One of the few Dutch Nobel laureates, Jan Tinbergen, once claimed that "meten is weten," which in plain English means nothing more than "you can manage what you measure". (So far for your first Dutch words.) Well, in the real estate sector, that's easier said than done. More often than not, property owners don't have any clue about energy consumption (let alone water or waste) at the level of the individual properties. Tenants may pay the bill (common in most countries, certainly for retail), energy is bought on an aggregated level, and (smart) submeters haven't been installed. Yet.
Measuring alone offers a massive business opportunity (well, that is if everything goes right. PG&E, the utility in the San Francisco Bay Area, has experienced a massive outcry from an unexpected side: the "greens" don't like their recently installed 5.7 mln. smart meters, because of the radiation from the meters. Oh, and some homeowners have complained about higher energy bills. "Can I have my old, broken meter back?"). But, the real saving can start once meters are in place. BuildingIQ, an Australian start-up that's very active in the US commercial market, will be happy to optimize your building management system (BMS), as they've done for some 6.5mln. sq.ft (!) already.
Reporting on environmental metrics by property companies and fund managers is getting more mainstream, thanks to:
1) Pressure from regulators, e.g. the Carbon Reduction Commitment Order in the UK requires large property investors to report the aggregate carbon emissions of their portfolios, and then requires annual reductions, with a carbon tax as a stick
"The CRC Energy Efficiency Scheme will be simplified to reduce the burden on businesses, with the first allowance sales for 2011-12 emissions now taking place in 2012 rather than 2011. Revenues from allowance sales totalling £1 billion a year by 2014-15 will be used to support the public finances, including spending on the environment, rather than recycled to participants. Further decisions on allowance sales are a matter for the Budget process.
The Bad News - participants will still be required to purchase allowances, but they will not receive any recycled payments.
The Good News - participants have been given a budget to spend on energy efficiency measures over the next 12 months. By scrapping allowances payments in 2011, participants can invest that budget in direct energy-saving measures. (Is this "good news"?)
2) Some voluntary reporting guidelines, such as the real estate sector supplement of the Global Reporting Initiative -- GRI.
3) Some shameless self-promotion: I think the pressure from pension asset managers helps as well. The Global Real Estate Sustainability Benchmark (GRESB) Foundation, which represents the other part of my life, has recently signed up AXA Real Estate (€40 bln. in real estate) and is now endorsed by the United Nations Principles for Responsible Investment, the main SRI lobby. We're in the process of collecting data from the industry "universe" (it's not clear what the "universe" exactly entails), and our investor members are putting pressure on their fund managers to report. Deadline: July 1st.
Awareness is growing, and some real estate fund managers have started to integrate ESG issues into their daily operations. No dedicated "green" funds, but simply thinking beyond quarterly results, working with tenants to improve buildings, and developing smart buildings. I gave a talk for the senior management of Grosvenor yesterday (in good-old historic Cambridge, how sustainable can it get?), and the attention to energy efficiency in their global business is encouraging. Less walk, but more talk is is the fanciness of the "CSR" reports I recently received. Check out the GRI-compliant report of Bentall Kennedy, one of the largest North American fund manager, and the CSR report of Tishman Speyer (Download Tishman Speyer Sustainability Report). These slick reports are quite exceptional for private fund managers (even though some public real estate companies have published such reports for a while now), and I'm hoping to see a similar degree of transparency from other fund managers as well. My advice: spend less on looks, and more on content. And start thinking about employee health and satisfaction. Alex Edmans (Wharton) has written a great paper on employee satisfaction and corporate financial performance -- studying the list of "Best Companies to Work For in America", he finds that treating your employees well leads to stronger financial performance. The underlying mechanisms are still unclear, but think about productivity, less absenteeism and lower sick leave. In due time, these are issues that the real estate sector has to come to terms with. But, first things first: let's start with collecting environmental information and reporting it in a comprehensive way.