With the COP26 summit in Glasgow ending on November 12, let’s look at the implications of climate change on the real-estate sector.
A report by global commercial real-estate services firm Cushman & Wakefield notes that 39 percent of global carbon emissions are generated by the built environment and 28 percent is related to energy from building operations.
The report is titled ‘Real Estate Emergency: The Impact and Opportunities for the Asia Pacific Property Sector.’
The built environment demands around 40 percent of the world’s extracted materials, while waste from demolition and construction represents the largest single-waste stream in many countries.
Together, building and construction are responsible for 39 percent of global carbon emissions, with operational emissions (from energy used to heat, cool and light buildings) accounting for 28 percent.
The remaining 11 percent comes from embodied carbon emissions, or upfront carbon that is associated with materials and construction processes throughout the building lifecycle and value chain, the report says.
‘Most buildings in Asia-Pacific economies ageing’
It notes that while new buildings generally perform higher on sustainability metrics, most buildings in Asia-Pacific economies are ageing.
Reducing carbon emissions associated with the property industry is crucial. The whole building lifecycle is important from the initial planning and investment stages, to building, operations, refurbishment and final demolition. Property investors and tenants are both impacted by building sustainability, with the contribution of building emissions often being split between occupiers and landlords, it said.
There is significant emission impact from the construction of new buildings, even those with strong environmental credentials. Therefore, retrofit and refurbishment of existing stock are often recommended over demolition and development.
Encouragingly, governments, regulatory bodies and lenders are incentivising refurbishment of buildings to make better use of existing stock.
The UK experience
In the UK, studies have shown that building a two-bedroom house emits the equivalent of 80 tonnes of carbon dioxide, whereas refurbishment of a similar-sized property emits an average of eight tonnes, or just 10 percent of that amount.
The Task Force on Climate-related Financial Disclosures was established by The Financial Stability Board to allow global markets to accurately measure climate-related risks and opportunities.
ESG requirements in India
In India, stock exchanges require listed companies to report annual Environmental, Social, and Corporate Governance (ESG) requirements. India currently requires disclosure of ESG metrics from the top 200 listed companies, but this is soon to be extended to the top 1,000, as pressure from investors grows.
Climate risk assessment is now high on the consideration list for property investment too, the report noted.
For India, and the rest of the word, climate risk assessment at both the organisational and project levels is the main impact of the IPCC sixth assessment report, according to RK Gautham, Director of Sustainability at Cushman Wakefield India.
“Large developers, particularly those focused on mixed-use projects, recognise the need to respond when it comes to insurance premiums or impact on debt obligations,” he added. “Owner-occupiers in residential buildings, along the 20 or 30 major coastal cities, are also now more concerned about their investments, given the prospect of rising sea levels.”
How can Indian developers reduce climate risk?
There are several ways to address various climate risks impacting large-scale real-estate development. Some of the key strategies include assessing the medium- and long-term climate risks in geographies where development is being planned. The risks could be extreme weather, consequences of rising sea-levels etc.
Among the strategies are preparing for the growing challenges in sourcing grid-dependent energy by opting for onsite and offsite renewable power sources and creating conditions to enhance the availability of ground water by harvesting rain water from all available surfaces, Gautham told Moneycontrol.
Other ways include making the construction processes energy- and water- efficient and mitigating climate-triggered supply-chain disruptions by prioritising regional- or local-level sourcing, he said.
What efforts have Indian real-estate firms taken?
In India, the top 1,000 listed companies, by market capitalisation, are mandated to submit their annual ESG Reports to SEBI from FY 2022-23. It is voluntary for FY 2021-22.
A few big developers, who fall into this bracket, have anyway been doing this since 2017 (when the original law requiring ESG disclosures by the top 500 companies came into effect) as they realised the importance of assessing the environmental footprint of their operations in order to not just comply with the regulatory requirements but to consciously make efforts to reduce the same, he told Moneycontrol.
Some of them started maintaining an inventory of their greenhouse gas (GHG) emissions and notionally charging an internal carbon price for major operational activities, like business travel, long-distance sourcing of products and materials and resource-intense corporate events, he said.
There are also serious efforts being made to bring down their overall resource needs by recycling and reusing the construction and demolition waste streams, which will reflect on their environmental footprint metrics.
Green leasing practices becoming popular
Green leasing practices are becoming increasingly popular to help consolidate all such efforts among the stakeholders, he said.
Several developers, due to investors’ pressure or customer demands, are now equipped with full-fledged in-house mechanisms to work on the ESG metrics such as use of technology tools for ESG data collation and report generation. Getting projects certified under major global sustainability/ green rating systems is now a given in major metros and for almost all new developments due to peer pressure, he added.
And this is why the ESG report is important for businesses today.
