The link between sustainability and financial performance in the built environment

A new report from EY’s Net Zero Centre finds that upcoming regulations and reporting standards in Australia will place sustainability squarely at the centre of financial decisions and business operations.

Australia can only achieve net zero with active participation from the real estate sector; the buildings that must reach Net Zero by 2030 already exist or are in design today. Despite years of pushing to reduce carbon emissions, Australia’s commercial buildings are still responsible for 25% of national energy consumption and 10% of its emissions footprint.

But regulatory developments and new reporting standards are changing how corporates view commercial space. With sustainability soon to be deeply embedded in both financial reporting and social reputation, tenants and building owners are expanding their view of green buildings from a pure cost centre to a tangible source of value.

Rising demand for sustainable buildings

EY’s “Zeroing in on net zero” report shows that 92% of corporate tenants are more likely to stay in properties with strong green credentials, and nearly half (46%) are willing to pay up to 5% more for sustainable buildings.

In general, tenants value sustainability for one of two reasons: compliance or reputation. Compliance-oriented companies invest to minimise downside risk, reducing operational costs while remaining on the right side of net-zero regulation. Reputation-oriented companies are a bit bolder, willing to take risks to win new business and customers by showcasing their leadership in the sustainability space.

Whatever the primary driver, sustainable buildings in general—and energy efficiency in particular—play a crucial role in offsetting costs, achieving compliance goals, and improving brand reputation. The long-term benefits of sustainable commercial space include tenant retention and satisfaction; lower operating costs; and healthier, more comfortable indoor environments for building occupants.

New reporting standards lead to shifting perspectives

 New International Financial Reporting Standards (IFRS), which take effect in January 2025, will make sustainability an integral part of financial reporting, transforming green buildings officially from a cost to a driver of value.

IFRS S1 and IFRS S2 require businesses to disclose sustainability-related financial information and climate-related disclosures, respectively. These new standards represent a sea change in financial reporting that will link sustainability inexorably to overall business strategy moving forward.

The result is a market recalibrating how it values green buildings, from a pure cost to a tangible asset. This shift takes a step beyond compliance toward recognising the inherent value sustainability brings to properties through reduced operational costs, higher tenant satisfaction, and improved brand reputation.

Sustainability is now a CFO imperative

With upcoming regulations requiring emissions disclosures in financial reports, sustainability is now a line item on the CFO’s agenda. The Australian Government’s proposed amendments to the Corporations Act 2001 will mandate climate-related financial disclosures, ensuring sustainability’s lasting place as a core component of business strategy.

Under the updated Corporations Act, financial auditors will need to sign off on climate-related disclosures and companies will need to prepare sustainability reports in line with national standards. This higher level of scrutiny elevates the importance of accurate and comprehensive sustainability reporting across industries.

For the first time, the ultimate responsibility for sustainability will sit squarely on the shoulders of the CFO. Even companies that aren’t required to report will be approached by clients, customers, or tenants for input to verify their Scope 3 emissions.

Opportunities for early adopters

While buildings are responsible for a quarter of Australia’s emissions, they’re also among its low-hanging fruit. Technology such as CIM’s PEAK Platform can do most of the heavy lifting in emissions reduction, identifying opportunities to reduce consumption and improve performance.

Regulatory developments are creating new commercial advantages for businesses that can successfully align sustainability and financial goals. EY’s report identifies five key areas for reducing emissions:

●   Electrification: Transitioning to electric (non-carbon) energy sources.

●   Energy efficiency: Improving building systems to reduce energy consumption.

●   Grid interactivity: Integrating with smart grids for optimised energy management.

●   Renewables: Incorporating renewable energy sources.

●   Embodied carbon: Reducing the overall carbon footprint in construction materials and processes.

 At CIM, we’ve worked with several REITs on successful sustainability initiatives demonstrating the tangible benefits of investing in energy-efficient operations. LaSalle has seen an 18% reduction in energy consumption across seven sites, resulting in significant cost savings and improved tenant experience. PEAK’s real-time data and insights have enabled proactive maintenance and better decision-making, leading to a 13% overall increase in average indoor environment scores.

Charter Hall used PEAK to implement energy response strategies during fluctuating occupancy levels, maintaining reduced consumption even as occupancy stabilised. PEAK helped Charter Hall improve thermal comfort scores and support the company’s progress toward sustainability targets, saving the equivalent of 12,000 metric tonnes of CO2 emissions since 2019.

Conclusion

The link between sustainability and financial performance can no longer be denied. As regulatory developments and new reporting standards take effect in Australia, sustainability will only become more deeply ingrained in financial decision-making. For commercial real estate stakeholders, prioritising and investing in sustainable practices will yield long-term financial and social benefits.

Australia’s new climate reporting regime is already shifting how we think about real estate and measure its value, and more nuanced conversations about emissions reduction opportunities and their impact across the supply chain are sure to be had as more occupiers and owners seek to mine the potential of green buildings.

Learn how CIM’s PEAK Platform can improve the financial and energy performance of your commercial portfolio. Request a callback today.