In a recent update for 2021, for example, CDP showed leading real estate companies to have scored between an A and F, with A denoting "leadership level" and an F standing for "failure to provide sufficient information to be evaluated'. To be sure, an F score does not indicate failure in environmental leadership. .
Mahindra Lifespace Developers Ltd bagged leadership status with a ranking of A- and DLF Ltd scored an F. CDP is a global non-profit that runs a disclosure system for companies, cities, states and regions to report their environmental impacts. Global Reporting Initiative (GRI), Sustainability Accounting Standards Board and Task Force on Climate-Related Financial Disclosures (TCFD) are some of the internationally accepted reporting frameworks for disclosure of environmental impact.
|Company Name||Country||Score: Climate Change|
|Godrej Properties Limited||India||C|
|Housing Development & Infrastructure||India||F|
|Mahindra Lifespace Developer Limited||India||A-|
*The above table represents some of the top Indian real estate firms scored on CDP Annual list.
Source: CDP Annual Score; https://www.cdp.net/en/companies/companies-scores#446647786929955804cc9a3a08ef1eb4
Why are real estate companies important?
According to World Economic Forum (WEF) data, the built environment amounts to massive amounts of energy usage and about 40 percent of global carbon dioxide (CO2) emissions. While there are upsides like huge employability and contribution to economic output, the world needs to bring about a transformation and create sustainable habitats. So the need for stricter compliances.
India is gradually moving towards the creation of a compliance framework for listed and unlisted companies. The Securities and Exchange Board of India, through a circular dated November 4, 2015, prescribed the format for a Business Responsibility Report (BRR)in respect of reporting on environment, social and governance (ESG) parameters by listed entities. This includes real estate firms too.
The capital markets regulator brought in an amendment to regulation 34 (2) (f) of the Listing Obligations and Disclosure Requirements (LODR) Regulations through a gazette notification dated May 0, 2021. SEBI has now introduced new reporting requirements on ESG parameters called the Business Responsibility and Sustainability Report (BRSR). BRSR is accompanied by a guidance note to enable companies to interpret the scope of disclosures.
A related circular said: “In terms of the aforesaid amendment, with effect from the financial year 2022-2023, filing of BRSR shall be mandatory for the top 1000 listed companies (by market capitalization) and shall replace the existing BRR. Filing of BRSR is voluntary for the financial year 2021-22.”
Commenting on the annual scores of real state companies and their adherence to environmental parameters, Prarthana Borah, director of CDP India, said: “CDP scores demonstrate the environmental stewardship companies, including real estate and otherwise, are taking in their businesses…The scores are based on the environmental data disclosed to CDP during the annual reporting cycle. The scores for the disclosing companies of the sector have seen a good rise, meaning increasing climate action.”
But does that mean greater transparency?
It is a question on which the industry seems to be divided. “While some of the real estate companies have taken substantial initiatives not only to assess their own ESG performance but also to adopt a framework for continuous monitoring and disclosure, some others are lagging behind significantly. This is somewhat different from what we observe in other sectors, where peer activities have historically motivated organisations to take initiatives on sustainability matters, resulting in as-a-whole progress on ESG for the sectors. The cost-competitiveness for the real estate sector is fierce, and perhaps the customer awareness is not as much as in some other sectors," said Dipankar Ghosh, partner & leader at the sustainability, climate change & ESG practice at Thinkthrough Consulting. The company is a New Delhi-based advisory and consulting space offering developmental solutions.
“Market power is a great driver for industry to excel, and real estate industry somehow missed this. Real estate consumers’ capacity needs to be systematically enhanced; that would motivate the sectoral players to take note and act,” added Ghosh.
Experts have said that the industry will follow the best practices and leaders. While the policy interventions will continue to press the need for greater transparency and ESG action, leading real estate companies say they have been doing their bit.
