I’ve always been fascinated by clients who ask about the business case for sustainability. It means they don’t understand what sustainability is, what opportunities, benefits and ramifications it represents, how it engages them, even down to how it doesn’t necessarily affect the price of the products they use in their projects.
Let me explain. If you asked a client, “Would you like me to specify toxic or non-toxic paints in your baby nursery?” Do you think their first response would be “Well what does it cost?” In my experience (yes I’ve actually asked that question of clients numerous times), their first reaction is ‘Well non-toxic obviously, I don’t want my baby exposed to toxic chemicals!” Their second response might then ask about costs. Now flip to the Board Room, and ask the same question and the response is often the cost question first. Why do you think that is? Let’s be honest about it.
Historically, many haven’t cared about the people who would occupy the homes or buildings in the end. The number of companies and projects that do care now is at its highest ever…evidenced by the growth of sustainability certified projects and the growth in the rating schemes certifying them. Schemes like Green Star®, the International WELL™ Building Standard (WELL™), the Infrastructure Sustainability (IS) rating tool, EarthCheck®, the Living Building Challenge (LBC), EnviroDevelopment, even the USA rating tool LEED is used in Australia, as well as sustainability frameworks like ‘One Planet Living’. So more professionals are caring more, because more clients and lessees are insisting on it. Let’s look at some statistics.
According to the Green Building Council of Australia (GBCA), there are currently 2,350 Green Star certifications and:
- 40% of office and retail space is Green Star certified
- 6% of the workforce head to a green office each day
- 3 million people visit a Green Star-rated shopping centre each day
- 60,000 people live in Green Star-rated apartments
- 480,000 people are moving into Green Star communities.
The WELL™ program exploded into Australia several years ago now and currently certified also approximately 40% of all commercial interiors for the healthiness of their fitout and business operations. According to Rick Fedrizzi the WELL™ CEO, ‘What sets WELL apart is its requirement for performance testing. We evaluate more than 60 performance indicators, requiring over 20 tests and using more than 10 pieces of equipment to actually verify the performance”. WELL has been so successful here, Australia is now the third largest market for WELL worldwide.
The reason for this is well established, consumers and workers are much more aware and demanding and paying for more sustainable products and services.
Mobium Group’s ‘Living LOHAS 6’ research report in 2019 found:
The market or LOHAS consumer products has grown from $12bn in 2007 to $30Bn in 2018 and is on track to nearly triple by 2021. The Food & Nutrition, Buildings & Energy and Transport & Leisure categories have each grown by around $1Bn in spend over the last four years making them the biggest growth categories…
Even non consumer/user related project like infrastructure that are Government driven are leading the sustainability charge as Governments respond to voter pressures. The ‘IS’ rating tool, currently has over $100 billion worth of projects under certification, and sustainable product certification by recognised third party certifiers such as Global GreenTag, is, as with all the other rating tools one of the essential criteria considered by the tool to gain the necessary credit points to increase rating outcomes.
But from a product point of view sustainability it is in reality, often not about cost, as sustainably certified products are out there every day in the market place competing on cost with those that aren’t, and often still winning the work. To take the paint example mentioned previously. Originally, low volatile organic compound (VOC) emission paints were more expensive, but now it’s hard not to buy Low VOC (or ‘Low Odour) paints and the costs are competitive across various ranges of equal qualities. So ultimately it’s more about knowledge, quality and consistency.
Why? Well once you have the knowledge about which products are certified as sustainable and rated against each other to show which perform more sustainably than others, you will find that sustainability certification is a useful proxy for quality, reliability and consistency as well. In a sense sustainability is an extension of quality…and quality sells.
Yes of course products can be made and purchased poorly and this tends to result in shoddy construction, and maybe bigger builder margins up front, but also bigger warranty claims and ultimately potentially bigger or more building failures resulting in increased downstream costs and reputational damage as we have seen recently in the high rise apartment market.
But even all of this together, doesn’t even touch the surface of the real drivers behind the increase in awareness and care about sustainability, climate change, and the recent examples of unparalleled, runaway, catastrophic bushfires and drought with almost simultaneous increased storms and cyclone intensities, coral bleaching, billion-plus mass animal and ecosystem deaths, dire levels of plastic pollution, and the current COVID-19 and its laser focus on everyone’s health, all come back ultimately to plummeting levels of global and local sustainability.
Combine this with the shifting demographics and the increasing importance being placed on Sustainability by Millennials, Gen Xers and GenYs, now advancing into voting ages.
The Lowy Institute in late 2019 published the following:
The past seven years have seen a dramatic reversal in Australian attitudes about climate change. In 2019, six in ten Australians (61%) say ‘global warming is a serious and pressing problem’, about which ‘we should begin taking steps now even if this involves significant costs’. This is a 25-point increase since 2012, and equals 2008 levels of concern. The peak of concern was recorded in 2006, when 68% of Australians expressed this view.
There are generational differences on this issue. Three-quarters of Australians aged 18–44 (76%) say that global warming is a ‘serious and pressing problem [and] we should begin taking steps now even if this involves significant costs’, compared with around half (49%) of Australians aged over 45. About the same proportion of this older group (52%) see climate change as a critical threat to Australia’s vital interests.
