Principles & trends driving urban sustainability & ESG in 2022

Urban cities are becoming important centers for social and economic mobility as the world's population grows. However, when people's and communities' needs aren't satisfied, urban regions can become hotbeds of inequity, debility, and environmental degradation. Additionally, mismanaged urban areas can negatively impact the natural environment and lead to greater pollution output, increased waste generation, and biodiversity loss.

As the globe begins to unify behind common goals such as lowering greenhouse gas emissions, the real estate industry is being asked to quickly adopt ESG (Environmental, Social, Governance) frameworks and urban sustainability planning to address these growing issues. Over the coming years, the industry can expect to see certain urban sustainability trends emerge that will accelerate the adoption of ESG, green technology, and a wider view of the built environment’s lifecycle.

Principles of urban sustainability

Over the years, urban sustainability has been defined in a variety of ways, but the ultimate goal should be to promote and support long-term wellbeing for people and the planet through the efficient use of natural resources and waste production within a city region. In order to thrive, the city should also endeavor to increase its livability by offering social amenities, economic opportunities, and health care to its residents.

The National Academies of Sciences Engineering and Medicine offers four main principles to promote urban sustainability.

Principle 1: The planet has biophysical limits
Urban areas consume a large number of resources and produce waste and pollution, which contribute to a variety of global changes, including resource depletion, land-use change, biodiversity loss, and high levels of energy consumption and greenhouse gas emissions. However, the plant has finite resources and biophysical restrictions, which will limit the resources available for development, industrialization, and urbanization in the long run. As a result, a city's sustainability initiatives must take into account the indirect, distant, or long-term effects of environmental consumption along the supply and product chain, as well as the city’s total planetary-level environmental and social implications.

Principle 2: Human and natural systems are tightly intertwined and come together in cities
A sustainable, livable, and thriving city requires people to have positive interactions with their environments and nature. Planners must consider both human wellbeing and the health of natural urban and non-urban ecosystems in order to achieve both human and environmental sustainability. The future of urban sustainability will be focused on win-win opportunities that benefit both human and natural ecosystem health within cities.

Principle 3: Urban inequality undermines sustainability efforts
It is vital for planners to eliminate severe economic, political, class, and social inequalities in order to achieve urban sustainability. Extreme inequities jeopardize public health, economic success, and citizen involvement, all of which are vital to urban sustainability. Over many decades, discriminatory practices in the housing market have resulted in racial segregation in major cities and suburbs. Minorities and low-income people have sought housing in disadvantaged neighborhoods as a result of restrictive housing covenants, exclusionary zoning, financing, and racism. These neighborhoods are known to have higher accounts of air pollution, landfills, lead poisoning, dumping, toxic waste, lack of services, and limited housing choices. If cities are to reach their full potential and become appealing destinations for intergenerational citizens and new urban immigrants, severe inequities must be addressed.

Principle 4: Cities are highly interconnected
Measuring the complex networks of interdependent subsystems in cities is difficult. Urban governance is currently mostly focused on single issues such as water, transportation, and waste management. However, as networks spread between extended metropolitan regions and inside cities, severe economic, political, and class inequality issues are becoming increasingly important to urban sustainability. Residents, businesses, and government agencies can work together to reduce major urban imbalances in public health and economic prosperity through efforts like the 17 UN Sustainable Development Goals (SDGs). Sustainable solutions must be tailored to each stage of urban development, taking into account local restrictions and opportunities, yet all cities should seek to represent a multi-scale and multifaceted vision of human wellbeing.

Five urban sustainability trends

The Urban Land Institute's (ULI) 2022 Global Sustainability Outlook report identifies five key issues that will shape real estate decision-making over the coming year and beyond.

#1 - Advancing the net zero agenda
While there is global agreement that immediate climate change action is absolutely necessary to keep within the 1.5 degrees of pre-industrial temperatures, the real estate sector has lagged. For most, the adoption curve for net zero is still in the early stages, but that curve is quickly ramping up. The entire industry is facing growing pressure from stakeholders across the value chain, including investors, occupiers, governments, and communities, to meet the growing climate change demands. To begin taking part in the net zero agenda, the industry will need enforce tracking and reporting emissions under operational control, including the measuring and reducing Scope 3 emissions, especially emissions generated from real estate construction and from tenant energy use.

