Australian Property Sector Failing on Sustainability: Report

Australia’s multi-billion dollar commercial real estate and property sector is failing to meet even modest sustainability benchmarks, according to a new report.

The report, Building sustainability: A review of company performance in the commercial real estate and property sector by politically progressive policy network Catalyst Australia revealed a gulf in sustainability performance between four leaders in the sector and others lagging significantly behind.

“The analysis by Catalyst Australia found that while larger players tend to lead on sustainability in other sectors of the economy, this wasn’t the case in the property sector, with the largest companies — Westfield Group and Westfield Retail Trust — performing well under-par,” Catalyst Executive Director Jo-anne Schofield said.

“With a market capitalisation of $33.3 billion, making up 34.2 per cent of the market capitalisation of the sector, these poor results impacted significantly on the performance of the sector as a whole.

“The leaders, Stockland, GPT Group, Dexus Property Group and Mirvac Group, scored comparatively well against most indicators across the range of different topics and appear to have integrated environmental and social issues into their business performance and evaluation.

“Unfortunately, the stronger attention to environmental, social and corporate governance (ESG) by this group was dwarfed by the poor performance of the sector overall,” she said.

Stockland, among the leaders of the sector, was recently lauded for its sustainability efforts at the World Economic Forum by achieving position 32 on the Global 100 Index, which ranked the top 100 companies worldwide on their sustainability credentials.

Schofield said that even among the leading group there was room for improvement – with two reaching a score of only 13 of a possible 24 in the index.

The research suggested gender equality was an area of strength for the property sector, with the proportion of women on company boards above the ASX 200 average. Six companies had introduced numerical targets to increase the number of female employees.

According to the report, however, this did not translate to a critical mass of women in management positions or greater attention to diversity and equal remuneration policies. 

The report examined the 19 property sector companies listed on the ASX 200, which have a combined market capitalisation of $97.5 billion, rating their reporting standards and outcomes in the areas of environmental performance, gender equality, labour standards, supply chains, sustainability engagement and community investment.

Based on publicly disclosed information, companies were scored on a rating scale developed by Catalyst Australia in 2012/13 which captures benchmarks and policies set by governments, intergovernmental organisations, non-government organisations, regulatory agencies and industry groups.

“There was great variation in how, and how well, companies reported against particular topics, and in many cases public information was not available. This lack of attention to ESG disclosures by all but a few companies is a cause for concern, particularly given the wealth and size of this sector, its significance to investors, substantial environmental impacts and the interaction of the built environment with communities,” the report concluded.

“It underlines the need for investors who are looking for long term management of sustainability risks to actively engage with the sector to improve reporting, transparency, and ESG performance.”

Other key findings of the research included:

Inconsistency in environmental reporting

The report recommends the introduction of a standardised environmental reporting framework which includes disclosures about absolute as well per square metre averages for carbon emission, energy consumption, water usage and waste production.

Inadequate reporting by subsidiaries

Many subsidiaries simply relied on disclosures by parent companies, despite subsidiaries being ASX listed companies in their own right. According to the report, reporting lines between parent and subsidiary companies should be clarified.

Greater scrutiny needed by investors

Given the growing wealth of the sector and its interest to investors, the report suggests that investors should consider mandating minimum reporting guidelines. In the interim, benchmarking against mature reporters within the sector and in other sectors should occur.

Inadequate transparency on labour and supply chain issues

Reporting about labour standards and supply chains was largely overlooked by all companies. Given the heavy reliance on external contractors across all stages of property construction, maintenance and servicing, the report recommended that these areas be considered essential.

Worker health and safety ratings an area of potential risk

More than two thirds of the companies provided minimal or no information on worker health and safety. Only two companies rated strongly in this area: Stockland and Mirvac. The report says the lack of attention to worker health and safety disclosures is in stark contrast to reporting in other sectors of the economy, and that the situation was made more urgent by an expanded duty of care under national legislation introduced from 2011.

Engagement with community and stakeholders

According to the report, the importance of the built environment and its footprint on where people work, live and shop warrants much greater attention to reporting about community initiatives and measures to consult and engage stakeholders such as workers, unions, tenants and community groups.

Read the full report here.