The True Value of Sustainability
The Sustainability Value Proposition
for Real Estate Developers
Prepared by Crescent Communities
May 2015
WHY SOCIAL RESPONSIBILITY?
Our research has shown that companies that proactively invest in corporate social responsibility — intentionally going
beyond what is required — are the companies that reap the most significant rewards. Employees want to work for
them and are more productive in their work. Consumers are expecting and paying premiums to support sustainable
companies. And investors are putting money behind them. Because it is good business — as well as part of our social
mandate as builders of community — Crescent is committed to leading in this arena.
BE CURIOUS.
CONSUMER
44%
of consumers want companies
to give back by investing in local
communities through people, job
creation, and infrastructure
(3x the next highest priority)
68%
of builders say consumers will
pay a premium for more efficient
homes, up from 61% the prior year
from green-certified commercial
buildings (LEED and/or Energy
Star) versus non-certified buildings
EMPLOYEES
53%
22.6x
+16%
of executives say their company’s
sustainability practices are
important to recruitment
and retention
average increased productivity
from employees at companies who
voluntarily adopt green practices
versus non-green companies
returns created between 1993
and 2009 at high-sustainability
companies, compared to 15.4x for
average-sustainability competitors
INVESTOR
$500B to $3.7T
increase in total investments in
socially responsible platforms
from 1995-2012, demonstrating a
significant and lasting belief in these
types of investment vehicles
249%
increase in alternative investments
(hedge funds, private equity, etc.)
in socially responsible real estate
between 2010 and 2012, pointing
to a rising belief in the ROI of CSR
in the development space
+7.39%+7.92%%
RETURN ON
EQUITY
+3.5%-
RETURN
ON ASSETS
.14
REDUCTION ON
MARKET BETA
Impact of a 1% increase in the
share of LEED-certified buildings
in a REIT portfolio
2
Leading companies are using corporate and social responsibility
(CSR) as a strategic driver of competitive advantage and an
opportunity to unlock innovation and value. Research has shown
that the companies who proactively invest in CSR—intentionally
going beyond what is required by consumers—are the companies
reaping the most significant rewards. At the heart of this value is
CSR’s three-part impact: on consumers, employees, and investors.
Increasingly, consumers are expecting and willingly paying
premiums for sustainable products and the companies that make
them. Whatever their product offering, companies who are investing
in CSR are regularly being identified as “employers of choice,”
routinely out-recruiting and retaining talent in comparison to their
competitors, and investors are putting money behind them. Because
it is good business—as well as part of our social mandate as builders
of community—Crescent is committed to leading in this arena.
3
Getting It Right — The Evolving Business
Case for CSR in Real Estate Development
The business implications of operating responsibly – alternatively described as green/sustainability,
corporate social responsibility (CSR), triple bottom line, and now environmental, social, and governance
(ESG) practices – have been a hot topic for years. There is mounting evidence and research proving that
it matters more than ever today to the bottom line, yet the real estate development industry frequently
questions the value of these practices.
Because putting corporate responsibility into action and making it effective is a highly complex effort,
most research to date has focused on the topic singularly – examining how consumers or employees or
investors respond. In isolation, the benefits of CSR may seem marginal for the real estate industry, but
taken together the power of CSR becomes far more clear.
This paper is an analysis of a breadth of available research – both focused within the real estate industry
and external to it – that explores the expected impact of CSR on real estate development companies more
holistically.
There is not a clear definition of what CSR means to the real estate development industry. From “green
building” to “sustainable development” to “solar” to “public private partnerships,” the list of ways the
development industry talks about responsibility can be daunting. However, as the exploration of this topic
becomes more sophisticated, it seems clear that CSR certainly means more than environmentally sensitive
development practices. At Crescent, as one example, we center our approach to CSR on the idea of
Stewardship, and we focus on our impact on the planet, people and communities. This approach ensures
our organization looks at the impact of CSR both internally and externally.
4
An Organizing Framework
In evaluating the holistic impact of CSR on a real estate development company, there are three areas for
exploration. First, how will CSR impact end customers – the people, businesses, and organizations that call
our communities home. Second, how is the corporation impacted from an operational perspective. Lastly,
how will CSR impact the investment community’s willingness to support the developer. This paper uses
this model as a framework for our analysis, taking a deep dive into each area to validate a positive impact
on each category.
CORPORATE
How does CSR impact
the operations
of the company?
INVESTOR
CUSTOMER
How does CSR impact
consumer and B2B
customer behavior?
