As the focus on climate change and achieving “net zero” increases, we as tenant representatives find ourselves including Environmental, Social and Governance (ESG) in strategic property discussions with our tenant clients. We play an important role in providing clients guidance on how to measure their impact on the environment, and how to work with landlords to reduce climate and social impacts of their business operations.
The growing importance of Environmental and Social Governance in commercial real estate is evident, with the built environment contributing 39% of energy-related CO2 emissions. A recent Australian study* showed that 90% of business leaders are factoring in spending to increase or maintain compliance. In fact, Australia’s property industry has enjoyed a global leading position in ESG for over ten years.
But what does this mean for tenants?
“Tenants and landlords need to work together to deliver to ESG goals,” says Julian Kurath, Director LPC. “Establishing open lines of communication and sharing their goals can result in mutually beneficial initiatives”.
When it comes to looking at new premises, tenants are increasingly looking for green buildings.
What is a green building?
A ‘green’ building is a building that, in its design, construction or operation, reduces or eliminates negative impacts, and can create positive impacts, on our climate and natural environment. Green buildings preserve precious natural resources and improve our quality of life. - World Green Building Council
Landlords may have their own ESG initiatives, for example Goodman in Australia who have detailed sustainability goals to achieve by 2025. Their initiatives in their properties include water saving, drought tolerant plants, smart irrigation, potable water, solar energy, LED lighting and amenities for the health and well-being of workers. Clearly, having landlords already committed to ESG helps tenants to achieve their own goals, and importantly create environments which contribute to the health and wellbeing of their staff.
NABERS ratings help tenants to assess a potential property’s energy efficiency - an additional tool that can be used to negotiate any improvements with a landlord.
What is NABERS?
NABERS (which stands for the National Australian Built Environment Rating System) is a national rating system that can be used to measure a building’s energy efficiency, carbon emissions, as well as the water consumed, the waste produced and compare it to similar buildings.
In the industrial sector we are seeing new facilities being built with extensive solar panels to generate their own electricity and feed excess into the grid - the obvious benefit for tenants are the massive cost savings that come from solar energy.
For tenants looking to renew a lease, the opportunity exists to revisit ESG goals and look for ways to improve efficiencies, as well as changes to the physical environment that would be beneficial to the health and wellbeing of staff. Negotiating these improvements with the landlord will be greatly aided by sharing ESG goals.
Improvements such as converting to LED lighting, installing solar panels, collecting rainwater, water recycling and the creation of green common areas can become part of lease renewal negotiations.
“This is one of those situations where there is a common goal for both parties,” says Julian. “Tenants and landlords working together to achieve ESG goals is a win-win”.
*Environmental Intelligence: Driving Business Growth in a Changing Climate - Envirosuite
