ERES 2013

Pernille Christensen, PhDPlanning, Design & the Built EnvironmentClemson University

Senior Lecturer, Property Economics & Property DevelopmentSchool of the Built EnvironmentUniversity of Technology, Sydney

Empire State Building, NYC

A FRAMEWORK FOR SUSTAINABLE REAL ESTATE

DECISION-MAKING AND ASSESSMENT

“ T h e e n v i r o n m e n t i s e v e r y t h i n g t h a t i s n ’ t m e . ”

- A l b e r t E i n s t e i n

Overview

• Literature Review & Methods Overview

• Summary of Delphi Results – 10 Lessons Learned

• Framework for Sustainable Real Estate Decision-Making

Ecological Footprint On The Planet

WWF, 20103

USA ~3.8

UK ~ 2.3

World~ 1.3 China

~ 1.0

Australia ~ 3.2

Impact Of Buildings On The Planet

(IPCC, 2007)

Buildings contribute an estimated: 40% of total carbon emissions 13% of water consumption

Sustainable Real Estate Real Estate Investment, Development and Management

Sustainability Assessment

Decision Making & Implementation

Evolution of ‘Sustainable Development’

Sustainable Development

Policy

Assessment Systems &

Costs

Responsible Property

Investment

Building the Business Case

Criteria and Indicators

Sustainability Concept

Impacts of Real Estate

Decision-Making

Singh, Murty, Gupta and Dikshit

(2009)

GRI CRES (2011)

BREEAM, 1990EnergyStar, 1999

LEED, 2000Green Star, 2003

Crawley and Aho (1999)

Hak, Molden & Dahl (2007)

Levy and DeFrancisco(2008

)

Pivo (2008, 2009)

Ellison and Brown (2010)

Muldavin (2010)

Matthiessan and Morris (2009)

Reed, Bilos, Wilkinson &

Schulte (2009)

Sayce, Sunderberg and Clements

(2010)

Lowe and Ponce (2009)

InBuilt (2010)

Matthiessan and Morris (2007)

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)

UN Conference on the Human

Environment (1972)

Cocoyoc Declaration (1974 )

World Conservation Strategy (1980)

World Commission on Environment

and Development(1987)

UN Earth Summit(1992)

Kyoto Protocol(1992)

IPCC-4 (2007)

Levine (2007)

UNEP-SBCI (2009)

USGBC (2010)

BRE (2010)

BRE Global (2011)

Newell, MacFarlane and

Kok (2011)

Wiley and Benefield (2010)

Fuerst and McAllister (2011)

Miller, Spivey and Florance (2008)

Eichholtz, Kok and Quigley (2009,

2010)

Pivo, G. and Fisher, J.D. (2010)

Cajias, Geiger and Bienert (2011)

Literature Review Overview

* Not all literature was included in this diagram; works included have played pivotal role either in the research or as seminal works.

Rapson, Schiers, Roberts & Keeping

(2007)

Lutzkendorf and Lorenz (2005)

Pivo and McNamara (2005)

IPF (2009)

Dermisi (2009)

Social Investment Forum (2010)

Pivo (2007, 2008)

Pivo and Fisher (2010)

Simons, Slob, Holswilder &

Tukker (2001)

Elkington (1998) Triple-Bottom Line

Mintzberg (1983

Pivo (2008)

UNEP-FI (2005)

CDP (2012)

McCarty, Jordan and Probst (2011)

Krosinkshy and Robins (2008)

GRESB (2012)

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

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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.

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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

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Building the Business Case - Sustainability and Value

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 decision-making.