How does CSR impact
the decision to invest in
the real estate developer
or project?
COLLECTIVE
IMPACT
5
1
More and More Consumers
Are Walking the Talk
Consumer behavior relative to sustainability and CSR practices has been explored in depth, with a growing
mountain of evidence suggesting that consumers are increasingly holding companies accountable for
their behavior. Cone Communications, a public relations and marketing firm, has been tracking consumer
attitudes on CSR for more than 20 years. In that time, the percent of consumers who state that they are
“very likely” or “somewhat likely” to switch brands to one that is associated with a good cause, given
similar price and quality, has increased from 66% to 89%.1 While the study indicates that consumer
behavior lags stated desires, the number of consumers who state that they had purchased a product
associated with a cause in the last 12 months increased by 170% over the same period.2
This increase in CSR-driven purchase intent is exemplified by the above-market returns seen by consumer
companies that are on the leading edge of CSR practices.
Patagonia
Patagonia is a company that has always placed its values of sustainability and environmental ingenuity
above all else. Among its many honors, the organization has been named one of the Ethisphere Institute’s
“World’s Most Ethical Companies” every year since the list was developed in 2007.
Every business decision Patagonia makes is based on their mission statement: “Build the best product,
cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”
As one example, in 1994, when the company realized conventional cotton growing was harming the
land, they switched to organic cotton, a decision that would increase costs 50-100%. The results they
experienced were opposite of their financial worries; sales rose 25%.
Infusing their CSR-practices in every facet of the company is paying off; since its start in 1972, it has
maintained an average growth rate of 3-8% annually3, doubled revenue since 2008, and, most impressively,
tripled its profits in the last 5 years, earning over $600 million in 2013 alone.4
Whole Foods
Whole Foods is another company that continues to prove the value of CSR. The company runs internal and
external charity programs that focus on environmental, economic, and physiological wellness. For example,
since 2005 The Whole Planet Foundation has made microloans totaling more than $660M in developing
countries and in the US, while the Whole Kids Foundation focuses on educating kids on the impact of
nutritional eating.5
Consumers trust they are choosing sustainable products from a reputable source, employees work hard for
a mission they believe in, and charitable commitments have clear internal and external impact. The returns
are also clear; employee turnover rate is 9% in an industry where the average is 100%,6 the company’s
stock has grown roughly 37% each year, and net income grew 133% from 2009 to 2011.7
1. Cone Communications. 2013 Cone Communications Social Impact Study. The Next Cause Evolution.
2. Cone Communications. 2013 Cone Communications Social Impact Study. The Next Cause Evolution.
3. Baca, J., Sawayda, J., Suazo, S. Patagonia: A Sustainable Outlook on Business. Daniels Fund Ethics Initiative. 2012.
4. CSR Central. Patagonia – The Clothing Company with a Revolutionary Approach to CSR & Sustainability. March 2015.
5. Our Impact Whole Planet Foundation, accessed May 26, 2015.
6. Caldwell, C., Sawayda, J., Turner E. Whole Foods Strives to be an Ethical Corporate Citizen. Daniels Fund Ethics Initiative. 2012.
7. Whole Foods Market 2013 Annual Report. Whole Foods Market, accessed May 26, 2015.
6
How Consumer Preferences Impact Real Estate Development
However, consumer goods companies are not ideally positioned to deliver on consumer passion points
related to CSR. In fact, the Cone Communication study indicates that real estate developers – with their
direct influence on local communities and economies – actually have a significant advantage in addressing
the issues that consumers think are most important in corporate philanthropy.8
Historically, conversations around CSR have centered on large-scale issues – global warming, eradicating
poverty, etc. – the very areas that companies like Patagonia and Whole Foods are focused on. However, as
the chart below shows, there is now more interest in local responsibility and impact than in these global
issues. With an obviously local impact and presence, this mindset shift uniquely positions real estate
developers to be leaders in the CSR that matters most to customers.
