WHY GREEN REAL ESTATE MAKES BUSINESS SENSE
Buildings account for more than 60% of carbon emissions in cities. With rising concerns about global warming and climate change among the public and industry stakeholders, the real estate sector too is switching to sustainability goals. From employing green construction materials and adopting new building technologies to optimize the use of water and energy to using solar energy and recycling waste, the real estate firms are going the extra mile. But, a recent industry report says that only 44% of India’s Grade-A office stock is green-certified, that is quite a distance to cover. Anubhav Gupta- CEO, Vikhroli, Chief CSR and Sustainability Officer, Godrej Properties concurred that the real estate development is a resource intensive enterprise with the sector accounting for nearly 40% of world’s energy consumption, 30% of raw material use and 33% of the related global greenhouse gas (GHG) emissions. “With ongoing challenges of Climate Change, we need to ensure that we not only do everything to minimise damage to the environment but find ways of conserving resources and seek solutions to reverse these adverse impacts particularly in sectors contributing to the problem. The real estate sector therefore requires a sustainability framework across People, Process, Partnerships, Product, Profit and Planet for a comprehensive approach towards the Environmental, Social & Governance (ESG) parameters. Company level focus on ESG goals including emissions, water, waste, diversity, human rights, compliance, health and safety have the potential to translate to meaningful industry and country wide positive impact.” Shabbir Kanchwala, Chief Sustainability Officer & Senior Vice President- Project Coordination, K Raheja Corp added, “The real estate sector is a crucial driver of the Indian economy, and which will impact the most on climate change. Our prime focus is to use eco-friendly construction materials in projects to combat the threat of climate change and to lower the carbon footprint. It looks difficult but not impossible.” Pradeep Aggarwal, Founder & Chairman, Signature Global (India) Ltd was of the opinion that the as the real estate industry continues to grow and evolve, real estate stakeholders must take a proactive approach to address the issue of climate change. “We must unite and leverage our influence and resources to mitigate the environmental impacts associated with the real estate sector. This means reducing energy consumption, incorporating renewable energy sources, and promoting green building solutions. It also means investing in developing low-carbon technologies and initiatives to reduce emissions and protect the environment. By working together and taking a collaborative approach, we can ensure that the real estate industry continues to thrive without damaging the environment.” According to Mohit Mishra, Chief Marketing Officer, DLF Ltd, given that Indian economy is one of the fastest-growing economies and the realty sector the third largest contributor to the GDP, its contribution to the growth of the nation is laudable. “Having said that, the realty sector is growing at an exponential rate and with it the demand for sustainable living has also increased, however we have a long way to go. Once the projects are operational, the focus is to be given to initiatives to reduce water consumption, provision of rainwater harvesting throughout the campus, proper stormwater management, and make the campus as a zero discharge workplace with a proper solid waste management plan wherein all the waste generated in the campus is recycled and reused. Organic waste composters should be installed in the buildings and the manure generated through them should be used for landscaping.” DEMAND SCENARIO FOR SUSTAINABLE GREEN PROJECTS COVID-19 experience has drastically changed the outlook of people towards living and living conditions. The home owners and building occupants are now emphasizing hygienic indoors and natural environment outdoors. Subsequently developers too are proactively adopting green rating systems and giving prominence to building green certified projects. Mohit Mishra avers that green building/sustainable living is a concept that has developed dramatically in recent years “We have witnessed a strong inclination towards sustainability. We have found that green awareness, architectural factors, and social influence significantly aspire the consumer to even pay even higher prices for an eco-friendly lifestyle. Social Influence is the strongest factor that has positively influenced customers to pay a premium for green buildings. On the customer side, nowadays Commercial Real Estate tenants are looking for more than an office building, they are seeing provisions like solar rooftops, wind turbines, waste recycling and composting, etc. Green spaces and plantations are specially designed for every project and they are now part of any contemporary real estate buildings." Pradeep Aggarwal added, “Green housing projects are attracting homebuyers in droves as the world continues to grapple with environmental issues and the climate crisis. Homebuyers are becoming more aware of their own impact on the environment and are looking for ways to reduce it. Consequently, sustainable living is slowly taking centre stage and becoming an increasingly attractive lifestyle choice for many. Real estate developers are, therefore, responding by offering a range of green initiatives, such as energy-efficient products, renewable energy sources, and eco-friendly materials.” Shabbir Kanchwala shared, “With current scenarios all our clients leasing the space in our projects look out for highest level of green certification. Hence, yes, there is demand for sustainable green projects and that’s the need of hour. The environment and sustainability are on the minds of consumers. The customers believe businesses bear a responsibility to