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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