In September, CBRE’s research team surveyed over 200 UK clients to establish the ‘state of play’ on the full range of social and environmental sustainability issues the real estate industry is being asked to tackle, including climate change, biodiversity, pollution, waste, health and wellbeing and responsible business.
Respondents included investors, housebuilders, occupiers, lenders and infrastructure providers working across the full range of real estate sectors.
I draw four main conclusions from the survey results. First, firms need to review their sustainability strategy’s real estate element. The good news is that only 10% of respondents said their strategy was not clear in its real estate implications. However, only 13% said they had ‘major’ or ‘some’ coverage in their strategies for all nine sustainability issues we asked about. Most have gaps compared with ‘best-in-class’ coverage – with biodiversity a particular weak point.
Perhaps firms should work backwards from their real estate decisions to the strategy that they have adopted, to ensure that real estate’s contribution is maximised.Does a firm’s strategy give a meaningful framework for the main types of real estate decisions it makes? For example, does it say what the organisation thinks about leasing to tenants in controversial sectors such as weapons, fossil fuels or gambling? If not, it may be time to improve the strategy.
Second, collaborating with counterparties (whether landlord,tenant or banker) will continue to be crucial. Although our diverse respondents had a lot of goals in common, we found substantial mismatches of sentiment between occupiers and landlords.
For example, occupiers placed far greater emphasis than landlords on talent retention, employee wellbeing and brand reputation as drivers of their ethical business strategies, and reducing not just carbon dioxide emissions but also waste and water consumption. Occupiers were also more willing to pay for certain environmental improvements to buildings than landlords thought.So, it’s important to check decisions reflect the strategy of stakeholders, not just our own strategy.
Third, we need to refine decision-making systems. Some 62% of our respondents made decisions taking into account their organisation’s sustainability goals ‘most’ or ‘all’ of the time. That doesn’t sound too bad – but means that nearly four in 10 respondents did not. And when these goals were taken into account, they were more likely to be underweighted in the decision than overweighted.
At the very least, this represents a substantial compliance risk for businesses whose follow-through from strategy to delivery is coming under increasing scrutiny from customers and regulators.
Firms should be reviewing their real estate decision-making processes to ensure decisions take the organisation’s own strategy into account more systematically.
Fourth: keep it practical.
Hearteningly, our respondents did not see uncertainty about the future as a particularly big challenge in taking action now, nor were they ambivalent or passive about the importance of taking action on sustainability issues.
In fact, the challenges that respondents perceived were much more practical ‘coal face’ issues such as not having the right data, the complexity of some of the decisions and the difficulty of balancing (or even understanding) costs and benefits. At CBRE, we’re focused on helping to solve some of these practical challenges.
Overall, the real estate industry is on the right track, but there is also clear potential to turn our sustainability commitments into bricks-and-mortar opportunities.
Miles Gibson is executive director of UK research at CBRE