17 March 2021
In a previous article, I introduced the current trends and challenges that logistic assets face today. This time of global turmoil has demonstrated the resilience of the logistic asset market and its exponential growth ahead. This growth is reliable and global, but it also needs to be responsible. Indeed, the massive volume of required logistics assets (Prologis estimates 16.7 million m2 of new asset space by mid-2020) leaves no doubt that there is a need to uphold the highest ESG standards in comparison to other asset classes.
One way to better incorporate ESG standards is to assess logistics assets and sustainability initiatives against third-party benchmarking standards and develop long-term targets. This is often divided into two categories, existing assets, and new contraction projects:
Existing Assets – Two widely used benchmarking schemes for existing assets are the Global Real Estate Sustainability Benchmark (GRESB) for reporting and the Building Research Establishment Environmental Assessment Method (BREEAM), governed by the European based Building Research Establishment (BRE).
New Contraction Projects –The two internationally recognized certificates are BREEAM, and LEED, governed by the U.S. Green Building Council Inc. (USGBC).
These schemes promote the best practices in sustainable and resilient construction. But how exactly do these schemes answer to UN sustainable development goals (SDGs)? The UN SDGs are a useful framework that investors can use to take a wholistic view on investing and create value for all stakeholders, leading to increased stakeholder engagement and a responsible, purpose driven business. In the asset management context, this framework can enhance engagement with tenants and the local community, as the SDGs brings multiple stakeholders to the table, unlocking synergies that were not previously possible. SDG aligned assets can attract tenants utilizing the UN SDG framework in their sustainability strategy.
Our next article will establish the relationship between ESG certifications such as BREEAM, LEED, and some of the well-known UN Sustainable Development Goals, which can form the start of a UN SDG framework analysis. The UN Sustainable Development Goals address global challenges under 17 categories. We will argue that the construction industry has an impact on eight of them. But first, let’s reflect on the importance of aligning your logistic asset with the UN sustainable development goals.
Benefits to Alignment with UN Sustainable Development goals
Incorporating these guidelines will not only help building owners reach net-zero carbon targets but will also lead to a better return on investments. Warehouses with an energy production higher than their consumptions are better positioned from an investment strategy point of view on the real estate market. Since the yield on a logistics warehouse investment is between 3.5 and 5%, it becomes a highly profitable investment. Besides, if a green energy project, such as the installation of solar panels on the roof, is anticipated from the early design phases, further revenues can be produced. As an example, warehouses with on roof-PV panels installations can be profitable, as the return on investment of a photovoltaic solar power plant is typically between 6 and 15%.
The logistics real estate companies, as part of their ESG strategy, can promote sustainability in their operations and attract tenants targeting United Nations Sustainability Goals and independent sustainability rating schemes. Nevertheless, often motivated by financial return, these ambitions can be neglected by the investor and promotor if the tenant has minimal interest in these sustainable measures. From a long-term perspective, the financial sustainability of a site is measured by its ability to meet future demand and its capacity for revenue-making. It is therefore interesting to see that end customers, on which logistics service providers depends on, are starting to look into reporting their consumption and promoting sustainable warehouses. If this trend becomes widespread, customers and tenants might even start considering only responsible warehouse for their operations or request regular monitoring of CO2 emissions, both at the level of the building itself and of their daily operations.
Promoting ambitious net-zero carbon targets with clean technologies in a logistic building needs to be everyone’s long-term vision to achieve a global energy transition. Business developers must be ambitious and drive sustainability performance and innovation into their assets. They also need to raise environmental awareness to all suppliers and customers to push for buildings with a positive impact and incorporating the best sustainable practices.
The future of logistic buildings is not only around the construction of new projects, but also the refurbishment of all existing logistic assets. Energy surveys can identify energy-efficiency improvement opportunities and sustainable measures. These opportunities during refurbishment could directly have an impact on the rating of the BREEAM In-Use certification and therefore directly improve the GRESB performance. For example, LOGICOR published their ESG report and claim to implement a long-term and bespoke Learning & Development programme to demonstrate continuous improvement and promote sustainability best practices in their new developments and refurbishments.
Integrating a certification plan into any new and existing constructions represents a quality assurance for sustainable development and allows predefined guidelines to be followed. The earlier we intervene in the design process, the more we can influence and guide the project towards a comprehensive integration of green building best practices to future proof the asset.
However, certification standards have their limits of application, and it is essential to not constrain our effort and reflection to the strict number of credits achieved but to push the reflection and innovation towards state-of-the-art practices. Longevity Partners has participated in the certification process over more than 400,000 sqm across Europe and would be well positioned to help you incorporate these starts into your portfolio.