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ERES 2013
A FRAMEWORK FOR SUSTAINABLE REAL ESTATE
DECISION-MAKING AND ASSESSMENT
Pernille Christensen, PhD
Planning, Design & the Built Environment
Clemson University
Senior Lecturer, Property Economics & Property Development
School of the Built Environment
University of Technology, Sydney
“The environment is everything that isn’t me.”
- Albert Einstein
Empire State Building, NYC
Overview
• Literature Review & Methods Overview
• Summary of Delphi Results – 10 Lessons Learned
• Framework for Sustainable Real Estate Decision-Making
Ecological Footprint On The Planet
USA
~3.8
Australia
~ 3.2
UK
~ 2.3
World
~ 1.3
China
~ 1.0
3
WWF, 2010
Impact Of Buildings On The Planet
Buildings contribute an estimated: 40% of total carbon emissions
13% of water consumption
(IPCC, 2007)
Literature Review Overview
Sustainable Real Estate Real Estate
Investment, Development and Management
Evolution of
‘Sustainable Development’
Sustainability
Concept
Classical
Economists:
Malthus (1798),
Mill (1848),
Jevons (1865),
Marx (1875)
Early Environmental
Movement –
Olmstead,
Muir, Pinchot
20th century
Environmentalism:
Leopold (1949),
Carson (1962),
Boulding (1966),
Mishan (1967),
Ehrlich (1968)
Limits to Growth
(Club of Rome) &
Blueprint for
Survival (1972)
Sustainable
Development
Policy
UN Conference on
the Human
Environment (1972)
Sustainability
Assessment
Impacts of
Real Estate
Building the
Business Case
IPCC-4 (2007)
Miller, Spivey and
Florance (2008)
Levine (2007)
Cocoyoc
Declaration (1974 )
World Conservation
Strategy (1980)
World Commission
on Environment and
Development
(1987)
UN Earth Summit
(1992)
Kyoto Protocol
(1992)
UNEP-SBCI
(2009)
USGBC (2010)
BRE (2010)
BRE Global
(2011)
Eichholtz, Kok and
Quigley (2009,
2010)
Pivo, G. and Fisher,
J.D. (2010)
Wiley and
Benefield (2010)
Fuerst and
McAllister (2011)
Newell,
MacFarlane and
Kok (2011)
Cajias, Geiger and
Bienert (2011)
Assessment
Systems &
Costs
BREEAM, 1990
EnergyStar, 1999
LEED, 2000
Green Star, 2003
Crawley and Aho
(1999)
Criteria and
Indicators
DecisionMaking
Responsible
Property
Investment
Hak, Molden &
Dahl (2007)
Mintzberg (1983
Pivo and
McNamara (2005)
Levy and
DeFrancisco(2008)
Reed, Bilos,
Wilkinson &
Schulte (2009)
Singh, Murty,
Gupta and Dikshit
(2009)
InBuilt (2010)
* Not all literature was included in this diagram; works included have played pivotal role either in the research or as seminal works.
Elkington (1998)
Triple-Bottom Line
Lowe and Ponce
(2009)
Simons, Slob,
Holswilder &
Tukker (2001)
Pivo (2008, 2009)
UNEP-FI (2005)
Matthiessan and
Morris (2007)
Matthiessan and
Morris (2009)
Decision Making
& Implementation
Lutzkendorf and
Lorenz (2005)
Rapson, Schiers,
Roberts & Keeping
(2007)
Pivo (2007, 2008)
Ellison and Brown
(2010)
Krosinkshy and
Robins (2008)
IPF (2009)
Muldavin (2010)
Pivo (2008)
Dermisi (2009)
Sayce, Sunderberg
and Clements
(2010)
CDP (2012)
Social Investment
Forum (2010)
McCarty, Jordan
and Probst (2011)
GRI CRES (2011)
GRESB (2012)
Pivo and Fisher
(2010)
Building the Business Case - Responsible Investment
• Corporate Social Responsibility (CSR)
 Resources, community relations, internal processes
• CSR stakeholders –
primary demand driver
(Pivo, 2007, 2008; Pivo & McNamara, 2005, Rapson etal, 2007)
• Estimated $3.07 trillion under management
in Sustainable & Responsible Investing
(SRI) funds in US: (Social Investment Forum (SIF), 2011)
 Increase of more than 380% since 1995; 13% between 2007-2010
 Broader investment universe increased 260%; 1% between 2007-2010
 Approximately 12.2% of $25.2 trillion in total assets
 65% of SRI mutual funds outperformed non-SRI benchmarks in 2009
6
Building the Business Case - Sustainability and Value
Eichholtz, P., Kok, N., and Quigley, J. 2010.
