Sustainable Property Investment (SPI):

Sustainable Property Investment (SPI):

ERES 2013 A FRAMEWORK FOR SUSTAINABLE REAL ESTATE DECISION-MAKING AND ASSESSMENT Pernille Christensen, PhD Planning, Design & the Built Environment Clemson University Senior Lecturer, Property Economics & Property Development School of the Built Environment University of Technology, Sydney The environment is everything that isnt me. - Albert Einstein Empire State Building, NYC Overview Literature Review & Methods Overview Summary of Delphi Results 10 Lessons Learned Framework for Sustainable Real Estate Decision-Making Ecological Footprint On The Planet USA ~3.8 Australia ~ 3.2 UK ~ 2.3 World ~ 1.3 China ~ 1.0 3 WWF, 2010 Impact Of Buildings On The Planet Buildings contribute an estimated: 40% of total carbon emissions 13% of water consumption (IPCC, 2007) Literature Review Overview Sustainable Real Estate Real Estate

Investment, Development and Management Evolution of Sustainable Development Sustainability Concept 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) Sustainable Development Policy 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) Sustainability Assessment Impacts of Real Estate Building the Business Case IPCC-4 (2007) Miller, Spivey and Florance (2008) Levine (2007) UNEP-SBCI (2009) USGBC (2010) BRE (2010) BRE Global (2011) Eichholtz, Kok and Quigley (2009, 2010) Pivo, G. and Fisher, J.D. (2010) Wiley and Benefield (2010) Fuerst and McAllister (2011) Newell, MacFarlane and Kok (2011) Cajias, Geiger and Bienert (2011) * Not all literature was included in this diagram; works included have played pivotal role either in the research or as seminal works. Assessment

Systems & Costs BREEAM, 1990 EnergyStar, 1999 LEED, 2000 Green Star, 2003 Crawley and Aho (1999) Matthiessan and Morris (2007) Matthiessan and Morris (2009) Reed, Bilos, Wilkinson & Schulte (2009) Singh, Murty, Gupta and Dikshit (2009) InBuilt (2010) Decision Making & Implementation Criteria and Indicators DecisionMaking Responsible Property Investment Hak, Molden & Dahl (2007) Mintzberg (1983 Pivo and McNamara (2005) Levy and DeFrancisco(2008 ) Elkington (1998) Triple-Bottom Line

Lutzkendorf and Lorenz (2005) Lowe and Ponce (2009) Simons, Slob, Holswilder & Tukker (2001) Pivo (2008, 2009) UNEP-FI (2005) Ellison and Brown (2010) Krosinkshy and Robins (2008) IPF (2009) Muldavin (2010) Pivo (2008) Dermisi (2009) Sayce, Sunderberg and Clements (2010) CDP (2012) Social Investment Forum (2010) GRI CRES (2011) Rapson, Schiers, Roberts & Keeping (2007) Pivo (2007, 2008) McCarty, Jordan and Probst (2011) GRESB (2012)

Pivo and Fisher (2010) 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 6 Building the Business Case - Sustainability and Value 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. 7 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 8 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 decisionmaking. 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 Interviews n=5

Refinement of Scope & Research Questions Delphi: Round 1 Interviews n=14 Phenomenographic Analysis Triangulation: Word Frequency Analysis Delphi: Round 2 Follow-up Interpretation of Analysis Create Delphi Report Delphi: Round 3 e-Questionnaire (Pilot Study for Industry Survey) Development of Framework for Sustainable Real Estate Decision-Making & Assessment Member Checking & Vetting of Information Quantitative Analysis of e-Questionnaire FUTURE RESEARCH: Industry Survey to Validate Results (Funded by Land Economics Fndn) Expert Panel Participants - Qualifications Expert Panelist Name Years Industry/ Sustainability Experience Involved In Strategic

DecisionMaking Published Or Recognized In Publications Represent Broad Range Of Knowledge Referred By Another Panelist (#) Paul McNamara Patty Connolly Scott Muldavin Louise Ellison Jim Lutz Jean-Francois Champigny Sarah Cary Tom Ricci David Borchardt Theddi Wright Chappell Christian Gunter Gary Holtzer Dan Probst David Pogue Eleni Reed 25/15 20/6 25/7 10/5.5 27/12 YES YES YES YES YES YES YES YES

YES YES YES YES YES YES YES YES (2) YES (3) YES (4) YES (2) YES (2) 9/7 YES YES YES YES (2) 10/10 26/20 15/20 YES YES YES YES YES YES YES YES YES YES (2) YES (2) YES (2) 26/11

YES YES YES YES (5) 9/9 27/27 30/7 40/6 13/6 YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES (2) YES (2) YES (3) YES (4) 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 were 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 Measures Clean-up Operations (EIA) Prevention (SEA) Product Life Cycle Sustainability Measures Key Performance Indicators (KPI) Attitude of Companies Hostile, Defensive Active, Sense of Responsibility

Proactive Contribute to Society Integrated, Systems Approach Modified from Simons, Slob, Holswilder and Tukker, 2001 Framework for Sustainable Real-Estate Implementation 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 3Es of Sustainability Market

Competitiveness, Legitimization, & Responsibility Eco-Indicator Expression Emissions, Costs Material & Energy Consumption Eco-efficiency, Product characteristics Resources, Societal Costs/ Contribution, Normative Values Impact Efficiency, Lifecycle Analysis Registration, Monitoring Process Changes, Communication (internal & external) Product Design, Balanced Scorecard Internalization, Portfolio Assessment, Accountability, Compensation Eco-Indicator Functions Integrated Performance and Risk Management Reference Values

Regulatory targets Other processes Previous years Other products, Other Suppliers Societal Values, Sustainability Issues Market/ Competition, Societal Values, Sustainability Example of Criteria Emissions Environmental Burden Resource Efficiency Societal Contribution Environmental Impact Example of Indicators Emissions records, Toxic release inventory Traditional EIA Type and Quantity of Materials Used Community Support Efforts

(e.g. sponsor community events) Carbon Footprint of Organization (GHG Protocol) Modified from Simons, Slob, Holswilder and Tukker, 2001 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 17 Thank you!! Any questions? Contact Information: Pernille Christensen [email protected] +61 2 9514 8928 RMIT, Melbourne, Australia

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