This movement is now starting to impact board rooms as the trend towards sustainability is becoming a bow wave of shareholder, share buyer and Super Fund stock exchange activism. Combined with and buoyed by the ‘Divest’ movement, the terminal decline in fossil fuel energy, the plummeting costs of renewable, battery and other storage and electric vehicles and the overall change in national attitudes as a result of all of the above and businesses that don’t take note of these current megatrends are doomed to a short life and a ‘firey’ departure.
Companies that engage in or support carbon intensive activities risk a loss of social licence and reputational damage. Louise Davidson, CEO of the Australian Council of Superannuation Investors (ACSI) said in 2019:
…investors are voting to hold companies to account for behaviour that falls below community and market expectations. In doing so, investors acknowledge the strong link between good corporate governance (including effective management of their environmental and social impacts) and sustainable long-term returns.
ASIC has now incorporated climate change into the list of common risks that may need to be disclosed in a prospectuses and other disclosures including voluntary disclosures in an annual or sustainability report and now requires climate change risks to be relevant considerations for directors when determining key assumptions that underlie impairment calculations of companies.
The 2019 Australian AGM season saw 8 of the ASX 50 face sustainability-related activist shareholder resolutions (an increase from 2018). Successfully managing climate and sustainability related risks create opportunities for companies to avoid shareholder activism of this nature and avoid the negative impacts on share value that the negative press generates.
The ACSI reviews the sustainability reporting performance of the ASX 200 annually and rates them to various performance levels ‘No reporting’, ‘Basic’, ‘Moderate’, ‘Detailed’ and ‘Leading’. Leading companies provide comprehensive reporting of their material ESG risks and mitigation strategies, reporting of targets and performance data across a range of different risk areas, and discussion of the materiality of those issues and how they are incorporated into the company’s overall strategy.
The benefits of deep integration of sustainability into business is obvious from the ACSI statistics:
- 82 cents of every dollar invested in the ASX200 concentrated in companies rated as ‘Detailed’ or ‘Leading’;
- The ASX20 group of companies contains only ‘Detailed’ or ‘Leading’ rated companies;
- ‘Leaders’ represent now the largest cohort of 33% of ASX200 companies;
- 76% of the ASX200 rated as ‘Moderate’ or better;
- Sectors with 70% of companies disclosing at a ‘Detailed’/’Leading’ level Materials, Real Estate, Energy & Utilities, Commercial & Professional Services, Insurance and Transportation.
The main reasons the real estate sector are driving sustainability are the investor benefits to the value of their businesses and underpinning this is the value enhancement to their underlying assets and income streams, as the following compelling statistics from a recent Cityswitch report show:
…a 4.5 Star NABERS energy-rated, 5-Star Green-rated office saves the typical financial or professional services firm $262,014 each year in reduced absenteeism, $824,792 per year in employee retention and $3,654,744 per year through an 11 per cent jump in productivity
In today’s competitive talent market offering a ‘green’ workplace also helps businesses attract and keep top employees. So sustainability also makes sense for homeowners, tenants, building owners, developers, architects and designers, builders and business owners.
It makes sense to use sustainable products as many come at no net cost if you choose them using scientifically assessed third party certified products before you make your cost decisions. Such products allow green professionals to identify and choose products quickly and accurately and enable them and their clients to trust those products and their own decisions. Not going down this route is ultimately an indicator of a lack of quality, diligence and understanding.
Sustainable buildings can be built at equal cost to lower quality buildings, but that is not to say all aspects of implementing sustainability are of equal or lower cost…how to combine building and system design with product selection to negate the extra cost of some additional sustainability hardware requires skilled integrative design…but that’s a topic for another time. The product decisions are easy. You just have to know where to look.
Whatsmore the current COVID-19 pandemic is likely to alter consumer behaviours permanently and cause lasting structural changes to the consumer goods and retail industries towards more sustainable outcomes, according to findings of an Accenture survey of more than 3,000 consumers in 15 countries across five continents in April this year. Glenn Heppell, Products Lead, Accenture Australia and New Zealand said recently:
The pandemic is likely to produce a more sustainable, healthier era of consumption over the next 10 years, making consumers think more about balancing what they buy and how they spend their time with global issues of sustainability — suggesting a healthier human habitation of the planet. At the same time, it’s a wake-up call for companies to ensure they have the agility and capability to be relevant to consumers and customers — with a portfolio of products and services that match shifting purchasing patterns — not just today, but post-pandemic as well.
That sounds like the beginning of a new wave of focus on sustainability in the home, that will no doubt flow though into workplace needs and ultimately design and product selection briefs. Will you be ready?
By David Baggs, CEO, Global Green Tag Ltd
Multi-award winning architect, sustainability, life cycle assessment (LCA) consultant and Integrative Design Facilitator with over 30 years green building design & product assessment experience. A passionate advocate for a sustainable future in the built environment, David heads up the world leading Global GreenTag Green Product Certification Program, the Integreco Consulting green building and sustainability solutions consulting team and is co-founder of the Ecospecifier green product and knowledge portal that helps consumers and professionals progress sustainability by their product choices.