What DLF, Godrej Constructions are doing
GRESB, an international organisation, considered a global standard for ESG benchmarking and reporting, has recognised DLF Ltd and DLF Cyber City Developers Ltd (DCCDL) as regional sector leaders for their developments across office space. Both entities have received the highest ranking of 5-Star.
With these recognitions, DLF has been ranked No. 1 in India, and as the overall regional sector leader for its development across the listed office space by GRESB.
DCCDL has been ranked No.2 in Asia in the regional sector for its development across the unlisted office space by GRESB, the company said in a statement.
“This recognition towards our ESG initiatives is a further testament to our efforts,” said Ashok Kumar Tyagi, Whole time Director & CEO, DLF Ltd.
Godrej Constructions said that the company has recycled over 25,000 metric tonnes of concrete debris till date by implementing circular economy principles in their construction materials line of business, while their Ready-Mix Concrete (RMC) plant, Recycled Concrete Materials (RCM) plant and common areas of Godrej IT Park building in Mumbai are now powered by 100 percent renewable energy.
"Being committed to sustainable development and a circular economy, we recycle concrete debris to make various recycled concrete materials which are in fact just as good as any other concrete product made using virgin aggregates in terms of its quality and durability parameters.
"The recycled concrete, which uses Construction & Demolition (C&D) concrete waste is also used for making customised prefabricated products, such as box culverts and ducts, which are being used in some of the major infrastructure projects in Mumbai. We hope that many others in the industry will follow in the endeavour to encourage a circular economy by using recycled products, which is clearly the need of the hour,” said Abhijeet Gawde, Head of Business Development, Marketing, Godrej Construction.
“Corporates leaders are increasingly holding themselves accountable towards contributing to positive climate action, while curating business models. At Chalet, we have a firm resolve to run our business in a responsible way and have handpicked some of the best global practices that synergise with us. For instance, we are the first hospitality company, globally, to commit to three key sustainability initiatives of the Climate Group – EV (Electric Vehicles), RE (Renewable Energy), and EP (Energy Productivity). Similarly, we have been recognised as one of the top 10 Best Workplaces for Women 2021 by GPTW,” said Sanjay Sethi, MD and CEO, Chalet Hotels Ltd.
What the law says
According to Amit Goenka, CEO/Managing Director, Nisus Finance Services Co Pvt Ltd, in India, there is no framework to determine the penalties on non-compliance of ESG norms. IMF framework has its own yardstick, with each organisation viewing ESG compliance independently.
SEBI is yet to publish its yardstick on determination of the extent to which the ESG norms have been complied with. This should become mandatory by next year. Unless there is an ESG audit, you may not know whether there is a violation or a compliance. Once there is a non-compliance found in the audit report, it would be easier to determine the penalty or the severity of non-compliance.
Global organisations such as the World Bank, the Canadian Pension Fund or the APB-- all make it mandatory to follow ESG guidelines without which firms may not receive funding. HDFC Property Fund, Nisus Finance and the SBI SWAMIH Fund have also made ESG audit mandatory. In the private capital space, it is mandatory for fund houses to undertake ESG audit as per global standards. Also, these funds have the liberty to withdraw funding if these norms have not been complied with, he told Moneycontrol.
On November 10, SEBI chief Ajay Tyagi was quoted as saying at a FICCI event that the markets’ regulator is keenly watching international developments on environment sustainability and governance (ESG) ratings as well as data providers and will take a call on the issue at relevant time,
He said BRSR or Business Responsibility and Sustainability Report has raised the game in sustainability disclosures. The regulator will keep a close watch on how companies respond to this.The SEBI chairman said the pledges made and decisions taken in COP26, including on climate finance, are steps in the right direction to address climate change-related challenges. "The expectations from company boards on sustainability issues will continue to increase going forward. BRSR has raised the game in sustainability disclosures. We will keep a close watch on how companies respond," he added.
According to Tyagi, investors are realising the implications of sustainability-related risks and have started treating these as material to their investment decisions. This is reflected in the recent increase in total assets and inflows in sustainable funds globally. Till now, regulators typically followed the voluntary or comply-or-explain approach towards ESG disclosures but now "we are seeing a shift to mandatory ESG disclosures. Such a shift is also being witnessed in Asian jurisdictions," he said.
The COP26 summit
The COP26 climate summit has been on since November 1 and will end on Friday (November 12). It is being hosted by the UK and Italian governments. The meeting is the 26th “conference of the parties” to the UN Framework Convention on Climate Change, a landmark 1994 treaty under which countries promised to avoid dangerous climate change.More than 100 countries, accounting for more than two-thirds of the global economies, have set firm dates for achieving net-zero emissions. Major economies in the developing world also brought new commitments to COP26. India also pledged to achieve net-zero goals by 2070 and ramp up installation of renewable energy. By 2030, half of India's electricity will come from renewable sources.