Building for Tomorrow: Real Estate, Construction, and Sustainability
Building for Tomorrow: Real Estate, Construction, and Sustainability
Conseillère principale, Politiques, Institut pour le climat de BMO
Angela dirige les axes de travail liés aux politiques climatiques et à l’énergie propre au sein de l’Institut pour le climat de BMO…
Directeur Général, Finance durable
James Burrow est directeur général, Finance durable à BMO. Il repère les occasions de faire croître les produits de finance durabl…
Angela dirige les axes de travail liés aux politiques climatiques et à l’énergie propre au sein de l’Institut pour le climat de BMO…
VOIR LE PROFIL COMPLETJames Burrow est directeur général, Finance durable à BMO. Il repère les occasions de faire croître les produits de finance durabl…
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Decarbonizing the built environment, which represents about 40% of global greenhouse gas emissions, is a key component to achieving a net-zero world. But for commercial real estate and construction firms, that requires a balancing act to meet both sustainability and business objectives.
We recently hosted a webinar discussion to explore why real estate owners and developers are increasingly committing to sustainable practices, and how builders are supporting these initiatives. They also discussed the tensions involved in managing climate risk against more immediate concerns, and how emerging technologies will play a key role in sustainability efforts. Our panelists of leaders in real estate, construction and sustainability included:
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Angela Adduci, Senior Advisor, BMO Climate Institute
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Ryan Poole, Global Sustainability Leader, DPR Construction
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Nick Ryan, Technology Commercialization Manager, Department of Energy’s Building Technologies Office
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Kathy Thurston, Executive Director, Director of Sustainable Finance, PGIM Real Estate
James Burrow, Director, BMO Sustainable Finance, served as the moderator. Following is a summary of the discussion.
Key takeaways
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Sustainability choices make sense financially and can reduce your risk exposure.
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Creating a company-wide sustainability mindset is essential to success.
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Sustainability efforts are no longer separate from everyday business matters.
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Making buildings future-proof requires taking a long view.
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Sustainability: good for business, or merely good?
It’s easy to understand why sustainability itself is a laudable goal. The question for many firms is whether it also makes sound financial sense. Thurston acknowledged that some tension exists between those objectives, but she said PGIM’s business model is based on both aims being achievable.
"As one of the largest owners of real estate globally, we think that we should be doing the right thing for the communities in which we own and finance buildings,” she said. “And as a fiduciary to our investors, we want to protect our investors’ capital by maintaining lasting value in the buildings we own and operate. We focus on issues of sustainability like energy, water, waste reduction strategies and developing and operating efficient buildings because that, in turn, will attract tenants. And that, in turn, adds to lasting value.”
Along with a sound strategy, Poole noted that early and frequent cooperation with key stakeholders is essential. “We prioritize early and meaningful collaboration with our partners. This approach enables us to make informed, data-driven decisions that embed sustainable practices, materials and design features right from the start. By integrating sustainability into the foundation of our projects, we ensure that our contributions lead to a healthier built environment.” effectively.
From Ryan’s perspective, the business case comes down to how adaptable an organization is willing to be. “There’s a whole host of data and research that overwhelmingly tells us we’re going to have to make infrastructural considerations for how our world is changing,” he said. “The customer base is also dramatically changing. That’s forcing builders to ask, what materials are we building with? With those internal and external pressures, the sustainability mind frame is getting reinforced—this is how you adapt to the changing times economically, infrastructure-wise and material-wise.”
Also, keep in mind that there’s no one-size-fits-all approach to making a business case for sustainability. As Adduci noted, “Different types of businesses are going to have different answers, and different functions within those businesses are going to have a different answer as to why sustainability is good for their business.”
Risk management: taking the long view
In the face of more pressing concerns, such as a backlog of deferred maintenance projects, managing climate change risk—the effects of which are more forward-looking—can seem like a lower priority for many businesses. Resolving that tension can be a challenge. For Poole, it’s a matter of leveraging data to make the decisions that serve your needs in both the near and long term.