Doing Well by Doing Good? Green Office Buildings.
• Regression analysis of 10,000 buildings.
• 2004-2007 CoStar data.
• ‘Green ratings’ command:
• 3% higher rental rates (per sq.ft.)
• 6%+ premiums in effective rents (per sq.ft.)
• 16% higher sales price (per sq.ft.)
• EnergyStar - variation in premium directly tied to performance.
7
Building the Business Case - Sustainability and Value
Eichholtz, P., Kok, N., and Quigley, J. 2010.
Doing Well by Doing Good? Green Office Buildings.
• Benefits from investment in sustainable buildings can be
obtained in several ways:
 Direct and tangential financial benefits from energy savings
 Higher employee productivity from improved indoor air quality
 Improved corporate image
 Buildings have longer economic lives as a result of tenant
preferences = Lower risk premiums & higher valuations
8
The Sustainability Challenge –
Implications for Commercial Real Estate
• Classification of Real Estate: ‘A’, ‘B’, ‘C’ – No ‘S’ or ‘G’ Class
• Lack of consistency among tools and measures.
• Stakeholders creating own criteria & indicators for decisionmaking.
• Two impacts of variation in sustainability assessment systems
on the commercial real estate market (Ellison and Brown, 2010).
• Limits opportunity to compare properties – limiting competition
• Difficult for organizations to decide on sustainability approach
How to make decisions related to sustainability in CRE?
Research Questions
1) To identify the different ways that real estate industry stakeholders
understand the concepts of ‘sustainability’ and ‘sustainable real
estate’.
2) To gain an understanding of the how these concepts are integrated
into the strategic decision-making and planning process.
• What are the criteria used to make decisions about ‘sustainable real
estate’ by each of the different stakeholder groups?
• What are the indicators used to assess ‘sustainability’ by each of the
different stakeholder groups?
• How/why do these criteria and indicators inform the decision-making
process differently depending on the role of the stakeholder in the real
estate process?
• What are the barriers to making sustainable real estate criteria and
indicators more transparent and more easily comparable?
Outline of Research Process
Personal & Conference
Experiences
Literature Overview
Development of Research
Questions
Literature Review &
Content Analysis
Development of Research
Design
Pilot Study Interviews
n=5
Refinement of Scope &
Research Questions
Delphi: Round 1 Interviews
n=14
Phenomenographic Analysis
Triangulation:
Word Frequency Analysis
Delphi: Round 2 Follow-up
Interpretation of Analysis
Create Delphi Report
Delphi: Round 3
e-Questionnaire
(Pilot Study for Industry Survey)
Development of Framework for
Sustainable Real Estate
Decision-Making & Assessment
Member Checking &
Vetting of Information
Quantitative Analysis
of
e-Questionnaire
FUTURE RESEARCH:
Industry Survey to Validate Results
(Funded by Land Economics Fndn)
Expert Panel Participants - Qualifications
Expert Panelist
Name
Years Industry/
Sustainability
Experience
Involved In
Strategic
DecisionMaking
Published Or
Recognized In
Publications
Represent
Broad Range
Of Knowledge
Referred By
Another
Panelist (#)
Paul McNamara
Patty Connolly
Scott Muldavin
Louise Ellison
Jim Lutz
25/15
20/6
25/7
10/5.5
27/12
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES (2)
YES (3)
YES (4)
YES (2)
YES (2)
Jean-Francois
Champigny
9/7
YES
YES
YES
YES (2)
Sarah Cary
Tom Ricci
David Borchardt
10/10
26/20
15/20
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES (2)
YES (2)
YES (2)
Theddi Wright
Chappell
26/11
YES
YES
YES
YES (5)
Christian Gunter
Gary Holtzer
9/9
27/27
YES
YES
YES
YES
YES
YES
YES (2)
YES (2)
Dan Probst
David Pogue
Eleni Reed
30/7
40/6
13/6
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES (3)
YES (4)
YES (5)
Results from Expert Interviews
• 92% of the time, sustainability concerns are integrated at least
‘frequently’ by expert panelists.
• Sustainability in CRE is a bi-coastal activity.
• Decision-making process & criteria/indicators:
• Similar for Public and Private Investors.