operate sustainably. There is tremendous rise the popularity of searches for sustainable goods over the past five years, especially after COVID-19 period.” “A renewed focus on sustainability is one of positive trends that emerged from the COVID-19 pandemic that underscored the many ways in which the quality of built environment has an impact on daily life,” said. Anubhav Gupta. “More and more residential real estate consumers (both owners and tenants) are now demanding green buildings as use over time between green and non-green developments clearly shows an impact on wellness, and efficiency/resource optimisation. Communities are mobilising to ensure responsible living as collectives with demands for green infrastructure at the society and neighbourhood levels. Additionally there has been an upswing in the buyer’s sentiment towards owning their own home. These decisions seem to be more positively influenced by aspects of ample open spaces and greenery, daylighting, ventilation, quality of air & water, density, proximity of multiple uses, building efficiency and walkability – key indicators for green buildings, “he added. THE CHALLENGES OF DEVELOPING GREEN-RATED PROJECT There is no doubt that along with benefits, there also come challenges and obstacles. From lack of awareness among the smaller city developers to added cost of technologies, consultants and green materials, the roadblocks to mass adoption of green building practices remain. Pradeep Aggarwal elaborated, “Green housing often comes with a high price tag, making it unaffordable for a majority of the Indian population. The higher costs involved in developing green buildings dissuade developers from undertaking affordable and mid-range residential projects. For instance, the higher costs associated with green building materials, such as renewable energy systems, energy-efficient windows, and insulation, makes it difficult for developers to keep the project's overall cost reasonable, thereby making it difficult for developers to sell Green-rated projects.” Anubhav Gupta shared, “Our research shows that the additional cost of a Green Building ranges anywhere from 2-8% of the cost of construction depending on the level of certification and assuming that basic passive measures have been robustly planned for in the building engineering and design. This is not a significant cost considering it more than pays back in efficiency, bill optimisation and responsible use over the lifecycle of the project. Green building is a continuous value chain to best leverage its benefits for the customer. On the planning side the commitments made to secure a pre-certification and communicated to customers during the marketing stage are translated to delivery on ground to secure a certification prior to customer handover. This certification is valid for 3 years and it is beneficial to secure a facilities management based certification such as IGBC Green Societies prior to exit by the developer to ensure that the green infrastructure put in place is maintained for its benefits to accrue to the customer over the project’s life cycle. As these certifications are typically valid for 3 years, it may preserve capital value for the society to keep the certification current with suitable maintenance and timely renewals. It is important to educate and communicate the rigour of the green development journey to the customer.” Shabbir Kanchwala explained, “Scarcity of the certified construction materials products in India is the main challenge in India. Markets need to be developed based on the requirements of sustainable construction. Higher costs are required to develop the sustainable structure for the occupants. Tenants are an important driver of green buildings as more and more organizations have a corporate policy that influences their choice of premises.” “At present half of the world’s population lives in cities and the number is expected to rise to 68 per cent by 2050, urbanisation is one of the world’s most transformative trends. At the same time, where the city plays a vital role in the development and economic growth of any country, they are also responsible for 70 per cent of global waste and consume almost 80 per cent of the world’s energy. Urbanisation concentrates millions of people from one location to another, which is one of the root causes of issues like pollution, adverse climate changes and natural disasters like floods, earthquakes etc. Rapid urbanisation is the hotspot for both air pollution and disease,” said Mohit Mishra. “While we cannot halt growth and economic advancements, we should focus on building cities and communities that are sustainable, resilient and environmentally friendly. Sustainable practices are becoming extremely important to control the carbon footprint of our sector. We need to plan and build sustainably, the projects should be curated in a futuristic manner where natural systems and ecology are stored. The contribution of the Indian reality sector will be significant for achieving carbon neutrality by 2070,” he added. DOES SUSTAINABLE CONSTRUCTION ‘MAKES FINANCIAL SENSE’ A trend catching up momentum in the realty sector is the easy financing of eco-friendly projects. Investors are interested in financing projects that are well-planned and adhere to environment conservation and carbon neutrality in mind. Pradeep Aggarwal stressed that sustainable construction practices are the need of the hour as it helps reduce the volume of resources needed for construction, reduce waste, and help conserve energy. “Regarding the financial side of sustainable construction, both short-term and long-term costs are associated with this type of building. In the short term, it can be difficult to see the financial benefits of sustainable construction due to the initial costs associated with materials, labour and meeting regulations. However, over time there are multiple ways that sustainable