“It’s about making sure we do the upfront planning to know that when we build buildings, they're built to last,” Poole said. “A crucial aspect of our approach is evaluating the initial financial investment against the long-term return. We must transition to efficient green technologies that are both economical and scalable. As demand for sustainable solutions grows, we will see a normalization of supply and costs, making these technologies more accessible. Additionally, the increasing availability of incentive programs allows developers to capitalize on integrating sustainable features that enhance resilience. By collaborating with lenders, insurance companies and other industry partners, we’re working to shift the mindset around risk management, offering better premiums and coverage for buildings that are built to endure, ultimately paving the way for a more sustainable built environment.”
On the real estate side, Thurston explained that it’s not about the distinction between business as usual and sustainability; it’s a matter of making sustainability part of an organization’s everyday considerations.
“What parts of our investment life cycle do we need to adapt to a different way of looking at things? Thurston said. “Once you ingrain that into the culture of the firm so that it literally touches every aspect of your business, [sustainability] becomes business as usual. When we sit down with our joint venture partners, we look at the world of opportunities for what that building could be. Where are you delivering that asset? What’s the future environment you’re delivering that into? It’s keeping a wide lens while also identifying where you need to operationalize in your business to have that sustainable thread run through the organization’s activities.”
Future-proofing buildings: emerging tech and beyond
How will the buildings of tomorrow look and feel different compared to today? Ultimately, Ryan said, they’ll be smarter and more adaptable. But there’s also a bigger picture to consider.
“The decarbonization of individual buildings is incredibly important,” Ryan said. “The broader game is what is the role that buildings play within the grid infrastructure. That’s where you get decarbonization of the energy economy at scale. This is a newer frame for how we're looking at buildings—not just what role do buildings play as a passive input into that system, but how do we make them an active contributor to that decarbonized grid in a more effective way.”
That includes incorporating emerging technologies like energy storage systems as well as changes to the utility infrastructure across the U.S. “More and more, as more electrified equipment comes on to the networks, it's not so much about reducing overall demand,” Ryan said. “But how do you manage the peak demand and then shift that off? This is where all these systems start to become greater than the sum of their parts. It’s the organization of your demand-reduction measures, your HVAC equipment, your energy storage systems, plus a smart system that can make all those other systems work in harmony.”
Ryan also noted that automation technologies, such as the Internet of Things (IoT) and artificial intelligence (AI), will likely play a crucial role in building decarbonization. He also cautioned that while these technologies will be essential to operating building controls, they’re still several years away from viability on a large scale.
“If you can take the human element out of having to operate your building and rely on a robust system of sensors and receivers that allow you to track consistency, the time of occupancy, the heat in a room—all these different factors—that is how you start to unlock some amazing efficiencies and performance capabilities from your building,” Ryan said. “And a lot of that ultimately is going to take in the form of an intelligent entity that can monitor while you're not actively in the room.”
But it’s not just a matter of adopting these tools. Collecting and analyzing the data behind your building’s requirements is essential to effective implementation. Ryan said that includes engaging with private consulting services that specialize in assessing a building’s energy consumption, as well as how that usage compares to similar buildings.
“Understanding your building’s usage is what informs a lot of these technologies in order to maximize the efficiency that they can then extract from your building,” Ryan said. “This information can inform how you start to model and plan what your building is ultimately going to look like.”
Given how quickly technology changes, it’s often difficult to parse which solutions will benefit the industry in the long term. Adduci said entities like the Department of Energy can be a valuable resource for all stakeholders, including financial institutions, to understand the risks and returns associated with various green-building technologies. “There's so much potential in the work that's coming out on this, and it will be fascinating to see what it leads to,” she said.
Beyond technology, Thurston pointed out that anticipating the needs of the markets you serve is crucial.
