Lendlease recently announced that its entire U.S. multifamily portfolio of urbanization projects has been verified as net-zero carbon. The company intends to continue its efforts to reach absolute zero carbon by 2040; this includes embodied energy from materials used to construct the buildings and resident emissions associated with their electricity and gas use, all without the use of offsets. To learn more about this environmentally conscious goal, we reached out to Lendlease Director of Sustainability Emma Thomas.
Lendlease’s U.S. multifamily portfolio reached the target of carbon neutrality. Tell us more about the steps the company took to achieve this status.
Thomas: Lendlease and Aware Super are aligned in the belief that addressing climate change through the decarbonization of the built environment delivers long-term returns and positively impacts communities. Bringing this belief to life, Lendlease and Aware Super have created a multifamily portfolio of urbanization projects across Boston and Chicago.
The portfolio comprises new assets, constructed from 2017 onward, providing the opportunity to deliver higher levels of energy efficiency, community and resident wellbeing, and environmental and economic benefits that aging portfolios cannot provide. The portfolio is scaling fast with new development projects in New York City and Los Angeles.
We established a responsible property investment strategy for the portfolio early on, outlining the environmental, social and governance objectives for developing and managing the portfolio. This also included developing a roadmap to zero carbon, which integrates design, operational and technology solutions with a digital platform for operational data and energy performance enhancement; solar panels on buildings; renewable energy or green power procurement; green roofs providing fresh vegetable harvest, habitat for wildlife and integration into stormwater management strategy; life cycle analysis to influence the selection of materials in construction; and engagement programs focused on more sustainable living outcomes for residents.
This work commenced prior to Lendlease setting our market-leading sustainability targets and ambition to live in a world warmed by no more than 1.5 degrees Celsius (34.7 degrees Fahrenheit)—while creating measured social value—but has proven to be very much aligned. Leveraging actual performance data for energy, water, waste and carbon in operational assets allowed us to illustrate the impact of a carbon price across the portfolio, and how that analysis could be used to help inform decision making for ongoing asset operation and the development of new assets.
What were the biggest challenges in achieving the goal of net-zero carbon across your U.S. multifamily portfolio?
Thomas: There was both a “hardware” and “software” aspect to the challenge of reaching net-zero carbon. The hardware aspect is our physical building assets.
With assets having been delivered prior to our portfolio ESG strategy and targets, the portfolio includes assets in cities known to be serviced by fossil fuel-driven electricity grids and serviced by natural gas to respond to intense heating loads in cold winters. These are not easy things to address in the short term and not all within our direct control.
For the assets we hold long term, we will need to address our commitment to phase out diesel and gas across our operations. We see offsets as an important first or interim solution while we work to fully eradicate emissions. Some emissions we just don’t know how to eradicate yet. Offsets buy us time whilst neutralizing our impact.
The “software” barrier is related to a need for education, to enable informed and confident decision making. Carbon accounting can be complicated, technical and detailed, and requires the engagement and education of new stakeholders. Not to mention the evolution of the offsets market, which in the words of our legal team, was an “esoteric” area of law that required external counsel and additional analysis to form a clear position to move forward with confidence.
It is not easy to learn the language of carbon emissions, scopes and climate science, and in the fast-paced world of business decisions, net-zero carbon commitments represent a new area of expertise that companies need to resource and understand in order to be able to account for both the financial and nonfinancial value of their investment decisions.
How have things changed for the operations of these assets? How about for the residents living in them?
Thomas: The biggest impact is that residents now live in carbon-neutral apartments. Their generated emissions related to heating, cooling, ventilation, plug loads from household appliances, cooking, water usage and waste have all been offset, and they haven’t had to change how they live nor pay for the benefit. Over time, we will explore incentives for residents to switch to green power, as well as educate them on reducing waste and creating more sustainable living practices.Operationally, we maintain much of what we already do, such as data-driven analysis on opportunities to improve the energy and water efficiency in the assets and to reduce waste. This can lead to systems or controls improvements and focused resident engagement to change behaviors for recycling, etc. Our focus on environmental building data has prompted a metering review and the subsequent installation of additional sub-meters. We are also piloting a new digital platform at one of our assets to improve data insights and billing accuracy.
Our commitment to absolute zero means we are constantly seeking ways to reduce our emissions so that we no longer require offsets. One quick win has been a switch to green power for landlord electricity and the introduction of “green lease” requirements for our tenant spaces.
What are the most innovative sustainable features Lendlease implements in its multifamily projects?
Thomas: The sustainability story of each multifamily development reads a little differently as each asset seeks to respond to the unique needs of each place, each community and each local environment. However, a strong common thread exists through a focus on environmental and social outcomes throughout.
At Clippership Wharf, the development employs an innovative approach to both protect the site from rising sea levels and enhance the waterfront. Open spaces and the living shoreline create a natural flood barrier, protecting tenants and other inland properties.
The living shoreline recreates the coastal habitat by using native plantings, saltwater marshes, rocky beaches and plentiful wildlife habitats that also provide wave-dissipating features to accommodate future sea-level rise. It was the first project to meet or exceed Boston’s Coastal Flood Resilience Design Guidelines.
Our Southbank development in Chicago has repurposed the old foundations of Chicago’s demolished Grand Central Station to create a limestone amphitheater used to host public events.
