions such as temperature and light.
Green buildings also respond to “last-mile” logistical issues by accommodating and promoting cycling, the use of pooled car travel and transport hubs that endeavour to address the challenging issues of traffic, time and space.
The health and wellbeing of occupants is also seen as a factor in green building design. This can include measures relating to air quality and temperature, ready access to drinking water at desks, the provision of garden spaces and plants, as well as health centres, gyms and recreational spaces to counter stress and promote health.
Investor satisfaction
From the investor’s perspective, measures aimed towards increasing the satisfaction of occupiers can help to extend the rental lifespan and reduce the level and duration of vacancies, which ultimately increases the property’s financial performance.
A 2018 report by the UK Green Building Council identified cost savings, talent attraction and retention, brand and reputation, and occupier attraction and retention as the main drivers of added value in green developments.
Constructing a green building may cost more initially because of the materials and technology employed, but its increased lifespan will provide a better return on investment, as well as a potentially higher appraisal value, easier resale, and savings in running costs for the life of the building.
So, with all sides in the greener buildings analysis agreed on the advantages, developers, owners, investors and occupiers globally are looking to deliver even bigger and better environmentally-friendly development.
One good example of this is Stockholm Royal Seaport in Sweden, an enormous eco-district with its own ‘smart grid’, stretching across 236 hectares. It includes 12,000 homes and 600 companies which employ a total of 35,000 people between them.
In terms of energy savings, the scheme has secured a 40 per cent reduction in electricity spending, while its CO2 emissions are down by two thirds, from 4.5 tonnes per year per person to just 1.5 tonnes. The use of fossil fuels meanwhile is set to be phased out by 2030.
While Ireland is still some way away from the establishment of such a large-scale green development, several new commercial property schemes such as Ballymore and Oxley's Dublin Landings in Dublin's north docks and Iput's developments at 10 Molesworth Street and at Wilton Park in Dublin 2, are being designed to the highest international green standards.
Our financial institutions are also buying into the provision of ‘green finance’, with billions of euro earmarked for lending to suitable green development projects over the coming years.
Whether the interest in green investing is social, ethical or financial or, most likely, a combination, the consensus as to returns, from a green property investment perspective, is that ultimately it is unlikely to hurt financially.
Kenneth Rouse is managing director and head of investment at BNP Paribas Real Estate Ireland.