“We take the approach that we want to understand who the next owner will be, and who the next owner after that will be, because we're building assets that will last years and years or investing in assets for a very lengthy period of time,” she said. “It’s understanding how that asset stacks up in the market that it will be developed in, and its risk of potentially becoming immediately obsolete if we deliver the wrong product to the market. So, understanding those decarbonization initiatives and how your buildings are expected to perform gives us the best opportunity to study what our expectations are for that asset and focus on key deliverables.”
Ryan Poole:
We spend a significant amount of our time indoors as a species. What we have not focused on is that indoor environment relative to what we're actually meant to live in so circadian rhythm, biophilic exposure, your exposure to movement like not being stationary all day, the type of food that you eat, the water quality, air quality. So all of those components are what bringing together, I think, the building of the future, right?
Michael Torrance:
Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer at BMO. On this show we will talk with leading sustainability practitioners from the corporate, investor, academic, and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices, and our world.
Speaker 3:
The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates, or subsidiaries.
James Burrow:
Good morning everyone. I'm James Burrow, Director of BMO Sustainable Finance, and welcome to our discussion around sustainability in the built world. Today we will explore the multifaceted reasons why real estate owners and developers are committed to sustainable practices and how builders are supporting these initiatives. I'm excited to be joined today by a great panel of experts. With me I have Angela Adduci, who is senior advisor at BMO's own Climate Institute. Angela came to us from Aon where she led renewables and climate policy efforts. We also have Ryan Poole who leads sustainability efforts for DPR Construction, one of the country's top builders in a company with a global presence. We have Kathy Thurston, executive director and director of sustainable finance for PGIM Real Estate, a role she progressed to after working in portfolio management across PGIM's Core Plus and high-yield debt investments. And finally, Nick Ryan, who's technology and commercialization manager for the Department of Energy's Building Technologies office.
Let's get started on the first topic. And here I wanted to be bold and address this one head-on from the start. Are business practices that are good for the planet and also good for the bottom line possible or is there always some trade-off involved? I'm curious about how your organizations are pursuing sustainability, and whether they see this as being intention with financial performance or complementary to financial performance. Kathy, perhaps I can start with you. And perhaps you could give us a view of how PGIM thinks about its long-term investment horizon and view with regards to sustainability.
Kathy Thurston:
Great, thanks. I would say that even though there are some tensions we believe strongly you can accomplish both things. What's good for financial results can be doing good for the planet as well. As one of the largest owners of commercial real estate globally, we think that we should be doing the right thing for the communities in which we own buildings, finance buildings, and as a fiduciary to our investors. And we want to protect our investors capital, at the same time, by maintaining lasting value in the buildings that we own and operate in finance. So we focus on issues of sustainability like energy, water, waste reduction strategies, and developing and operating efficient buildings because that in turn will attract tenants, attract residents that in turn adds to lasting value. And taking a practical approach, we believe you can accomplish both. And when you think about just operating very efficient buildings it just makes good business sense.
James Burrow:
Thanks very much, Kathy. Maybe we can go to Ryan next to talk about how DPR can integrate sustainability into its construction practices, and how that affects financial performance.
Ryan Poole:
Yeah, Kathy, it's a great segue. I mean, really what you guys dream up is then what we have to put into reality, right? And so I think the practices around that to help meet those goals are really where rubber meets the road. And so we've really made sure that we spearhead and keep early collaboration as a key focus. Traditionally that's been difficult in the construction industry. In modern deliverable times we're really focused on early collaboration with our partners all together at the table to be able to make these decisions, to be able to put sustainable practices, materials, and design features in place.
I think the reality is no company is going to succeed in the future without having a sustainable mindset, right? You don't want to just be part of the solution from the product that you deliver to help other customers, you have to make sure that your organization is focused on it as well. And to Kathy's and others points, there's absolutely a true balance to be had there where we can show financial success, social impact, as well as environmental balance altogether, right? Where we come to a line to say, "It is the only way that we can move forward, right, together in alignment."
