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GBCA head encourages GRI reporting

The CEO of the Green Building Council of Australia, Romily Madew, made an impassioned call for more GRI reporting, at the launch of the GRI Standards in Sydney on 15 November 2016.

 

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Here is her speech:

‘Sustainability in the ESG era’

GRI Standards Launch Sydney

Tuesday 15 November 2016

Romily Madew, Chief Executive Officer, green Building Council of Australia

Thank you for the opportunity to be here today.

E-S-G.

These three little letters have become a “catch all” term for socially responsible investing.

While environmental, social and corporate governance has risen up the boardroom agenda in recent years, it’s not actually a new concept.

Throughout history, investors have made decisions about where they’d place their cash.

Financial return has usually been the most pressing concern of investors.

However, political and ethical considerations have often come into play.

Think the 18th and 19th century abolitionists who refused to invest in businesses that profited from slavery

Or the selective disinvestment in South African companies during the apartheid regime.

In 1962, free-market philosopher Milton Friedman argued that corporate social responsibility was “fundamentally subversive” –

as it is the pursuit of individual interest in an unrestrained market.

 

Friedman believed that a company or asset’s value should be determined solely by the bottom line.

Enter the era in which Gordon Gekko’s “greed is good” mantra echoed down the corridors of power.

Business decided that it operated in a separate sphere – in a place where bosses told people to “just do it”.

But the high-tech world has made our lives “hyper-connected and hyper-transparent”,

as another Friedman, Thomas, the author of The World is Flat, says.

We can easily peer into each other’s businesses and lives and share what we see with the world.

In this hyper-connected and hyper-transparent world, how does business maintain a separate sphere?

What happens when a business decision down your supply chain lands you on the front page of the newspapers?

How does it look when consumers know that Indian children are being made to stitch footballs for 10 cents an hour in sweat shops?

That Sri Lankan women are being burnt to death in factories so we can get cheap t-shirts?

Or that villages in Brazil have been swept away so mining companies can continue to extract iron ore?

Companies don’t operate in a vacuum.

Increasingly we’re seeing community values disrupt not only individual companies but entire industries.

The suspension of live cattle exports to Indonesia after community outrage at a Four Corners program is probably the most famous example of this.

Ray Anderson, founder the world’s most sustainable carpet manufacturer, Interface, once declared: “In the future, people like me will go to jail.”

 

Today, shareholders, who once waited by the letterbox to get the latest update on their investments, now know – in a matter of seconds via Twitter – about the mine explosion in Turkey, the political corruption scandal in Sydney or the oil spill in the Gulf of Mexico.

These non-financial issues can rapidly turn into financial risks for a company and for an investor.

And a company’s stocks can suffer as a result.

Shares in financial services group IOOF Holdings dropped by 20 per cent in a single day last year after allegations of misconduct, insider trading and other corrupt practices emerged.

And this is why the latest Responsible Investment Benchmark Report – published in July – found that half of all investment in Australia – worth a massive $633 billion of assets under management – is now considering ESG criteria.

A growing number of Australians are also looking at how their superannuation savings are being invested.

Members of superannuation funds are increasingly asking whether their retirement savings are being invested in tobacco, fossil fuels or supporting exploitation of people in third world countries.

Nine of the top 10 largest fund managers in Australia, along with about half of the top 50 superfunds, are using ESG as core factors to inform their investments.

There is now a solid body of evidence that companies focused on managing ESG risks are achieving better operational performance and a lower cost of capital.

Consider AMP Capital’s recent analysis of the major banks, which found the banks with the highest ESG ratings outperformed those with the lowest ratings by 3.9%.

When analysed over five and ten years, the outperformance was even stronger – 15.5% cumulative over five years and 71% cumulative over 10 years.

This is why AMP Capital says investment in sustainable assets is now

“so much more than an optional extra”.

Being green, AMP Capital argues,

“is a vital element to delivering superior investment performance well into the future.”

Leading companies now understand that sustainability is intimately connected with risk, reward and reputation.

Larry Fink, the chief executive at BlackRock, the world’s biggest investor with $4.6 trillion in assets under management, sent a letter to chief executives at S&P 500 companies and large European corporations earlier this year.

He said:

Generating sustainable returns over time requires a sharper focus not only on governance, but also on environmental and social factors facing companies today.