Companies Should Prioritize Support Of Issues That Affect:9
2013
The quality of life
GLOBALLY, in countries
around the world
20%
43%
The quality of life
NATIONALLY
The quality of life
LOCALLY, in local
communities
38%
Generational Shifts Likely to Drive Increased Importance for CSR
While it is likely that the frontlines of changing consumer behavior are on small-scale purchases, there is
reason to believe that real estate represents a category where the impact of changing consumer attitudes
is only starting to be seen. Traditionally, members of the Millennial generation have been the most likely to
state that CSR is important to them, but less likely to act on those desires in the marketplace.10 11 Typically,
Boomers have been the most likely to, as the Cone Communication study puts it, “act green.”12 13
However, a recent Nielsen survey, of the total amount of respondents who would pay extra for sustainable
products, 51% were Millennials (compared to 25% Gen X and 12% Baby Boomers). Other data points to the
fact that Millennials are the most responsive to sustainability; 49% of those who answered they “check the
packaging labels to ensure positive social/environmental impact” were Millennials, versus 25% of Gen X
and 12% Baby Boomers.14
8. Cone Communications. 2013 Cone Communications Social Impact Study. The Next Cause Evolution.
9. Cone Communications. 2013 Cone Communications Social Impact Study. The Next Cause Evolution.
10. Cone Communications. 2013 Cone Communications Social Impact Study. The Next Cause Evolution.
11. DDB Worldwide. DDB Life Style Study. 2013.
12. DDB Worldwide. DDB Life Style Study. 2013.
13. Deloitte Travel Study, Boomers More Likely To Go Green. 2008.
14. Nielson, Investing in the Future: Millennials are Willing To Pay Extra for a Good Cause.
7
As Millennial consumers enter prime earning years and have more disposable income, it is likely that their
behaviors will more closely follow their stated preferences. Of note, the Millennial monetary influence is
already huge (with $200 billion of direct purchasing power and $500 billion of indirect spending, largely
due to the influence they have over their parents15), with their purchasing peak still decades away.
Tenure by Age of Householder
Age Distribution
Renter-Occupied
Households
Share
Owner-Occupied
Households
Share
Under 30 Years Old
9,619,626
22.71%
2,910,331
3.94%
30 to 44 Years Old
14,243,341
33.63%
16,338,573
22.10%
45 to 64 Years Old
12,622,613
29.80%
33,343,219
45.10%
65 Years and Older
5,871,932
13.86%
21,341,339
28.87%
Total
42,357,512
100%
73,933,462
100%
Source: NMHC tabulations of 2013 American Community Survery. Updated 10/2014. Note: Does not include non-housing units.
The 2013 NMHC/Kingsley Apartment Resident Lifestyle Super Survey revealed that renters, many of whom
could become future Millennial homeowners, show great interest in environmentally sustainable practices
(in this study defined by actions, tools, and products that lessen the environmental impact). 71% of the
200,000 residents surveyed showed “some interest” in “green” amenities. 23% of those surveyed “required
green practices” and another 14% “required green design.”17 This shows there’s not only increasing crossgenerational interest in a green living space, but a growing expectation as well.
Consumer Behavior Concerning Big Ticket Items
In addition, research indicates growing consumer preferences for CSR are starting to impact real estate
decisions. A 2014 study by McGraw Hill Construction states consumers are “looking to go green even if
there are no perceived economic benefits (such as from reduced utility costs).”18 This study also projected
a 300% growth in the “green” building market from $36B in 2013 to $105B in 201619, and from a 23% share
to a 33% share in that same timeframe.20
The supporting statistics in these findings indicate that:21
• 68% of builders report that clients are willing to pay a premium for more efficient and sustainable
homes, as compared to 61% in 2011
• Nearly 25% reported that they would pay a premium of more than 5%
• 84% of remodelers indicate that consumers are willing to pay a premium for green practices, up from
66% in 2011
• The evidence is even clearer for commercial development, where corporate customers have been
more aggressive in their consumption of CSR real estate projects.
15. US Chamber of Commerce Foundation. The Millennial Generation Research Review. 2012.
16. Quick Facts. National Multifamily Housing Council. Accesed on May 26, 2015.
17. Foong, Keat. Special Report: NMHC/Kingsley Resident Lifestyle Survey Yields Unexpected Findings. MHNOnline, November 21, 2013.
18. McGraw Hill Construction, Green Home Builders and Remodelers Study. 2014.
19. McGraw Hill Construction, Green Home Builders and Remodelers Study. 2014.
20. McGraw Hill Construction, Green Home Builders and Remodelers Study. 2014.
21. McGraw Hill Construction, Green Home Builders and Remodelers Study. 2014.
8
A recent study from researchers at the University of California and Maastricht University in the Netherlands
looked at the performance of 2,500 LEED or Energy Star office buildings compared to 20,000 control
buildings in the United States. Controlling for numerous variables, the study found that there was an
average 3% rental rate premium and a sales premium of 13% for these certified buildings.22, 23 Additionally,
47% of all new commercial construction is green, compared to only 2% in 2005.24
As Millennials reach their peak influence in real estate, and consumers shift their focus on social
responsibility to emphasize local impact over global focus, the real estate developers have a powerful
opportunity to differentiate with consumers, creating a compelling CSR-driven story that drives business
results.
