Climate change: how can Real Estate Industry change for Real?
Real Estate is one of the most polluting industries on Earth, it consumes 40% of world energy and it is responsible for 1/3rd of the worldwide greenhouse gas emission. Still, since the Paris COP21 summit, we set a clear goal, our economy needs to be carbon neutral before 2050, in order to limit climate change under the 2° warming threshold. Real Estate is a long-term oriented and conservative industry. It is changing at a slow pace. We need to reach this 2° target and that’s why we need to act now.
As we are taking this problem more and more seriously, legislation is evolving. Carbon accountability quietly starts to question companies' results according to their impacts on the environment and on society. Economic concepts are shifting, Real Estate Industry’s long-term financial stability is jeopardized. For the moment, pyramidally speaking, sustainability is a challenge that mainly market leaders are taking into consideration. Soon, I strongly believe a company won’t be able to outperform economically if they are not strictly limiting their carbon emissions. Being sustainable won’t help you to sell more, it will be the norm and it will be required if you want to pretend to profitability. It’s the only way we could face this environmental and soon economic crisis.
Last January 2020, Laurence D. Fink, CEO of Black Rock published its annual letter and strongly reaffirmed the position of the most capitalized company on Earth. “A Fundamental Reshaping of Finance” is about to happen.
“In the near future — and sooner than most anticipate — there will be a significant reallocation of capital.”
“Despite recent rapid advances, the technology does not yet exist to cost-effectively replace many of today’s essential uses of hydrocarbons. We need to be mindful of the economic, scientific, social and political realities of the energy transition.”
When a company of that range speak-out this truth, it becomes reality and the economy can start to shake and get organized.
Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.
As the pressure of society on politics and companies is intensifying (Greta Thunberg’s interventions, students march, Extinction Rebellion artivism…), Real Estate needs to anticipate the coming change. In France, last year (2019) the “Tertiary Decree” has been implemented. It urges every building owner (which size is over 1.000 m2) to decrease its energy consumption by 40% in 2030, 50% in 2040 and 60% in 2050 in comparison to 2010. The European Green Deal first presented in December 2019, during the COP25 in Madrid is raising European climate ambitions. Spain declared in 2020 the Climate Emergency. More, on Monday, January the 13th, the victory of climate activists against Credit Suisse Bank and its non-sustainable investment practices have been unprecedented for the Swiss Court and will do jurisprudence.
Meanwhile, investors put pressure in order to make their investments increasingly more transparent and ask for compliance. Fastly, ESG frameworks are taking an important role to assess investment practices as they are a way to ensure sustainable and stable investments while creating value. The article of Mc Kinsey published in last November 2019, shows the link between ESG and cash flow through five implications: (1) facilitate top-line growth, (2) reduce costs, (3) minimize regulatory and legal interventions, (4) increase employee productivity, and (5) optimize investment and capital expenditures.
What’s the role of Technologies in Real Estate Carbon-free transition?
It’s been two and a half years that I’ve engaged myself in Deepki. First in the Parisian company’s headquarters and then in its Spanish subsidiary. I have taken part in its rapid growth. Rapid might not be the appropriate word. In 5 years, we have started collaborating with almost 250 companies across 27 countries and analyzed the data of +900.000 real estate assets. We’ve raised 10,6M€, reached the 100 people staff and opened offices in Madrid & Milan. The sector of Real Estate is totally changing and we’ve been part of these new configurations.
Our mission is clear: Help Real Estate companies to reduce its environmental impact with its data.
To do so it’s essential to focus and master three essential and key steps :
- Data-collection process
- Data-analysis process
- Data-interpretation into action plans
1- Data-collection: the nightmare of having access to your ESG data
Today you could need to collect your data to be compliant with the law (ESG reporting), report to an Index (Dow Jones Sustainability Indexes), rate your funds or activities (GRESB) or event get a certification for your buildings (Breeam).
ESG scope gathers Stakeholder engagement reports, Building certification, Performance indicators, Monitoring and EMS data, Risks and Opportunities assessment reports, Policy and Disclosure measures, Management organization. Very diverse data sources scattered between each department of your company at a corporate level or an asset-based level.
In Deepki, we assume that there are at least 80 data-points that can be collected from each building. This data is mainly saved in Excels or sleeping in your ERP software. Corporations stay far from the value-added it can get if algorithms made some analysis.