The park and new riverfront walk are a special place for outdoor relaxation for people, in harmony with local wildlife. The roof of The Cooper holds beehives and is planted with vegetables harvested for the local community and complemented with healthy eating and cooking programs for residents. Native plantings on the roof areas provide habitat for bees and wildlife and are also part of the stormwater management strategy for the building, which connects with wetlands in the park to filter run-off to the river.
We are also undertaking life cycle analysis across our projects to assess emissions and identify design measures for low- and no-carbon alternatives. We recognize we cannot achieve this alone, so we are working with suppliers and advocacy groups to address emissions in the built environment.
Let’s talk about landlord vs. resident emissions. How do these differ and why is it important to be aware of them?
Thomas: For multifamily buildings, landlord emissions comprise the heating, cooling and lighting from common areas, amenity spaces and support spaces. These are directly in the control of the landlord but are only a portion of the total building’s carbon emissions.
Conversely, an ongoing source of carbon emissions in operational multifamily assets is resident emissions. This includes everything from heating, cooling, ventilation, cooking, washing machines and dryers to appliance plug loads, water use, water treatment and domestic waste treatment. We recognize that resident emissions are material to the operational carbon footprint of our U.S. multifamily portfolio.
We have gone beyond typical asset management commitments to offset 100 percent of the operational carbon emissions, including the resident emissions generated from day-to-day life. This opens up the need and opportunity to work with residents to educate them on how to use their efficient homes effectively to minimize household carbon footprints and reduce the cost of their utility bills, which will help us to minimize the need for offsets.
Through which practices does Lendlease offset carbon emissions?
Thomas: We are often asked about the legitimacy and credibility of the offsets we are pursuing, with the offsets market still being a bit of a mystery to some, while others are still suspicious of cheap, nonaccredited offset schemes from more than a decade ago.
Our process included having our carbon data prepared in accordance with the international greenhouse gas protocol methodology and independently audited. We reviewed offset broker submissions against a range of stringent environmental and social criteria.
Following our evaluation, we decided to focus on U.S.-based, renewable wind-power generation, with a preference for projects with social co-benefits, such as education and training to support green jobs. Our carbon offsets are purchased from a VERRA-accredited wind farm in South Dakota, providing verified carbon units that are 2018-vintaged or newer.
Once the offsets were purchased and retired on a public registry, an independent auditor provides assurance of our carbon accounts and our net-zero carbon position, enabling us to confidently share our net-zero status with our residents, investors, partners and the public.
Sustainability and climate change management issues have an increasingly greater value for investors when choosing which organizations to invest the funds they manage in. What drives this interest? How has this influenced Lendlease’s overall investment strategy?
Thomas: There are substantial external factors at play here, such as increased momentum in sustainable investing; evidence of top performers in ESG financially outperforming lowest ESG performers; capital markets engagement in climate change shifting capital allocations; renewable power becoming more economically attractive; increasing consumer awareness of climate change and demand for lower-carbon products and services; and the commencement of decarbonizing basic materials.
Investors are increasingly looking for companies to disclose more detail on their nonfinancial performance and are becoming more sophisticated in their understanding of integrated ESG versus “tick-the-box” compliance.
We have also seen an increase in the demand for information regarding climate-related impacts and the emergence and preference of the Task Force on Climate-Related Financial Disclosures. GRESB, in addition to several sustainability rating and reporting tools, has also incorporated climate-related risk assessment categories and criteria.
READ ALSO: Green Financing’s Growth and Growing Pains
How has the pandemic affected the company’s sustainability efforts for the multifamily portfolio?
Thomas: Our strategy has been reinforced by the pandemic and sets us up for success in transitioning out of this phase. Despite the challenges presented by COVID-19, our property management teams offered more than 150 socially distant resident and public engagement events, leveraging support for local businesses.
At the same time, at an organizational level, we were at a crossroads with the final engagement with our Global Leadership Team and Board to approve our new sustainability targets when we were thrust into the pandemic last March. Our CEO made the decision to push ahead with that work because he recognized that sustainability is a differentiator for us and would continue to add value to our organization and stakeholders.
What major trends do you see in the U.S. multifamily market?
Thomas: Given investor focus on physical and transitional risk from climate change and increased momentum for net-zero carbon commitments, all-electric buildings are top of the agenda, even in more challenging climate zones. Once we see a greater switch to electric, green power contracting will increase, and the attention will then be on the global warming potential of refrigerants.
Energy efficiency is essential and makes commercial sense for long-term asset holders, so Passive House principles are attractive both for improved ventilation combined with heat recovery for lower heating bills.
In terms of a developer value proposition, wellness from amenities and programming will continue to be in demand but will be enhanced by increasing demand for improved indoor air quality, access to private outdoor space and more access to nature, greenery and plants.
As a potential revenue driver, plus physical and community amenities, I would expect to see more rooftop and balcony vegetable farms, as we have at the Cooper in Chicago. The rooftop harvest last year produced enough vegetables for 339 meals and our resident bees produced 244 jars of honey. The bumper crop was distributed to pop-up markets, crop boxes, local grocery stores and nonprofits like Grocery Run Club that supply fresh produce to underserved communities in Chicago.
I believe there will be clusters of multifamily mass timber buildings in certain locations as a strategy for faster construction, creating healthy indoor environments and in response to a need to reduce embodied carbon from materials.