A bright spot to
start 2021? You can
do well and do good
As sustainability’s popularity has ebbed and flowed over the last half century, many have written it off as a buzzword. But the sustainability conversation in 2020 is different – and sustainability is here to stay. Here are 3 compelling reasons why:
Climate change risks – and economic costs – are growing quickly and are expected to rapidly accelerate
It’s no secret that the COVID-19 pandemic has highlighted both the fragility of our interconnected, global systems and the risks inherent in being unprepared for catastrophic events. And the pandemic foreshadows many challenges that will be amplified in the fight against climate change – which is forecasted to be 5 times deadlier than COVID-19 by 2100, with an economic impact equivalent to a COVID-sized disaster every 10 years.
This isn’t just speculation: we’re already starting to feel the economic impacts of climate change. Extreme weather events continue to become more frequent, more severe, and more costly – creating nearly $1 trillion dollars of damage in the US alone in the last decade, almost 5 times the levels recorded 4 decades ago.
This trend should be of obvious concern to commercial property owners who bear the financial burdens of both business disruption during and post-crisis and of rebuilding after a natural disaster - and insurance alone covers only a portion of the cost. In 2017, insurers paid out a record $135 billion globally for damage from storms and natural disasters – which does not come close to covering the estimated actual damages (estimated to be $307 billion in the US alone). Building owners should also expect insurance premiums to rise as risk management models account for heightened fire, flood and storm risks – potentially eroding asset values even further.
And what’s worse is that if we do not make meaningful worldwide progress on the fight against climate change, the global economy is forecasted to take up to a $790 trillion dollar hit by 2100 – more than 7 times the current global GDP.
The bottom line: Climate change and its effects are becoming exponentially costlier for both organizations and individuals – and the implications for the real estate sector are especially significant. Immediate, coordinated actions across industries, geographies, and organizations are required to stem climate change’s rising tide.
The business case for sustainability has never been stronger – you don’t have to choose between doing well and doing good
For years, many business leaders have hesitated to act on sustainability, perceiving it as a costly endeavor with minimal quantifiable financial payoff. Today, however, there is growing consensus that it’s possible to both do well and do good.
On the cost side of the equation, sustainability is becoming increasingly affordable. Here are a few examples from the real estate sector:
Today, with smart planning and budgeting processes, highly sustainable buildings can be built with no net increase in construction costs. This trend is expected to continue as sustainable technologies (like LEDs and IoT sensors) become more widely available and less costly.
Most organizations have many no- or low-cost opportunities to reduce energy consumption (and costs). For example, one JLL client was able to reduce operating costs by $1.5 million by simply adjusting their HVAC and lighting schedules.
Renewable energy prices are currently at record lows. Now is an especially attractive time to lock-in these low rates: as more and more organizations (including JLL) make net zero carbon pledges, demand for renewables is expected to skyrocket - which may drive prices up.
On the financial performance side of the equation, the benefits of acting sustainably are similarly well-documented.
Harvard Business School researchers found that companies that concentrated their efforts on material sustainability issues outperformed their peers in terms of total shareholder returns by 4.8%. It’s no surprise, then, that 73% of investment analysts include environmental, social and governance (ESG) criteria in their investment decisions.
In the real estate sector, there’s also growing consensus that sustainable spaces pay off financially. According to a JLL study, BREEAM Outstanding certified buildings garnered rents 14 percent higher than new, non-certified Class A properties between 2017 and 2019.
The bottom line: Sustainability doesn’t have to come at the expense of financial performance – and in fact, sustainability can enhance financial performance. There’s never been a better time – or a stronger business case – to act on sustainability.
Stakeholder pressure is increasing – and not expected to let up any time soon
Organizations are facing more pressure than ever on sustainability from investors, employees, customers, and governments – creating a compelling incentive for businesses to translate their sustainability ambitions into action.
An overwhelming majority (98%) of investors are using nonfinancial disclosures to make investment decisions – and organizations are responding by opting into disclosure frameworks like the Task Force on Climate-Related Financial Disclosures (TCFD), which has gathered more than 1,400 supporting organizations together (representing $12.6 trillion in market cap) since its inception in mid-2017.
In a talent market where 9 out of 10 professionals say that they would sacrifice pay for more meaningful work, employees and jobseekers are more focused on purpose than ever before – and sustainability can play an important role in helping organizations prove that they’re purpose-led and purpose-driven.
Prospective employees are also scrutinizing employers’ sustainability records more closely than ever before – and they’re using it to make career decisions. In fact, nearly three-quarters of millennials – who now comprise roughly 50% of the global workforce - have indicated that they would prioritize sustainability over other factors when evaluating job opportunities.
Customers are increasingly using sustainability as a major factor in making purchase decisions – and this sentiment persists even in light of the pandemic. In a recent consumer survey, 90% of respondents said that they were equally or more concerned about environmental issues following the pandemic.
This trend is also emerging in B2B settings, where a recent survey found that approximately two-thirds of B2B buyers prefer to work with companies that are working to reduce their environmental impact. As more and more companies commit to greening their value chains, we can expect that this sentiment will only become more widespread.
Governments are placing renewed focus on sustainable legislation and regulation. For example, about a quarter of the European Union’s €750 billion COVID-19 recovery fund has been earmarked for the fight against climate change. At a country level, the UK announced this week that it will make climate disclosures mandatory for large businesses and financial institutions across its economy by 2025. And major cities – including New York City – are putting sustainability compliance front and center.
The bottom line: With stakeholder pressure mounting from multiple directions, organizations are more incentivized than ever before to act on sustainability – as a lever to drive shareholder value, attract and retain top talent, win new business, and stay ahead of regulations. As this trend continues, we expect to see effective sustainability management serve as a proxy for effective business management.
It’s clear that in 2020 and beyond, the sustainability conversation is more urgent than ever before and not ending anytime soon – especially as the realities of climate change sink in, sustainability and financial performance become more intertwined, and stakeholder pressures continue to build.
To learn more about how JLL can support you on your sustainability journey, click here.