This isn’t just about “warm and fuzzy” socially responsible investment – it’s about understanding and managing risks.

Last week, Australia finally ratified the Paris Agreement.

We have now made a solid commitment to tackle global warming and move towards a carbon zero economy by 2050.

As we work together to limit global warming to below 2 degrees Celsius, this pact sends an economic signal to the global marketplace.

 

It also poses some significant challenges for Australia, which is currently one of the world’s highest per capita emitters.

Each January, the World Economic Forum releases its annual analysis of global risks.

And this year it found failure of climate change mitigation and adaptation to be number one of 29 risks.

It is considered to be a greater risk than weapons of mass destruction, water crises or large-scale involuntary migration.

This resonates with shareholders who are concerned about the resilience of their assets in the face of extreme weather, and their risk of being left with stranded assets as a result of climate change.

While our buildings will increasingly feel the full effects of climate change, they are also one of the main sources of the problem in the first place.

That image of swimming pools falling into the sea earlier this year resonated so deeply, because we know we are perilously close to irreversible climate change.

Australia’s residential and commercial buildings are responsible for 23 per cent of the nation’s carbon footprint.

However our buildings can also offer solutions.

Investors with a long-term view are increasingly demanding green ratings – such as Green Star in Australia – to provide positive proof that their asset is sustainable.

 

Of course, true sustainability addresses a far broader spectrum of issues than climate change.

And I believe the UN’s Sustainable Development Goals will have as great an impact as the Paris Agreement.

In September 2015, countries including Australia adopted 17 goals to end poverty, protect the planet, and ensure prosperity for all.

Each goal has specific targets to be achieved over the next 15 years.

The built environment has a direct impact on six of the 17 goals:

Goal 3: Good Health & Well-Being

  • Goal 7: Affordable & Clean Energy
  • Goal 9: Industry, Innovation & Infrastructure
  • Goal 11: Sustainable Cities & Communities
  • Goal 12: Responsible consumption and production
  • Goal 13: Climate Action.

While it may seem these goals are predominantly the concern of governments, particularly those in the developing world, they are affecting how businesses operate, and the type of investments available to them.

For example, multinational financial services company Credit Suisse has noted that “regulations at national and international level are likely to be affected by the SDGs, so businesses will be expected to follow those rules and should consequently align their activities with them.”

We expect to see that contributions to the SDGs will be a metric against which business, infrastructure and the built environment will be assessed.

At the same time, our future is being shaped by megatrends that are changing the way we live forever.

These include urbanisation, innovation in technology, a growing interest in wellness, and awareness of sustainability across the value chain, among others.

Green Star has now been around for over a decade, and the Green Building Council of Australia has certified more than 21 million square metres of green building space.

There are now have more than 1,350 Green Star rated projects around Australia, and 30 per cent of our commercial office space is Green Star certified.

A massive 636,000 Australians now work in Green Star-rated offices – that’s 5 per cent of the nation’s total workforce.

1.2 million people visit a Green Star shopping centre each day.

And a growing number of residential developers are achieving Green Star ratings for their apartment developments as customers seek homes that are low-impact, energy-efficient and resilient to climate shocks.

Green Star certification is increasingly seen as not only a measure of a building’s sustainability, but as a measure of quality assurance.

As ISPT chief executive Daryl Browning says: “Those investing in or occupying properties need benchmarks they can rely on. Green Star certification is one of the quality assurance measures everyone can rely on with confidence.”

Globally, Australian property companies lead the world on the top sustainability metrics.

The 2016 Global Real Estate Sustainability Benchmark – or GRESB – named Australia THE global green leader for the sixth year running…

 

The survey, assessed 759 property companies and private equity real estate funds

Representing 61,000 assets from 63 countries

And $2.8 trillion – or AUD$3.2 trillion –  in asset value.

GRESB says that Australia’s real estate sector “regards superior ESG performance as a proxy for quality – both at the asset and manager level.”

Which is why the latest World Green Building Trends report find “green building continues to double every three years”.

Environmental regulations or corporate social responsibility are no longer the main drivers for sustainable building.

40% of respondents to the Trends report noted client demand as the primary driver for green building activity.

Green bonds are also on the rise, giving investors a solid guarantee that their money is being invested in future-focused projects.