We can imagine how time-consuming it can be having access to your data as it asks an important number of goings and comings. To collect the data you need to first, prepare the data collection template. Sustainability officers need to make the inventory of want they need and list each owner they have to contact to get access to these data. After sending dozens of emails to each department (accountancy, maintenance, finance, etc.), data-owners send it back to Sustainability officers that will clean, normalize and aggregate the data at a macro level. Indeed, we are speaking about a low value-added task for every counterpart.
Today advanced parsing techniques and natural data processing helps us automatizing these repetitive tasks. Imagine a platform where forms are designed to be clear and simple, emails are sent automatically and all the data get collected and verified thanks to a precise workflow. How much time would you be able to win? Almost 4 months for a giant from the Retail Industry like Klepierre (approx 150 Comercial Centers). Apart from the annual compliance reporting, it has been able to start to monitor its efficiency on a monthly base generating analytics and benchmarks over its assets, country per country, region by region. A game-changing organization.
2- Data-analysis: from raw data to business insight
When we speak about analysis it’s always difficult to differentiate between business-value insights and superfluous analysis. Modern data-management platforms sum-up all the straightforward displays and help big corporations to get a snapshot of their situation while highlighting weakness and strength. Maps, bar charts, line graphs, scatter plot, area charts, box plot or radar charts are one of the components of comprehensive dashboards every user can read and understand. Data visualization and intuitive navigation make users able to detect from their own, vulnerabilities and state straightforward directions to follow. What a better management strategy than the auto-persuasion of each team member on the strategy to follow.
This move to Data-Driven Real Estate companies will help us start to compare what is comparable. In order to benchmark a portfolio composed of diverse assets, we need to filter, group, minimize impacting variables (turnover, sun exposition, opening hours, surface, usage…). When we will be able to take into account all these criteria our analysis will start to make sense.
3- Data-interpretation: don’t stop on the analysis, transform the data into actionable optimization plans
More than two-thirds of the current overall building stock will be in-situ in 2050, we can guess that we will need to go through costly retrofits to increase energy efficiency and switch to lower fossil power source in order to decrease the sector’s carbon footprint.
Before investing millions to reshape our buildings, it’s vital to start understanding how they consume, how they are managed and set a pragmatic action plan. In other words, before reaching the approval of our directors to invest in long-term payback refurbishment, we need to start first with less cash-burning measures such as operational optimization and so gather data to draft a very precise and strategic refurbishment plan. Start small to go big very fast. For instance, studies that cross opening hours data with consumption data make you able to map undesirable consumptions, your property managers set a timer on your different types of equipment. You will get some interesting savings in a few months and your team and direction will be confident to move to more ambitious plans. Thanks to your data-driven approach, you can measure the savings you make, the efficiency of your team, the comfort level enhancement, the progress of your macro-plans (relamping, equipment shifting…). You will connect the dots between building users, maintenance teams, and building owners and get confident with the proposal of needed more in-depth optimizations.
Real Estate is a long-term oriented industry and climate change puts at risk its future profitability. More than the real necessity of avoiding coming risks, the Real Estate industry as a lot of economic and managerial advantages to win in its way to sustainability. As we need to go fast, it’s fundamental that this necessity to change get backed by technology. It will have positive outcomes such as :
- Increasing Value to the Assets
- Increasing Company Reputation
- Better Understanding Assets Behaviours
- Reducing BIAS in Decision Making
- Reducing Energy Expense
How will be the Future for ESG data?
In 2015, United Nations have adopted the 2030 Agenda for Sustainable Development, 17 essential goals society and economy need to focus on. To follow our progress on these goals, it’s essential to be transparent on the reporting of our ESG policy results.
Tomorrow, ESG reporting will broaden and elevate its standards. A responsible company is not anymore a company that monitors its consumption and tries to reduce it. A responsible company integrates and assesses all the indirect impacts that occur in its value chain. And there is a lot more to come. New technologies will enhance ESG data accessibility. Third-party initiatives, NGO or associations will strengthen control on the submission of reportings as they will propose new reporting standards such as the TFCFD. Environment data is increasingly shared open source such as planet data inventory maps (Global Forest Watch), it will be another point of control and acceleration of these standards. Last, I think ESG will come down to every business unit day to day reality. It will be declined from top-management strategic frameworks to local, and operational plans.