construction can "makes financial sense" and provide an impressive return on investment.” Mohit Mishra expressed, “With the ‘Planet over Profit’ motto gaining popularity around the world, sustainability has become the dominant argument across all boardrooms. As socially responsible organizations, we must contribute to the planet and build green developments that can contribute significantly to India’s vision of reducing its total carbon emissions by one billion tonnes by 2030 and reaching its net-zero target by 2070. We foresee more and more people in the county seeing the reality sector as a game-changer in achieving the sustainability agenda. As a rapidly changing reality landscape, it seems the community has aligned itself with the low-carbon economic agenda by adopting hostile low-carbon footprints, the reality industry must stay alert and be the key catalyst of these systemic developments for a greener future. Therefore, the importance of resilient, green and smart workspaces cannot be emphasized enough, it should become a clarion call.” Shabbir Kanchwala stated, “The construction costs are expected to increase due to climate change, mainly due to a rise in the prices of materials. Hence construction cost is increasing 5% to 7%. Moreover, it has been empirically validated that companies with higher ESG scores tend to do better than companies with lower ESG scores in terms of stock performance and underlying financial metrics.” Anubhav Gupta added, “ESG focus is fairly advanced in developed markets and it is only a matter of time before this becomes widespread in India. We’ve seen specific focus on asset classes like commercial office especially on the funding side with several funds (foreign direct investors, institutional investors etc.) evaluating ESG performance as base hygiene during their diligence process prior to deployment. Sustained investor focus on green real estate has also contributed in driving improvement in ESG performance across the industry. Independent ratings agencies such as the Global Real Estate Sustainability Benchmark (GRESB), Morgan Stanley Capital International (MSCI) and the Dow Jones Sustainability Index (DJSI) have created robust comparison frameworks for the sector. Recent changes such as the Business Responsibility and Sustainability Report (BRSR) guidelines by SEBI are attempting to provide sectoral guidance for companies to set compelling sustainability targets. Some gaps are being assisted by government incentives while the rest can potentially be bridged using contractual mechanisms to bring complaint partners on board and strive to create sustainable value chains. Integrating environmental, social and governance goals into the real estate business value chain is the right and responsible thing to do. This does not contradict business viability, rather sustains and enhances it in the longer term.” GOVERNMENT ROLE IN ENCOURAGING GREEN REAL ESTATE The recent Union Budget 2023-24 has emphasized on green growth as a transformative tool for India. The budget announced Rs 35,000 crore for priority capital investments towards net zero transition and energy security. According to Shabbir Kanchwala the government needs to understand the need of improvement required as per the climate change and put in place policies for adapting to the changing climate. Incentivizing the green projects more efficiently to push the market towards mitigate climate change. Anubhav Gupta enumerates a few steps. “The government can play a positive and catalytic role in promoting sustainable real estate. Key measures could include: Single window and faster approval clearance for certified green building projects and delivery based on track record. Duties and other tax rebates for Green building certified projects both to the supply and demand sides. Incentivize ambitious, science-based emissions reduction targets paving the way toward an eventual zero-carbon economy. Allowing for the highest (FSI) and best use (land use) for planning in lieu of sustainable development.” Pradeep Aggarwal mentioned a sector report that states only 5% of all buildings in India have a green certification. Therefore, also presenting an enormous potential for adopting green building practices in India. "The government must encourage sustainable construction practices and ensure that Green Building materials are available at competitive prices. This would encourage builders to adopt sustainable practices and undertake more green home projects." TO PROMOTE GREEN REAL ESTATE ACROSS THE COUNTRY, THE INDIAN GOVERNMENT HAS A VITAL ROLE TO PLAY. THE GOVERNMENT COULD INCENTIVIZE GREEN BUILDING PRACTICES BY PROVIDING TAX BREAKS AND SUBSIDIES TO BUILDERS OR BY INTRODUCING CLEAR REGULATIONS ON ENERGY EFFICIENCY AND RENEWABLE ENERGY SOURCES. PRADEEP AGGARWAL STANDARD GOVERNMENT MOEF NORMS WHICH ARE REQUIRED FOR ANY PROJECT WHEN TRANSLATED INTO GREEN BUILDING CERTIFICATION PARAMETERS ALMOST BRING THE BUILDING TO BASE LEVEL CERTIFICATION. GOOD DEVELOPERS ARE TAKING THIS MANDATE FORWARD INTO SILVER, GOLD AND PLATINUM CERTIFICATION IN THEIR ENDEAVOUR TO BE RESPONSIBLE AND TO BRING THE BEST VALUE FOR THEIR CUSTOMERS. ANUBHAV GUPTA NOW A DAYS IT TENANTS FROM US AND EUROPEAN COUNTRIES ARE DEMANDING MORE AND MORE PLATINUM RATED PROJECTS AND AT THE SAME TIME THEY SHOULD ALSO STRICTLY ADHERE TO THE GREEN TENANT GUIDELINES. POST COVID, TENANTS ARE FOCUSING MORE ON THE HEALTH AND WELL-BEING OF THE EMPLOYEES, WHICH WE ARE DOING WITH THE HELP OF SMART BUILDING EQUIPMENT, PUBLIC TRANSPORT CONNECTIONS, AND AMENITIES. SHABBIR KANCHWALA TO CREATE GREEN CITIES AND ACHIEVE SUSTAINABILITY, THE INDUSTRY HAS BEEN INCORPORATING MULTIPLE TECHNIQUES AND PRACTICES IN ITS CONSTRUCTION. FROM USING ENVIRONMENT-FRIENDLY AND RECLAIMED CONSTRUCTION MATERIALS TO DESIGNING BUILDINGS TO REDUCE ENERGY CONSUMPTION, ALL HAVE BEEN ONGOING PRACTICES. MOHIT MISHRA
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