Angela Adduci:
I'm happy to hop in with one more thing from BMO'S perspective which is We're representing different types of organizations that all touch this sector and all touch this type of asset. We're not going to have one blanket answer as to why sustainability is good for the bottom line. And I think that's true more often than it is not is that different types of businesses are going to have different answers to this. But even individuals and different types of functions are going to have a different answer to why sustainability is good for their business. Just to add a proof point from BMOS side, our sustainability office over the last five years has grown exponentially from about two to three people to nearly 20. That investment signifies that this is integral to our business and our own resilience of operations moving forward. And I think that that's a really strong indicator that it's not just the right thing to do but it's actually critical to how we do business moving forward.
Nick Ryan:
The short answer I often give to folks, right, it's not how big you are or how strong you are, how fast you are, how adaptable you are. That has always been the primary driver of who rides above the tide and who falls below. It's who can adapt most effectively and do it most efficiently, right? And embracing the sustainable mindset really is analogous to that adaptability mindset. And whether it be from external factors, right?
And there is a whole host of data, and information, and science, and research that really overwhelmingly tells us that we are going to have to make infrastructural consideration for how our world is changing. But I think the customer base is also dramatically changing about what they're expecting. New research that's coming out about indoor air quality and things like that. Forcing builders to say, "Hey, what materials are we really building with over the life of this 30 or 50-year-old building," right? So from internal and external pressures, right, the sustainability mind frame is getting reinforced as this is how you adapt to the changing times. Economically, infrastructure-wise, material-wise, all the nuts and bolts to what your business tries to drive as its message and its founding principles, there's all ties to sustainability in those data lists.
James Burrow:
Perfect. Thank you very much for that, Nick. In all our professions risk management is paramount. And sustainable business practices do address their own set of risks. However, sustainable practices come with their own set of financial and operational challenges. I'd love it if you all could give us some insight into how your organization's lead on corporate sustainability whilst also remaining streamlined and agile. Maybe, Ryan, we can start with you this time.
Ryan Poole:
Thanks so much, guys. One of the biggest things is leveraging data, right? I mean, leveraging the analytic capability that we have now that we haven't had in historical context, right? So making sure that we do the upfront planning to know that when we build buildings they're built to last, they're built to be there for their entire life cycle. What's the return on that? How can we make sure we transition to green technologies that are efficient and economical that we can scale? And the more we continue to see demand increase, as we've seen over the trajectory, we'll continue to see that supply, and cost, and things normalize. So I think making sure that we have that early collaboration, that we're using data analytics and all the platforms that we have available.
Our high-performing buildings become places that we look to for the future to know when we have instability, when we have things to question those are the techniques that have proven to be fruitful. So I think there's a holistic look at all this, not just at the immediate financial return but what's resilient for the building and the people that use the facility, right? The health and wellness for them and everybody around them.
Kathy Thurston:
There's lots to build off of from what Ryan has said. And I'll just echo the need to sit down with your partners as early as possible in the process. But just taking a step back and thinking about how do you approach this? How do you stay nimble as a firm but put that sustainability lens on your operations and what you're doing? We think about it as how do we look at business as usual and insert where we need to have considerations for sustainability risks. What parts of our investment lifecycle do we need to adapt a different way of looking at things? And once you ingrain that into the culture of the firm, that it literally touches every aspect of your business, it becomes more easily more adopted throughout the organization.
Nick Ryan:
I couldn't agree more with what the last two speakers went through here. The other side that I always like to consider with folks is what is the risk of inaction. The response I usually give to folks is, "How are you looking at what is the risk of not acting in this mind frame and not pursuing these opportunities," right? And you can see it in many of the larger corporate entities in our country, right? Customers and stakeholders who have not been part of these discussions or interested in this work are going to be coming out of the woodwork and looking for guidance about how do we really bring these things to life. As Ryan said on our last question, what is the reality of bringing these things to life? And I think there's going to be a very willing and open audience to learn about those things. And work to find the right balance between the risk of inaction and the risk of acting too much.