• 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 Interviewsn=5

Refinement of Scope & Research Questions

Delphi: Round 1 Interviews n=14 Phenomenographic Analysis

Delphi: Round 3e-Questionnaire

(Pilot Study for Industry Survey)

Delphi: Round 2 Follow-upTriangulation:Word Frequency Analysis

Member Checking & Vetting of Information

Quantitative Analysis of

e-QuestionnaireInterpretation of Analysis

Create Delphi Report Development of Framework for Sustainable Real Estate

Decision-Making & AssessmentFUTURE RESEARCH:

Industry Survey to Validate Results(Funded by Land Economics Fndn)

Expert Panel Participants - Qualifications

Expert PanelistName

Years Industry/

Sustainability Experience

Involved In Strategic Decision-Making

Published Or Recognized In Publications

Represent Broad Range

Of Knowledge

Referred By Another

Panelist (#)

Paul McNamara 25/15 YES YES YES YES (2)

Patty Connolly 20/6 YES YES YES YES (3)

Scott Muldavin 25/7 YES YES YES YES (4)

Louise Ellison 10/5.5 YES YES YES YES (2)

Jim Lutz 27/12 YES YES YES YES (2)

Jean-Francois

Champigny9/7 YES YES YES YES (2)

Sarah Cary 10/10 YES YES YES YES (2)

Tom Ricci 26/20 YES YES YES YES (2)

David Borchardt 15/20 YES YES YES YES (2)

Theddi Wright

Chappell26/11 YES YES YES YES (5)

Christian Gunter 9/9 YES YES YES YES (2)

Gary Holtzer 27/27 YES YES YES YES (2)

Dan Probst 30/7 YES YES YES YES (3)

David Pogue 40/6 YES YES YES YES (4)

Eleni Reed 13/6 YES YES YES 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

(1970s)

Second Generation

(1980s)

Third Generation

(1990s)

Fourth Generation

(2000s)

Fifth Generation

(2010s)

Public/ Societal

Influence“Trust Me” “Tell Me” “Show Me” Involve Me” “Prove to Me”

Drivers

Legislation and

Public Pressure

Energy Savings,

Waste Reduction

Strategic Tool for

Competitive Advantage

Societal License to Operate

Market Resilience and Transformation

MeasuresClean-up

Operations(EIA)

Prevention(SEA)

Product Life Cycle

Sustainability Measures

Key Performance

Indicators (KPI)

Attitude of Companies

Hostile, Defensive

Active, Sense of

ResponsibilityProactive

Contribute to Society

Integrated, Systems

Approach

Modified from Simons, Slob, Holswilder and Tukker, 2001

Modified from Simons, Slob, Holswilder and Tukker, 2001

           

Framework for Sustainable Real Estate Assessment and Management

First Generation

(1970s)

Second Generation

(1980s)

Third Generation

(1990s)Fourth Generation (2000s)

Fifth Generation

(2010s)

Eco-Indicator Scope

End-of-Pipe Measures to

Reduce Emissions

Processes-Integrated Measures to

Prevent Pollution

Supply Chain Management, Product Design

Process

3E’s of Sustainability

Market Competitiveness, Legitimization, &

Responsibility

Eco-Indicator Expression

Emissions, CostsMaterial & Energy

Consumption

Eco-efficiency, Product

characteristics

Resources, Societal Costs/Contribution, Normative Values

Impact Efficiency, Lifecycle Analysis

Eco-Indicator Functions

Registration, Monitoring

Process Changes, Communication

(internal & external)

Product Design, Balanced Scorecard

Internalization, Portfolio Assessment,

Accountability, Compensation

Integrated Performance and Risk Management

Reference ValuesRegulatory

targetsOther processes Previous years

Other products, Other Suppliers

Societal Values, Sustainability Issues

Market/ Competition, Societal Values, Sustainability

Example of Criteria EmissionsEnvironmental

BurdenResource Efficiency

Societal ContributionEnvironmental

Impact

Example of Indicators

Emissions records, Toxic

release inventoryTraditional EIA

Type and Quantity of

Materials Used

Community Support Efforts

(e.g. sponsor community events)

Carbon Footprint of Organization

(GHG Protocol)

Framework for Sustainable Real-Estate Implementation

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

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Thank you!!

Any questions?

Contact Information:Pernille Christensen

Pernille.Christensen@uts.edu.au

+61 2 9514 8928

RMIT, Melbourne, Australia