Take the example of Mahindra Lifespace Developers. The company has carved a unique path as a real estate developer with a 100 percent green-certified portfolio since 2014. All Mahindra Lifespaces projects incorporate climate-responsive designs, green architecture and environment-friendly building materials, which are sourced through a sustainable supply chain. Mahindra Lifespaces is one of the first real estate companies in India to have committed to the global Science Based Targets initiative (SBTi).
“The Company is also targeting carbon neutrality by 2040 and is currently actioning its 2025 sustainability roadmap. The company has also signed up to the IGBC Mission on Net Zero 2050,” said Sunita Purushottam, head of sustainability at Mahindra Lifespace Developers.
“Throughout our locations, we monitor energy consumption during construction and even across our offices. Every year, while there is energy saving, there is also a focus on waste diversion from landfills through composting and saving several kilolitres of water. Our green building strategies are not applied in the building but is also put in use while selecting materials. We are also mindful while signing power purchase agreements for projects. Applying the best practices is already showing results. Now vendors and suppliers are talking about lowering carbon footprint while manufacturing the construction materials. Several innovative solutions are also coming up in waste management systems on-site.”
According to the company’s Sustainability Report for 2020-21, Mahindra World City in Chennai has certified a Zero Waste to Landfill (ZWL) location. The company’s Jaipur project is another climate-positive project.
DLF Ltd has also introduced several measures across its projects. The company said its luxury housing project, The Camellias, is India’s first residential project to be accredited with the LEED Platinum certification by the US Green Building Council. The project inorporates many sustainability and energy conservation efforts. While the project used mature transplanted trees saved from felling, it has a sewage treatment plant to recycle wastewater. Additionally, it is fortified with a range of features to save energy and water.
CDP’s scoring represents just the tip of the iceberg and offers a glimpse of the larger problem! The country’s real estate industry is huge. Industry bodies such as the National Real Estate Development Council and the Confederation of Real Estate Developers' Associations of India have over 5.500 and about 16,000 members pan India, respectively.
The large number of developers operating in the country means there are smaller unorganised developers too working in smaller towns and cities. Compliance with regulations would be a challenge.
Investors prefer to partner with companies that adhere to transparent ESG reporting. “It is only a matter of time when a majority of companies will start following climate norms. And the footprint of green buildings is increasing. Moreover, big investors such as HDFC, IFC, and Blackrock focusing on the space are already asking for adherence with ESG best practices and standards. Adherence to ESG practices will soon be the new norm,” added Purushottam of Mahindra Lifespace Developers.
“Fortunately, the investors for the sector, including ADB and IFC led institutions, have already taken up initiatives on sustainable housing; that will go a long way for internalising ESG in real estate,” added Ghosh of Thinkthrough Consulting.
That's a point that developers have agreed on. As a result, smaller companies are likely to follow their bigger peers. “Leading developers like us will act as influencers. We are working towards decarbonising the sector. If the government has a mandate to reduce energy consumption and increase the use of renewable energy, the built environment will have to adhere to the evolving norms,” added Purushottam.
What should companies do?
Experts have suggested a few steps for the industry to adopt. “We need to create an ecosystem involving peer industry as well as across the value chain. If the industry can create a benchmark for themselves for good governance, use of low-carbon and environmentally sustainable material, sustainable design and construction practices, and work together for a life-cycle approach on sustainability, that will change the sector towards a resilient future,” said Ghosh of Thinkthrough Consulting.
“You can’t manage what you don’t measure and thus the first step towards driving sustainable development is disclosure. And the next step would be the implementation of the disclosures into action. We have seen a rise in the green building movement in the country which is signifying the sustainable strategies coming into implementation but a lot more innovation is required from the sector,” added Borah of CDP.
“There is a need for developers to understand the benefit of using sustainable materials and technology. And using these would mean that there will be a benefit for consumers,” said Purushottam.
There is hope at the end. India ranked third, after China and Canada, in the world for LEED-certified green buildings in 2021 in the US Green Building Council's annual list. LEED is short for Leadership in Energy and Environmental Design.