James Burrow:
And I want to get a little bit more concrete here, excuse the poor pun. But yeah, looking to the future, how will the buildings of tomorrow actually look and feel different to what they're like today? How do you future-proof the assets you build and invest in? And maybe we can start with Nick at the Department of Energy here. And I'm sure you have insight into some exciting technologies and developments that are on the horizon that you can let us know about.
Nick Ryan:
Yeah, absolutely. I'll try to keep us out of the nerdy weeds for a little bit here. I definitely want to take a macro view first and then I can get into some of the core technology pillars that I think are really driving the technology within this space, right? The decarbonization of individual buildings is incredibly important. Now we talk all the time about the indoor health quality elements, right, resiliency, and those things. The broader game, so to speak, right, is what is the role that buildings play within the grid infrastructure? The grid infrastructure is really where you get decarbonization of the energy economy at scale. This is a newer framing for how we're looking at buildings is not just what role do buildings play as a passive input into that system, right, but how do we make them an active contributor to that decarbonized grid in a more effective way, right?
One of the greatest opportunities, especially as we start thinking about large commercial and things like that, is the ability for energy storage. There are a number of ways that energy storage can be developed ... Or installed alongside traditional construction projects, right? You can either have them be just straight batteries in your basin and other areas of greater resiliency, you can embed them into the walls of your building, right?
As more electrified equipment comes on to the networks it's not so much about reducing overall demand, that is important to be sure. And that we have resiliency measures like insulation in windows but at peak moments, right? In the morning when everyone is getting ready for the day, that's a peak. At the end of the day, how do you manage the peak demand and then shift that off? And this is where all these systems start to become a greater sum than the part that they bring to the table, right? It is the organization of both your demand reduction measures, your HVAC equipment, your energy storage systems, plus a smart system that can make all of those other systems work in harmony as they're really designed.
So that's the arc that we are trying to take buildings to where they are smarter, they're more efficient, they're more resilient, they're more comfortable, they're more adapt to human needs, right? Performance-based and human-centric technologies are our core to our mission here. That's really how we're trying to chart the course forward. All of those things take a lot of coordination both on the technical and non-technical side. We really do have a clear vision of what the future of buildings really should look like and that's what we're aiming for.
James Burrow:
Perfect. Thank you, Nick, that was really interesting. So Ryan, maybe we can go to you next. Perhaps you could just give us some examples of what DPR is doing with new technologies, with innovation in your day-to-day building practice.
Ryan Poole:
I mean, it's a perfect segue, Nick.
Obviously, we've been really focused on the operational energy piece of it for a long time. And how do we continue to reduce energy is the primary focus, right? Lots of strategies that we continue to develop on to create more efficient buildings. I mean, there is a predominant focus that we also have not had on the past that we spend a significant amount of our time indoors as a species.
What we have not focused on is that indoor environment relative to what we're actually meant to live in in a conducive outdoor environment so circadian rhythm, biophilic exposure, your exposure to movement, not being stationary all day, the type of food that you eat, the water quality, air quality. So all of those components are what bringing together, I think, the building of the future, right, which is a building that focuses on the true holistic nature of the impact from environmental and social of the people that are inside of it and outside of it. And to Nick's point, the connectiveness of all that through the network because that's where we've ... We can't look at it singularly, we have to look at this as we build on a larger scale.
James Burrow:
Kathy, maybe if we could go over to you to think about how PGIM incorporates sustainability into its investment lens so that you're not investing in stranded assets. Or in assets that are likely at risk of becoming stranded even.
Kathy Thurston:
We spend a lot of time thinking about the future, and what both Nick and Ryan have described that is coming both for our developments and for standing assets. We take an approach of we want to understand who the next owner will be, and, actually, who the next owner after that will be because we're building assets that will last years and years. Or investing in assets for a very lengthy period of time. So understanding how that asset stacks up in the market that it sits in, or will be developed in, and how its risk of becoming potentially immediately obsolete if we deliver the wrong product to the market. Or, along our journey of ownership becomes obsolete and stranded because the rest of the path of decarbonization, beit the grid competing properties are moving well beyond where maybe our properties able to keep up. We want to avoid that risk, right, and understand that.
