The path to ‘true zero’ for commercial property
When considering trends related to ESG and commercial property, Jamie Wallis, Senior Manager of Market Engagement at the Green Building Council of Australia, says risks are increasingly associated with the impact of climate change.
Mr Wallis was speaking at a recent Property Funds Association of Australia (PFA) Master Class on the topic. “The risks have been laid out quite starkly through sources such as the World Economic Forum.
“We’re often also hearing from investors about the importance of transitioning towards net zero, because if you are not on this path there’s a risk you will end up with a stranded asset in time.”
The Green Building Council of Australia (GBCA) monitors key trends constantly, according to Mr Wallis. “We look at the short-term risks which impact property and track them through to forecast how they should progress over the medium and long-term.
“It’s very interesting when you consider risks which can affect property over the long-term, which we consider a 10-year time horizon. We track them through and aggregate them into the key trends.”
He said the GBCA is focused on three key megatrends: Climate action; Resources and Circularity; and Health and Wellbeing. “We’ve isolated these key megatrends in association with the World Green Building Council.”
He discussed some of the challenges and predictions arising from these megatrends. “Regarding climate action, fossil fuels is something the industry is grappling with right now. In particular the transition from ‘net zero to true zero’.
“A lot of the property sector is targeting carbon neutral status, which is currently heavily reliant on emissions offsets. There’s a key question around moving from offset reliance to ‘true zero’.”
Upfront or embedded carbon remains a big challenge for commercial property, according to Mr Wallis. “When we consider emissions over the lifespan of a building, roughly half are embodied emissions and half are operational emissions.
“The property sector is getting very good at reducing operational emissions down to net zero or even zero, but it shows how important those upfront emissions are, and how important it is to consider materials, supply chains, and even construction machinery emissions in the building process.
“This is closely linked to circularity and resources, and moving toward the concept of a circular economy.
“We’re seeing a lot of the leading property developers coming out with their circularity strategies and targets and goals, becoming embedded in their way of doing business.”
He said the health and wellbeing megatrend was linked to productivity. “There’s a stat which suggests 90 per cent of our time is spent indoors, which sounds startling. But if you’re working in an office and at home sleeping then the quality of your indoor environments, and the air that you are breathing, plays a significant role in your health.
“There’s also more recognition of nature and biodiversity and how we introduce them into our developments. Closely tied with that is nature-based offset credits.”
Green Star Future Focus
Mr Wallis says GBCA is updating all Green Star tools for the next evolution in ratings. “We’re seeing enormous take up of Green Star. Investor expectation is helping drive this, and it’s now very difficult to build a commercial development and not have its sustainability verified, as it won’t meet expectations.
“The rating tools are changing, and moving from an environmentally-focused framework to a more holistic understanding of sustainability and ESG within property – for example, taking into account health and wellbeing, and people-based initiatives.”
Mr Wallis explained the National Construction Code sets minimum standards, and Green Star is set well above that. “We set Green Star certification as sitting above ‘good practice’. Key to our whole new suite of tools is to encourage buildings which are highly efficient, fossil fuel free, powered by renewable energy, built with lower upfront emissions, and offset with nature.
“The expectation is any five or six-star Green Star rating will meet all those expectations, meet net zero operations, and reduce upfront emissions.”
Mr Wallis said GBCA is looking at sustainable finance, and is planning to release a practical guide for sustainable finance in the Australian real estate sector in November 2023.