The Secret to Green RE

Prologis’ sustainability expert warns GPs to look for low-hanging fruit such as changing light bulbs and power meters as first steps towards ESG

When it comes to going green in commercial real estate, taking incremental baby steps is a proven strategy.

While green initiatives and strategies have gained significant momentum over the past five years thanks to rising tenant demand, investor mandates, and the success of numerous large-scale, portfolio-wide projects involving ESG—environmental, social, and corporate governance—many real estate GPs privately express difficulty in demonstrating measurable impacts.

Indeed, smaller GPs can see the implementation of an ESG program, together with the need for dedicated staff, technology, and research, as more a cost than an additive element to the bottom line. However, for Kate Brown, group director of sustainability for Grosvenor Group and Jeannie Renné-Malone, vice president of sustainability at Prologis, there are many simple yet effective high-level approaches that smaller firms can take.

“Work out your biggest impacts—this can be very high level—even if you need a consultant to help you take this first step it will be money well spent,” says Brown. “Initially [Grosvenor] undertook a high-level carbon footprint of our assets, legacy, [and] supply chain to ensure we were addressing the big stuff first.”

For Malone it’s all about focusing on the ‘E’ in ESG. “Look at low-hanging fruit such as changing light bulbs and meters. You have to start somewhere. Start with a framework and track progress.”

Simple steps also include drafting a mission statement or basic sustainability policy, slowly increasing the depth of the program and its reporting over time, says Malone. Such communication helps garner C-suite support and works through the entire organization creating a collective vision on ESG.

“Setting goals and tracking results are important steps in making progress,” adds Helen Gurfel, executive director for the Urban Land Institute’s Greenprint Center for Building Performance. She says the organization’s motto is “you can’t manage what you don’t measure,” and so it’s critical for real estate owners and investors to track and improve environmental performance on an ongoing basis.

Of course, greater ESG engagement among real estate GPs is being driven in part by institutional investors.

“Investors are increasingly aware,” says Brown. “There is clearly a leading pack, namely the Dutch pension funds, who are demanding more of fund managers and their portfolios, through benchmarks like GRESB [Global Real Estate Sustainability Benchmark] and ULI Greenprint and this is starting to shift the industry as a whole [towards adopting greater ESG policies].”

However, Gurfel argues that demand for greater sustainability measures within commercial real estate is also increasingly coming from tenants themselves, who see ESG programs as critical to their brand identities as well as smart resource management.

“Leading tenants—the Googles of the world—want to attract the best employees and the most talented individuals [to their offices, which are] designed to modern standards and [are] resource efficient,” says Gurfel.

Malone explains how Prologis engages its more than 4,000 tenants globally in ESG initiatives, with some tenants taking ownership of retrofits with the knowledge “they will pay less over the long term.”

“Stakeholder engagement, education and building awareness is critical,” Malone says. “There are a growing number of customers with sustainability programs, and as part of their supply chain we want to help them and offer a sustainable property to lease that includes a better- designed building, with LED lighting and improved operational efficiency.”

Malone also points to the need for ongoing tenant outreach and research, often through client surveys on sustainable design and renewable energy, so that Prologis better understands the tenant’s voice when they bring them to the table.

Such stakeholder engagement—whether with tenants or institutional investors—creates a virtuous cycle, says Malone.

“GRESB offers tools that investors are using to help inform investment decisions and to see how their assets are performing,” she explains. “These conversations go back and forth to create education and awareness on the [long-term benefits], and how these [factors] address climate change and water scarcity.”

But Gurfel accepts that not every GP can implement a scheme on the scale of Prologis or Grosvenor. While voluntary programs and mandatory programs and codes have a strong impact on ESG implementation, she says that for many building owners and tenants, financial benefits help drive action.

And the first step for many smaller GPs is to simply establish goals and key performance indicators and balance them against operating budgets. That, she says, can begin a process that eventually leads to much bigger program success down the line.

As ESG continues to gain traction, these simple measures can help get firms of any size past the threshold and ready to grow make their sustainability marks.