I can't understate, again, it's data. It's getting really smart with the data that we can extract from our buildings. Looking at year-over-year performance of standing assets and understanding where can we make adjustments. And certainly after delivering a new development with partners, it doesn't stop there. We don't just design to deliver we design to set ourselves up for good, strong operation beyond that. And I think taking that approach helps you avoid that risk of falling behind the pack and finding your building devalued because you've effectively become stranded if you will. Buyers aren't interested, tenants aren't interested. This demand comes not just from tenants and residents but investors are looking for this as well. They want to know that we have this eye to the future and we're protecting them as a fiduciary to these types of risks, not keeping up with energy regulation, not keeping up in the markets that are clearly decarbonizing and are buildings not being able to compete. It's top of mind in everything we do.
James Burrow:
That's great. Thanks, Kathy. Okay, so moving on. We live in an age of big data where computing power is driving decisions more than ever. How are technologies such as AI and the Internet of Things going to help us decarbonize the built environment? And what very specific recommendations would you have about how you would start using and harnessing those technologies? Nick, maybe we'll start with you.
Nick Ryan:
Yeah, absolutely. It really starts with the data that you are using, right? I think that's really a critical part of this. Understanding what your building's usage is looking like I think is really what informs a lot of those technologies that you were talking about, James. That's what they rely on in order to really start maximizing the efficiency that they can extract from your building. And so there are a number of resources that are available, right? There is EnergyPlus, there's OpenStudio. These are publicly available through the federal government to really help in the modeling of your building. There's commercial databases called ComStock that is a national data source about energy use within different commercial buildings.
And, of course, engage with your utilities, right? They are the ones who are going to have the most up-to-date information about what your building's energy usage is, what other buildings similar to ones that you were planning on building, what they look like
To more to your pointed question, James. The biggest role that we are seeing some of these more advanced technologies like AI really starting to serve is in that coordination role. We understand the primary mechanics behind bringing cooling into buildings, we can improve the efficiency of those systems.
But the space of control, right, how you operate your building more effectively, that is a white space that is for everyone really. And that's where systems like AI really start to come into play or have the potential to anyway. A lot of these things are still at very early stage, right? But if you can take the human element out of having to operate your building and really rely on a robust system of sensors and receivers, right, that allow you to track occupancy, the time of occupancy, the heat in that room. All these different factors that we've talked about are along the lines of sustainability and human interaction.A lot of that is going to ultimately take in the form of an intelligent entity that can monitor while you're not actively in the room.
Angela Adduci:
I mean, what an incredible overview there of all the initiatives coming out, and the convening, and how this all ties together. Really the only thing that I would have to add here, from a banking perspective, is that entities like the Department of Energy and the work that Nick is doing are generating just really incredibly valuable data for banks, and financial institutions, and lenders to better understand the riskiness and the return associated with these types of deals or emerging technologies that perhaps there's just not much data on to begin with. I would say that there's just so much potential in the work that's coming out on this. I think it'll be fascinating to see sort of what it leads to and how it marries up to the banking sector and the private sector.
James Burrow:
Fantastic. Thank you very much, Angela. I think that is a wonderful note to finish on. Thank you to our great panelists for a wonderful discussion. Until next time, thank you very much for joining have a good day.
Michael Torrance:
Thanks for listening to Sustainability Leaders. This podcast is presented by BMO. You can find our show on Apple Podcasts, Spotify, or your favorite podcast player. Press the follow button if you want to get notified when new episodes are published. We value your input so please leave a rating, review, and any feedback that you might have. Or visit us at bmo.com/sustainabilityleaders. Our show and resources are produced with support from BMOs marketing team and Puddle Creative. Until next time, thanks for listening, and have a great week.
Speaker 8:
For BMO disclosures please visit bmocm.com/podcast/disclaimer.
