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How ESG values yield savings and profits
One of the most pervasive misconceptions about ESG investments is that a focus on environmental sustainability, social equity, and corporate governance comes at the expense of fully realized profits.
But time and time again, real-life application of ESG principles demonstrates how falsely this logic lies. With more than 204 properties comprising 214 million square feet of leasable space, Simon Property Group is one of the country’s largest real estate investment trusts. We spoke with Simon Property Group Head of Sustainability Aharon Kestenbaum about actions the company has taken and the payoffs it’s seen.
When did Simon first launch its Environmental Management System (EMS) and what was the impetus behind this move?
Simon’s environmental management and sustainability program launched as a result of our recognizing both the importance of reducing the environmental impact of our operations and of the great operational cost savings achievable by implementing projects that reduce these impacts.
Simon recognizes the significant impact buildings have on the environment and their contributions to climate change specifically. Acknowledging this urgent need to green our portfolio — as well as our position as leaders in the retail real estate sector — Simon has acted to dramatically reduce its environmental impact since 2003 and significantly ramped up these efforts starting in 2013.
A few high points:
- Simon reduced energy consumption over which we have direct control across the portfolio by 33% between 2003 and 2019, resulting in a cumulative savings of 354 million kWh. 51% of these reductions occurred in the years since 2013.
- As a result of our increased efficiency, Simon has achieved greenhouse gas emissions reductions of 54% between 2003 and 2019, eliminating 312,067 metric tons of carbon dioxide equivalents including scope 1 and scope 2 emissions. 40% of these reductions occurred in the years since 2013.
Having met its 2020 GHG targets, Simon has set its focus on establishing Science Based Target Initiative (SBTi) approved targets for 2035, committing to further reducing our scope 1 and scope 2 emissions by 68% (2019 baseline), and scope 3 emissions, including tenant emissions, by 21% (2018 baseline).
The EMS has involved some significant capital investments for energy-efficient upgrades and retrofitting. Do you have a projected ROI? What have the cost savings been to date?
While Simon doesn’t report its total aggregated numbers of ESG investments and ROIs, we do provide examples of these investments in our Sustainability Report. On a high level, we can demonstrate the environmental returns obtained in the period between 2013 and 2019 for electricity, gas and other energy sources as a result of our investments.
Specific examples of investments and ROIs in our report include:
- Investments of over $70 million in LED lighting retrofits for parking lots at 200+ of our centers has provided great environmental and financial returns, including over 11.6 million kWh of electric utility consumption curtailed across the portfolio.
- A total investment of $24.5M million on 625 energy efficiency and upgrade projects in 2019.
- The Cielo Vista Mall is just one example of our “whole building” approach to investments in energy efficiency equipment and operational efficiency. In a case study, we demonstrate how total operating costs dropped 34%, saving $760,000 in electrical power costs in 2018 and 2019 as a result of this approach. Additionally, this property’s CO2 emissions dropped by 16% between 2017 and 2019, totaling 1,700 metric tons of CO2 emissions avoided.
It’s interesting to see climate change framed within the context of risk management. What have you identified as the most significant climate-related risks to your properties, and what steps has Simon taken to mitigate/control these risks?
In 2019, Simon went through an integrative process of evaluating our climate-related risks in every area of our business to keep in line with standards defined in our Enterprise Risk Management (ERM) Framework. This collaborative process involved many departments’ input on identified risks for each category (policy and regulation, technology, legal, market/reputation and operations), the time horizon on which each risk category must be considered, impacts on our business, and our response.
In our 2020 report, we’ve aligned our climate risk disclosures with the recommendations of the TCFD and provide details on how climate change impacts our business and how we respond to these variables. Here we outline a full breakdown of our identified climate risks and opportunities, time horizons, business impact and response.
Notably, Simon was recognized in 2020 as one of 277 organizations out of more than 5,800 respondents to receive an “A” from the Climate Disclosure Project’s (CDP) Climate Change Questionnaire, earning a spot on CDP’s prestigious “A List”.
How has Simon fostered collaboration with its 3,500+ tenants to reduce operational emissions?
Working together with our tenants is vital to our achieving our long-term reduction target for scope 3 emissions — 20.9% reduction by 2035.
Our initial sustainability focus has been to first address our direct impact (scopes 1 and 2) before engaging with our tenants. In other words, we practice what we preach.
Two years ago, we conducted our first ESG survey with our largest tenants to identify the appetite and opportunities for collaboration on sustainability with tenants.
Later this year, we will launch a new and expanded tenant engagement program for which we will communicate more details in a subsequent Sustainability Report. The program will focus on working directly with our tenants to identify opportunities for Simon to support their sustainability goals, while also working with our tenants to improve their performance within our properties, in order to meet our scope 3 science-based target.
A Deloitte study shows that physical shopping is 60% more environmentally sustainable than online shopping. Knowing this, has Simon taken any steps to encourage consumer behavior in this way?
Since that study was released, Simon has consistently made strong efforts to spread the outcomes of this important study far and wide. We do so through a variety of channels including:
- Direct “on-mall” messaging utilizing our digital ad boards to communicate directly with shoppers that their physical shopping is 60% greener than if they had shopped online.
- Other digital communications, website, and our Annual Sustainability Report, where we share the study in full, as well as the bottom-line findings regularly.
In the coming year, Simon will also revamp these communications to emphasize returns. The hidden and often overlooked environmental damage resulting from online returns is one that consumers have a right to know about.
In Other News
Gentlemen, silence your Motors
Lawmakers in Washington state are mulling a bill that would phase out sales of new gas-powered automobiles by 2030. The bill emphasizes a switch to electric vehicles that would run on locally generated, renewable energy.
Switching to EV could pad many a pocket
An analysis by the Goldman School of Public Policy at University of California Berkeley found that a nationwide shift to EVs by 2035 could save U.S. households a cumulative $2.7 trillion over the course of 30 years.
Interest in ESG investing could boost demand for active management
Putting a price on equity and sustainability
A new assessment by the World Bank and the International Monetary Fund shows how debt, environmental degradation and climate change pose “systemic risk” to the global economy. Analysts predict these topics will dominate discussions at UN Climate Change Conference in November.
Robots lend high-tech helping hands to tomato harvests
Fast-casual restaurant chains including Chipotle, Panera and Just Salad have introduced carbon labeling to educate diners on the impact of various menu items. Would you like some climate-friendly fries with that?