One direction

Sustainability is increasingly at the forefront of board room agendas, investment guidelines, consumer priorities and building regulations around the world.

But how is the retail real estate sector responding and what are the challenges and opportunities that sustainability presents?

The Consumer
Clearly, sustainability is becoming of greater importance to consumers and is increasingly impacting decisions of what to buy, which brands to associate with, and where to invest personal savings. However, the awareness and importance of the agenda, and extent to which it is determining purchasing decisions still varies significantly.

The general consensus is that consumers in China and East Asia currently place limited priority on the subject, with these regions being driven more by governments and investors, compared to consumers in Europe and North America, who are increasingly channelling their spend and Instagram likes on brands with a clear sustainability agenda.

Whilst it is impacting what to purchase, it seems that consumers are not yet choosing where to shop based on the sustainability credentials of their favoured shopping centre. To some extent this will be constrained by limitations on alternative options, as well as awareness and understanding of an asset’s sustainability credentials.

The Brand
Leading brands such as Patagonia have long been credible champions of sustainability, with a clear manifesto of being "in business to save our home planet". Fashion brands are under increased scrutiny, as the industry faces pressure to reduce its environmental impact, with estimates indicating it is responsible for between 2% and 8% of global carbon emissions, contributing more than aeronautical and shipping combined.

The new Superdry flagship store on London's Oxford Street outwardly promotes a strong sustainability agenda. Sceptics raise concerns of greenwashing and parts of the industry making dubious claims about their credentials in order to retain and attract consumer spend. Regardless of the underlying robustness of the claims, brands that are failing to act sustainably risk a declining audience, and developments that fail to act risk a rising vacancy rate.

The Investor
Capital markets are increasingly influencing the agenda, with fund managers needing to demonstrate the impact of their investments beyond purely financial returns. The former Bank of England Governor, Mark Carney's Reith Lectures address the challenge of how we have come to esteem financial value over human value.

The difficulty faced by CFOs across the world is how to account for the value of sustainable investment decisions and the challenge of justifying a potentially increased cost today for societal and environmental benefit tomorrow. The business model needs to adapt.

The Asset Manager
As the stakeholder needing to balance the variety of often conflicting agendas across investors, occupying brands, consumers, and local authorities, asset managers are in a tricky position. Who pays for delivering a more sustainable development? What happens at centres where occupiers are struggling to turn a profit and landlords are facing declining valuations? Is achieving higher footfall good or bad for sustainability credentials?

Studies funded by the likes of Amazon tend to promote the principle that online shopping has a lower carbon footprint than offline shopping, whereas those funded by the likes of Walmart tend to convey the opposite. This neatly demonstrates the challenges of sustainability – a lack of consensus and established reporting on measurements, KPIs, and impact.

In summary, an increased convergence on the understanding of the subject and a growing appreciation of the shared responsibility that, as stakeholders and agents in the ecosystem, we all need to play our part, means that we are heading in the right direction. The speed and extent of the positive impact resulting from our actions will however, remain a function of stakeholder alignment and acceptance that balance sheet `costs' today will reap greater rewards for all, tomorrow.

These points were discussed at the Handley House Futures events in London and Singapore last week.

Alex Avery