Real Estate

Invested in Australian real estate? You’re part of a sustainability push

By Chris Nunn
BA, LLB, MSc Head of Sustainability - Real Estate Sydney, Australia

We know you can maximise real estate returns by investing with a sustainability lens, and we know the Australian real estate market is outperforming on some measures in its sustainability efforts.

September’s release of Global Real Estate Sustainability Benchmark (GRESB) data confirmed the status of Australia’s real estate sector in the vanguard of sustainability in global real estate. Australian real estate companies led the world in nine out of 26 categories1, and the Oceania region recorded an average score (81 per cent) almost 10 per cent higher than the global average (72 per cent)2. Oceania GRESB results, drawn primarily from Australia and New Zealand, have been consistently strong, outperforming other regions for the past nine years3.

Such consistent high-performance has created a virtuous cycle within the sector, as companies seek to out-do their competitors in the race to attract customers and investors who place an increasing emphasis on the green credentials of their partners.

Australian real estate owners and managers are setting ambitious targets around renewable energy, energy efficiency and transition to zero carbon status (typically by about 2030). In practical terms, these targets are being pursued through a number of initiatives, visible in their corporate approach and in the properties within their portfolios.

A sign of what’s to come: boardrooms warm to climate action

At a corporate level within the Australian real estate sector, it has become standard to conduct risk analysis on the exposure of a company’s operations to climate impacts. Clear examples of this kind of exposure can be seen in the drought and bushfires currently ravaging Australia’s eastern states, and into the future heatwaves, severe storms and sea level rises that will also factor into consideration of climate risk bearing on asset value. Companies are already using such exposures as a lens with which to assess future acquisitions, and they will be increasingly factored into valuations.

Management teams are aligning governance practices with sustainability, focussed on developing the systems and personnel to manage environment and sustainability issues, applying ESG screening as part of transaction due diligence, reporting on sustainability performance and utilising rating tools and third-party assurance regimes to give confidence in reported results. ‘Green lease’ wording has also been adopted to facilitate cooperation of tenants in whole-of-building sustainability initiatives.

Financial innovation is also being directed towards sustainability goals, utilising green bonds to secure funding for projects with strong sustainability credentials, creating new funds to attract impact investors and directing resources to solutions with potential to shift the field, such as cross-laminated timber structures.

A greening skyline

Australian property is undergoing a revolution in green design, as companies retrofit existing properties with sustainable features and develop new projects with environmental concepts as a core consideration.

Over the past three years there has been a five-fold increase in the number of commercial premises installing renewable energy systems such as solar panels4. Solar is an ideal fit for these buildings; unlike residential property, demand in a commercial setting often peaks during the day when the sun is shining. For shopping centres this is especially true, and further amplified by their seven-day pattern of use and large expanses of roof space.

Many companies are also developing initiatives to manage peak demand within their properties, such as scheduling energy-intensive processes outside of peak times and developing control routines to stage down cooling or heating at times of peak demand.

Design features can also influence emissions beyond the walls of the building, by better enabling more carbon-friendly modes of transport. For office buildings, the availability of end-of-trip facilities is an important factor in encouraging workers to commute via bicycle or on foot, and the provision of electric car charging facilities in both residential and commercial developments will be critical to encouraging greater uptake of that technology.

There are myriad of other incremental ways in which the owner, manager or developer of a property can influence its effect on the environment over time, including waste management processes and planning to promote biodiversity through use of native plants and sympathetic design. However, one factor that often escapes attention yet has enormous potential to affect emissions is the carbon footprint of construction materials, and this is something that can be addressed through projects that seek to use lower carbon alternatives such as recycled timber and modern hybrid materials.

As operational carbon emissions reduce with improved efficiency and an increasing proportion of electricity sourced from renewables, the embodied carbon in the materials of buildings will become an increasingly significant share of the building sector’s emissions profile.

Quay Quarter Tower, which retains and re-uses two-thirds of the pre-existing tower core. Retaining the existing structure saved an estimated 6,100,000 kg of embodied carbon, 5% carbon emissions saving over the life of the project, and 2 years operational carbon emissions. The innovative delivery method is also saving 13 months on the construction delivery timeframe5.

Maintaining momentum

Australia’s global leadership position in sustainable real estate is no trivial matter. Marginal greenhouse gas abatement cost curves show that both globally and in Australia, the building sector holds many of the most cost-effective climate change mitigation opportunities, and that retrofitting commercial property for energy efficiency is potentially the most cost-effective way to reduce carbon emissions in Australia6.

In a world where the public appetite to tackle the sources of carbon emissions can often be lacking, good governance demands that companies with adverse exposure to a warming climate take their own action wherever possible to mitigate the potential risks to their businesses. In this regard, the Australian real estate sector is a proven performer and a promising example for other sectors to follow.

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Chris Nunn, Head of Sustainability - Real Estate

GRESB (2019), Real estate sector leaders
GRESB (2019), 2019 results: sustainable real assets
Property Council of Australia (2019), Nine years at the top of the GRESB table, Media release, September 2019
Williams S. (2019), Five-fold growth in solar panels on commercial buildings, Commercial Real Estate, April 2019
Williams S. (2019), AMP’s new Quay Quarter Tower to be a building of ‘so many firsts’, Commercial Real Estate, April 2019
Climate Works Australia (2010), Low Carbon Growth Plan for Australia, March 2010

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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