#2 - Navigating the reporting and measurement landscape
Achieving transparent, in-depth reporting and measurement of ESG performance at a portfolio or entity level is currently a major topic of interest. However, evaluating sustainability programs and ESG performance can be a complex challenge that requires accurate, relevant, current data that must be collected, analyzed, and disclosed. There are multiple sustainability reporting frameworks, such as GRESB, CDP, GRI, SASB, and it’s important to identify which ones are right for your industry. As pressure from investors and other stakeholders drives the need for increased measurement and reporting, ESG reporting is becoming more important. To get started, many companies are turning to sustainability and ESG management platforms that help monitor non-renewable energy sources, minimize harmful emissions and waste, reduce operational costs, and ensure regulatory compliance.

#3 - Confronting climate risk
In 2021, natural disasters in the United States cost $145 billion, the third-costliest year on record, according to Forbes. Climate change ultimately poses two primary types of risk that threaten sustainable and resilient investments: transition risk and physical risk.

Transition risk focuses on the economic impact of climate policies and the shift to a low-carbon economy. Physical risk gauges the impact of catastrophic events such as wildfires, flooding, or storms have on assets. Changing weather patterns such as increased precipitation, long periods of drought, and higher temperatures also elevate assets’ physical risk by increasing maintenance needs and reducing building performance.

Both types of risk can cause insurance premiums to increase, a decrease of available insurance, higher operational costs, and reduced asset value making risk assessments critical to the long-term viability of the built environment. To address these risks, asset owners and managers are turning to software tools such as the Carbon Risk Real Estate Monitor (CRREM) that provide risk evaluations to support decision-making surrounding acquisitions, developments, and operations.

#4 - Prioritizing existing buildings
Roughly 80% of the buildings that will exist in 2050 have already been constructed, meaning existing building performance will be scrutinized more as the real estate market becomes more serious about decarbonization. The primary challenge for 2022 and beyond will be how to decarbonize existing buildings in a cost-effective and timely manner while efforts to make electrification a major part of the upgrade of all existing buildings in the United States are expected to continue. But, at the moment, retrofitting the current built environment isn't happening quickly enough due to roadblocks such as affordability, supply concerns, occupier preferences, and investor return demands.

Owners will have to get more inventive in order to fund deep retrofits, such as using green bonds, efficiency-as-a-service contracts, and other financial mechanisms to make the projects cash-positive and increase value from the start. Rapid investment and innovation in property technology and climate technology are allowing for extensive energy efficiency retrofits that were previously thought to be prohibitively expensive or impossible. Furthermore, advancements in the sophistication and influence of building technology, materials, and operations are bolstering the case for decarbonization.

#5 - Focusing on building materials
The building life cycle begins with the materials used, which have a major impact on both health and sustainability. Whether it's making the best use of existing materials on-site or decreasing carbon emissions in the production and supply chain, reducing emissions through the embodied carbon in materials will be critical for realizing net zero targets. Given that people spend 90% of their time inside, it is critical that developers design and maintain buildings that promote wellbeing through the use of healthier building materials.

Although there are technologies available to analyze the health of building materials and their embedded carbon content, they are rarely used. Furthermore, without the appropriate data, it's currently impossible for a government body to control life-cycle carbons. While some designers are beginning to utilize lifetime assessments (LCAs) as part of their ESG commitments in the United States, many developers and owners are still reluctant to pay for them. Moving forward, the construction sector will need to work with legislators to establish embodied carbon standards that will help accelerate the decarbonization of building materials without slowing development or raising construction costs.

An acceleration toward ESG

Although the real estate industry is still in the early stages of ESG adoption, stakeholders are swiftly raising awareness and expectations for tracking, reporting, transparency, and alignment with global sustainability goals. For future resilience, the sector will need to focus on efforts to build decarbonization pathways and manage the physical and transition risks of climate change in 2022 and beyond.

Many changes are required for growth, and there will be more regulatory pressures for uniformity, transparency, and accountability, all of which will accelerate change. ESG frameworks can assist in tracking the built environment's complete life cycle, improving the health and welfare of tenants and communities, as well as ensuring alignment with the natural environment and protecting planetary biodiversity.

ESG materiality assessments

With investors inquiring more and more frequently about what your company is doing in regard to responsible investment, how you treat employees and vendors, your dedication to sustainability initiatives, and other activities that fall under the ESG umbrella, it’s important to have answers to these questions.

An ESG materiality assessment empowers you to easily report on your current state and outline future initiatives while taking into consideration your business goals and risks. Download our guide to creating and extracting the maximum strategic value from an ESG materiality assessment.

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Ryan Nelson

Ryan Nelson is Conservice's SVP & General Manager, ESG. He has over 20 years in enterprise software and management consulting experience, including supply chain software implementation and process optimization for fortune 50 companies. Since 2009, Ryan has been focused on helping companies amplify their ESG impact with technology.

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