Stockland used its green bond to finance a range of Green Star projects.

So did ANZ.

The Climate Bonds Initiative says that $42.2 billion dollars in green bonds were issued last year – but that figure has already been surpassed in 2016.

Tenants increasingly demand Green Star ratings – to help them cut costs, attract and retain staff, build brand and boost productivity.

But most importantly, to help them attract and retain stakeholders and customers.

When all the big banks – including NAB, Commonwealth, ANZ and Westpac – and law firms including Clayton, Corrs and Freehills are embracing sustainability, you know it’s because it’s a smart business move.

Entire supply chains are embedding sustainability along their length.

On Barangaroo South, Lendlease developed a supply chain management framework to upskill all its contractors on sustainability.

In general, the industry’s leaders are looking at their supply chains

not only to secure competitive advantage,

but to demonstrate transparency and accountability as global regulations tighten across a range of issues, from climate change to human exploitation.

 

Meanwhile, we now have an integrated federal ministry for environment and energy – and this promises to shake things up.

Josh Frydenberg’s appointment brings together the ‘big picture’ of meeting climate targets, while investing in clean energy and unlocking the potential of carbon zero economy.

Importantly, linking energy and environment will lead to more “joined up” thinking around environment policy – something we’ve been calling for over many years.

On an individual level, people want their personal values to align with their professional values – and to contribute to organisations that are ‘doing well by doing good”.

This goes for everyone – from employees to customers.

GRI tells us that around 40% of jobseekers now read a company’s sustainability report.

Deloitte’s latest survey of nearly 8,000 millennials across 29 countries found three quarters want to work for companies that make a positive impact on society.

Consumers are also rewarding sustainability with their wallets.

The 2015 Global CSR study of nearly 10,000 consumers found that:

  • 90% would switch brands to support specific cause, and
  • 84% deliberately sought out socially-responsible products.

 

Consumers are increasingly demanding products and services that Trendwatching has dubbed “eco-superior”.

This is not just about being green – it’s about being superior.

Think superior functionality, superior design and superior savings.

It should come as no surprise, then, that the world’s largest companies are all invested in corporate social responsibility programs.

PwC’s latest Global CEO Survey, released in February, reveals that 64% of CEOs see corporate social responsibility as core to their business rather than being a stand-alone program.

 

So, where is all this heading?

Towards greater emphasis on transparency, accountability and reporting.

And this makes the GRI an indispensable part of any modern-day business toolkit.

GRI’s Sustainability Reporting Guidelines are used by all the big players in the property and construction industry.

But the guidelines are increasingly used many of the smaller companies who aren’t beholden to shareholders,

but who increasingly that recognise reporting against GRI’s standards

enhances their brand and enables them to attract new contracts and partnerships, not to mention employees.

 

There are already natural synergies between GRI and Green Star –

as Green Star aligns with many of the material issues covered in GRI’s reporting criteria, from resource efficiency and climate change to sustainable design and supply chain management.

We encourage our members to embrace best practice – which is what Green Star is all about – and so support GRI as a compelling way to report on ESG.

And we are currently exploring how we can align future evolutions of Green Star to GRI reporting criteria –

especially to help companies report on the operational performance of their portfolios.

 

All the signposts are pointing in the same direction.

People really do care of the future of the planet and the citizens who call it home.

And people do expect more accountability from the corporate sector than ever before.

One of the best ways to demonstrate accountability is through transparency.

Increased transparency – being demanded by governments, consumers, employees and shareholders – will drive more companies to report on their sustainability efforts.

And it will drive more companies to seek Green Star ratings as they seek to demonstrate their commitment to green, not greenwash.

 

But this is no longer about saving energy and saving money.

It is about being a good corporate citizen and ensuring you have a social license to operate.

The industry’s agenda has evolved from its early emphasis on environmental sustainability.

The world is interconnected, and we have a shared fate and a shared responsibility – to our communities, to our society and to our environment.

This may be a new way of thinking for some of us.

But it’s one which businesses are embracing not because it’s the moral thing to do.

Not because it will help build brand equity, attract Generation Y employees or provide competitive differentiation.

Not even because it will secure shareholders.

They are looking at their investments through an ESG lens because they know it’s the only way to secure a long-term sustainable asset.

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