• Corporate Users overlap with both Investor groups and Tenants.
• Developers primarily relying on LEED/EnergyStar checklists.
• Similar words used – but sometimes with different meanings.
• Transparency is important, but we’re not there yet. Free the data!
• Convergence is emerging.
Delphi Study - 10 Lessons Learned
1.
5 ways of understanding ‘sustainability’ &
4 ways of understanding ‘sustainable real estate development’.
2.
Industry leaders are serious about integrating sustainability concerns.
3.
Top drivers are common across stakeholder groups.
4.
Key Performance Indicators (KPIs) emphasize environmental performance.
5.
Industry Leaders advocated for simplicity of criteria and measures.
6.
Common criteria less important to industry leaders than expected.
7.
Divergence in use of criteria and indicators for decision-making.
8.
Top criteria are common across stakeholder groups – and divergence in
ratings are consistent with immediate business focus.
9.
Focus on Sustainability Reporting Guidelines
10. Primary barrier to sustainable real estate & transparency = BROKERS!
Framework for Sustainable Real-Estate Decision-Making
Framework for Sustainable Real Estate Decision-Making
Strategy
Influencers
First
Generation
Second
Generation
Third
Generation
Fourth
Generation
Fifth
Generation
(1970s)
(1980s)
(1990s)
(2000s)
(2010s)
“Trust Me”
“Tell Me”
“Show Me”
Involve Me”
“Prove to Me”
Legislation
and
Energy
Savings,
Strategic
Tool for
Public
Pressure
Waste
Reduction
Competitive
Advantage
Societal
License to
Market
Resilience and
Operate
Transformation
Public/
Societal
Influence
Drivers
Measures
Clean-up
Operations
(EIA)
Attitude of
Companies
Hostile,
Defensive
Prevention
(SEA)
Product Life
Cycle
Sustainability
Measures
Key
Performance
Indicators
(KPI)
Active,
Sense of
Responsibility
Proactive
Contribute to
Society
Integrated,
Systems
Approach
Modified from Simons, Slob, Holswilder and Tukker, 2001
Framework for Sustainable Real-Estate Implementation
Framework for Sustainable Real Estate Assessment and Management
First Generation
(1970s)
End-of-Pipe
Eco-Indicator Scope
Measures to
Reduce
Emissions
Eco-Indicator
Expression
Emissions, Costs
Material & Energy
Consumption
Management,
Product Design
3E’s of Sustainability
Process
Resources, Societal
Product
Costs/Contribution,
characteristics
Normative Values
Internalization, Portfolio
(internal & external)
Scorecard
Regulatory
Other processes
Other products,
Societal Values,
targets
Previous years
Other Suppliers
Sustainability Issues
Emissions
Environmental Burden
Emissions
records, Toxic
release inventory
Efficiency
Type and
Traditional EIA
Quantity of
Materials Used
Competitiveness,
Legitimization, &
Responsibility
Eco-efficiency,
Resource
Fifth Generation
(2010s)
Market
Balanced
Monitoring
Indicators
Prevent Pollution
Supply Chain
Communication
Functions
Example of
Measures to
Fourth Generation (2000s)
Product Design,
Registration,
Example of Criteria
Processes-Integrated
Third Generation
(1990s)
Process Changes,
Eco-Indicator
Reference Values
Second Generation
(1980s)
Assessment,
Accountability,
Compensation
Societal Contribution
Community Support
Efforts
(e.g. sponsor community
events)
Impact Efficiency,
Lifecycle Analysis
Integrated
Performance and
Risk Management
Market/ Competition,
Societal Values,
Sustainability
Environmental
Impact
Carbon Footprint of
Organization
(GHG Protocol)
Modified from Simons, Slob, Holswilder and Tukker, 2001
Future Research Opportunities
• Addressing Limitations - Industry e-survey to increase transferability
 Pilot (complete)
 Counselors of Real Estate (CRE) – US stakeholders
 Lambda Alpha International (LAI) – US stakeholders
 Funded by the Land Economics Foundation (LEF)
• Comparative & Replication Studies in Other Global Markets
 Carbon Neutral Cities (Copenhagen/Melbourne/Portland/Seattle/Sydney)
 Comparison Study: United States and Australia/UK
 Replication in Developing Countries: India/China
17
Thank you!!
Any questions?
Contact Information:
Pernille Christensen
[email protected]
+61 2 9514 8928
RMIT, Melbourne, Australia