2
CSR Enhances People and Process for
Corporations
While the old adage suggests that a business should “start and end with the customer,” there is a growing
belief that the internal audience is actually the most important element for a business to “get right.”
Getting the right people on the bus is frequently cited as the starting point, followed by providing an
operational framework that enables them to be successful. Research shows that CSR practices have a
positive impact in both areas.
The Human Capital Advantage
It is fairly intuitive to most in the industry that real estate development is a people business. Successful
developers anticipate consumer needs, make better decisions relative to which projects to pursue and
which to walk away from, build better relationships with partners and prospects, implement meaningful
technology, develop innovative strategies and products, and so on.25
As a result, firms that are able to attract, retain, and motivate the best people across a diverse set of skills
are ultimately the ones that will have the advantage in real estate development. There is ample evidence
to prove that CSR practices are important, and only likely to become more so, for winning this human
resource battle.26, 27, 28, 29, 30
Several studies have indicated that companies across industries that practice CSR and sustainable
practices are positioned for success in the recruiting battle. In a 3,000-executive McKinsey-led study, 53%
of executives said company performance on sustainability is at least somewhat important to attracting and
retaining employees.31 More directly, a 2013 study sponsored by the Network for Business Sustainability
found that job seekers were more attracted to companies that appeared to have a stronger CSR platform.32
Critically, the importance of creating a human resources advantage will be intensified in the coming years
22. Eichholtz, P., Kok, N., Yonder, E., Sustainability and the Dynamics of Green Building. Maastricht University and University of California,
Berkley. April 2010.
23. HDR Sustainable Return on Investment. Sustainable Return on Investment Analysis of LEED Certification Levels for New Building
Construction. May 2014.
24. Not Going Green? You’re Loosing Profits and Clients Industry Week, accessed May 26, 2015.
25. Magali Delmas and Sanja Pekovic, Environmental Standards and Labor Productivity: Understanding the Mechanisms That Sustain
Sustainability Journal of Organizational Behavior, 34, No 2. 230-252.
26. McGraw Hill Construction & Waste Management. Green Retail & Hospitality: Capitalizing on the Growth in Green Building Investments. 2013
27. Brookfield Johnson Controls. 2013 Report on Sustainability. 2013
28. Sauder School of Business. Green Commercial Real Estate: Corporate Social Responsibility.
29. Adam J. Sulkowski and Cassandra Walsh, A Greener Company Makes for Happier Employees More so than Does a More Valuable One: A
Regression Analysis of Employee Satisfaction, Perceived Environmental Performance and Firm Financial Value, University of Massachusetts
at Dartmouth, 2009.
30. McGraw Hill Construction & Waste Management. Green Retail & Hospitality: Capitalizing on the Growth in Green Building Investments. 2013
31. McKinsey & Company. The Business of Sustainability: McKinsey Global Survey Results
32. Network for Business Sustainability. Three Reasons Job Seekers Prefer Sustainable Companies.
9
as the Baby Boomer generation ultimately ages out of the workforce. While the Great Recession and
other factors have driven the Boomer generation to maintain employment longer than prior generations,
an estimated 40% of today’s workers will be retiring in the next 10 years,33, 34 creating a huge employment
gap to fill with younger workers. To date, the Millennial generation has led other generations in putting
corporate responsibility as an employment priority,35, 36 and it seems likely that it will become more, not
less important for future generations.37
CSR Enhances Innovation and Efficiency
In addition to the human resource advantages created for employers who pursue CSR practices, there
is significant evidence that there are operational advantages for businesses that adhere to sustainability
standards. As far back as 2009, the Harvard Business Review highlighted research that indicated
sustainability was a driver of corporate innovation at the operational and product level, resulting in
improved top and bottom line performance.38
In another example, a 2012 study published in the Journal of Organizational Behavior analyzed more than
5,000 French companies, finding that employees at green companies – in this study identified as those
that voluntarily adopted environmental standards – are 16% more productive than employees at non-green
companies.39 This is largely due to the fact that the processes of socially responsible companies inherently
lend themselves to efficiency. Training and collaboration are also core elements of such companies, thus
increasing employee engagement and commitment.40
McKinsey completed six surveys of executives on the topic of sustainability and found that over that time,
more and more executives are recognizing the value-creation opportunities associated with sustainability.
