Sustainability – how the industry is responding

Sustainable corporate alignment is no longer a choice – it is a must. In retail and consumer goods industries, the pressure to act in a more sustainable manner is intense. The European Union has set itself the goal of becoming climate-neutral by 2050. Large buildings, such as shopping centers, play an important role to that end. In general, the EU holds buildings responsible for 40 percent of energy consumption and 36 percent of CO₂ emissions, both figures must be substantially lowered. Those who don’t want to be left out in the cold should prepare themselves for future requirements; but how is the retail real estate sector responding and what are the challenges and opportunities that sustainability presents?

To find an answer to this question, Pragma, a specialist consulting firm working as a strategic partner for operators and investors in mixed-use, travel and retail property describes how the status quo looks like for four core stakeholders.

The Consumer

Clearly, sustainability is becoming of greater importance to consumers and is increasingly impacting the 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 according to Pragma 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 the consumer focus in Europe and North America, who are increasingly channeling their spend to consumption 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 favorite shopping centers – that’s the interim conclusion of the consultants. 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

A number of brands are now credible advocates of sustainability. Examples can be found in areas that already have a connection to nature and people – such as the outdoor sector. Pragma considers that fashion brands are under increased scrutiny in general, as the industry faces pressure to reduce their environmental impact. It is estimated that they are responsible for between 2% and 8% of global CO2 emissions, that is more than the aviation and shipping industries combined. 

As soon as a brand uses marketing with a sustainability theme, skeptics concerns raise about greenwashing. However, Pragma argues that regardless of the underlying robustness of these claims, brands that are failing to act sustainably put at risk their audience’s preference, 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 difficulty faced by CFOs across the world is, as reported by Pragma, how to account for the value of sustainable investment decisions and the challenge of justifying potentially increased costs for the social and environmental benefit of tomorrow.  The consequence has to be according to the consultants: ‘’The business model needs to adapt.’’

The Asset Manager

As the stakeholder needs to balance the variety of often conflicting agendas across investors, occupying brands, consumers, and local authorities, asset managers are in a tricky position. Important questions raised by Pragma are: Who pays for delivering a more sustainable development? What happens at centers 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, reports Pragma. ‘’This clearly demonstrates the challenges of sustainability – a lack of consensus and established reporting on measurements, KPIs, and impact.’’

In conclusion, an increased convergence on the understanding of the subject and a growing appreciation of the shared responsibility from stakeholders and agents in the ecosystem, is what we all need to play our part to head in the right direction.  „The speed and extent of the positive impact resulting from our actions will however, remain a function of the stakeholders’ alignment and acceptance that balance sheet `costs’ of today will reap greater rewards for all, tomorrow“ says Pragma.

Find answers to the demand of more sustainability

The first edition of Across in 2022 is dedicated to the topic of sustainability in the retail real estate industry. Furthermore, we will also follow the topic online and offline – true to the motto: sustainability is not a project, but an attitude.