The Sustainable (Profitable) Real Estate Portfolio

Green city viewed through modern windows

When we hear the term “sustainability” in real estate, we don’t necessarily think of a real estate portfolio. We often think of green buildings and their positive impact on the environment. The environment is undoubtedly an important component of sustainability. However, sustainability in real estate is not limited to environmental factors.

The Four Pillars of Sustainability and Your Real Estate Portfolio

According to a recent report from the World Green Building Council, “While the environmental benefits of green buildings have been firmly established, green buildings also deliver a range of compelling financial and social benefits.”

This is the foundation of 4tell™’s “four pillars” concept of sustainability. Being sustainable is also about recognizing other factors critical to running an organization. This includes meeting financial and operational obligations.

Our four pillars concept is quite simple. For a property or real estate portfolio, sustainability initiatives need four objectives. These include financial, energy, social and economic objectives. Focusing on one metric in isolation would be detrimental to the others. For example, your real estate portfolio may be extremely energy efficient. But if it is operating constantly over budget due to high maintenance costs, the economics will not make sense over time.

Pillar 1: Financial Sustainability

Financial sustainability has nothing to do with greenwashing. It means that your business must operate in such a way that it will be able to survive and thrive financially over time. To be financially sustainable, you need to plan carefully. This includes special attention to capital expenditures and capital adequacy.

Achieving financial stability centers on two critical components. These are capital optimization and long term planning. Optimize key financial metrics within your real estate portfolio. This will ensure you’re meeting investment objectives. Long term (5 to 10 year) planning ensures funding is available through the life cycle of an asset.

This article from the Government Finance Review is a great resource on the topic.

Pillar 2: Social Responsibility

Social responsibility has emerged as a key industry priority. It focuses on ensuring sustainability initiatives benefit building occupants and stakeholders. Key focus areas include:

  • Human capital management and labor practices
  • Corporate governance and ethics
  • Citizenship and philanthropy
  • Stakeholder engagement

Measuring social responsibility can be difficult, but new methods and Indexes are emerging. Probably the most notable is the Dow Jones Sustainability Index. It was created by RobecoSAM and Dow Jones. It measures the social and environmental performance of major corporations.

Pillar 3: Energy and Environmental Consciousness

Energy and environmental consciousness is typically what we think of when talking about sustainability. It’s a key pillar from a “green” perspective. This area focuses on both energy conservation and environmental impact. This includes:

  • Total energy and water consumption and reuse
  • Life cycle and supply chain management
  • Climate change and biodiversity

Notably, LEED, GRESB and BOMA BEST are key environmental measurement systems for individual buildings and real estate portfolios.

Pillar 4: Economic Responsibility

Economic sustainability focuses on your processes for operating and governing your organization. It’s related to financial sustainability. Economic responsibility focuses on how to manage operating budgets and strategies efficiently. For example, you should be purchasing goods and managing projects at budget and under cost. Planning can help you avoid overrun and last minute projects.

A few key metrics include:

  • corporate governance
  • risk management (both operational and financial)
  • change management

Sustainable business practices aren’t just about the environment. They encompass all aspects of business operations. Together, the four pillars of sustainability help organizations profit well into the future.

Additional Resources and Links

Are you interested in learning more about the four pillars concept and how it could enhance your real estate portfolio? Please contact 4tell™ Solutions or visit our page for Real Estate Executives.

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