While early studies indicated that corporate reputation was the primary driver for sustainable practices,
their 2011 study found that the most often cited reason for addressing sustainability was improving
operational efficiency and lowering costs (33%, up from 21% the year before), followed by reputation
(32%), alignment with strategy (31%), and new growth opportunities (27%, up from 17% the year before).
Sustainability is no longer a marketing initiative, but a true strategic driver for these executives.41
McKinsey’s study identified three levers of value creation for sustainable behaviors:42
1. Growth – using sustainable practices to create new revenue-generating opportunities
2. Returns on capital – increasing operational efficiency and marginal profitability
3. Risk management – managing reputation and mitigating environmental or regulatory risk
33. US Census. Next Four Decades: The Older Population in the United States: 2010 to 2050.
34. Greenbiz Five Ways to Convince your CFO Sustainability Pays.
35. Cone Inc., Cone Millennial Case Study; The Millennial Generation: Pro-Social and Empowered to Change the World, 2006.
36. John J Heldrich, Mark Szeltner, Cliff Zukin. What Workers Want in 2012. Rutgers University.
37. Sky. The Sustainable Generation: The Sky Future Leaders Study.
38. Knut Haanaes, David Michael, Jeremy Jurgens, and Subramanian Rangan. “Making Sustainability Profitable.”. Harvard Business Review.
Harvard University, March 2013.
39. Magali Delmas and Sanja Pekovic, Environmental Standards and Labor Productivity: Understanding the Mechanisms That Sustain
Sustainability, Journal of Organizational Behavior, 34, No 2. 230-252.
40. Magali Delmas and Sanja Pekovic, Environmental Standards and Labor Productivity: Understanding the Mechanisms That Sustain
Sustainability, Journal of Organizational Behavior, 34, No 2. 230-252.
41. McKinsey & Company. The Business of Sustainability: McKinsey Global Survey Results
42. McKinsey & Company. The Business of Sustainability: McKinsey Global Survey Results
10
In their analysis, McKinsey identified a group of sustainability leaders that are more skilled at capturing
value from their sustainability efforts. These value-creation leaders demonstrate significantly more
commitment to “strategic” sustainability initiatives than the average company, while showing only slightly
more commitment to more tactical efforts:43
Reducing waste from operations
Reducing energy use in operations
Managing impact of products
throughout the value chain
Improving employee retention and/or
motivation via sustainability activities
Achieving higher prices or market
share due to sustainable products
Leveraging sustainability of existing
products to reach new customers/markets
Committing R&D resources
to sustainable products
0%
10%
20%
30%
40%
50%
60%
70%
80%
All other respondents taking action
Sustainability leaders taking action
In a follow-up piece, the authors of the McKinsey study later explored how CSR leaders are “putting
sustainability into practice.” They highlighted that, in 2004, before climate change became a household
topic, GE resolved to “go green” with its operations. As a result, their Ecomagination division has seen
incredible growth, with over $18 billion in product sales in 2009 alone. Nestle has created a long-term
initiative to create more sustainable production of cocoa. The company set a goal of “producing 12
million stronger and more productive cocoa plants” by 2019, while also teaching farmers sustainable
practices, and working with organizations to help battle child labor and improper health care. Dow
Chemical has actively invested roughly $2 billion in resource efficiency since 1994, saving more than
$9.8 billion from reduced energy consumption and water waste as a result. And many other companies,
including Wal-Mart’s effort to create a package “score card” to reduce their global supply chain by 5%, are
actively measuring their efforts.45 These companies prove the diverse and effective ways companies can
accomplish, succeed in, and profit from CSR practices.
It’s worth highlighting that resource-intensive industries – not unlike real estate development – are
overrepresented in McKinsey’s group of sustainability “leaders”: energy, extractive industries (e.g. mining),
manufacturing and transportation.46, 47
Additionally, an MIT Sloan Management Review and Boston Consulting Group study from 2013 offered
similar findings. In their research, 60% of companies that approached sustainability in a comprehensive
way (called “Walkers”) said that sustainable practices had added to their profitability, compared to 19%
of less committed firms (called “Talkers”).48 The associated report also cited a Harvard Business School
study that looked at the financial performance of “high sustainability” and “low sustainability” companies.
Between 1993 and 2009, they found that the high sustainability companies significantly outperformed
their counterparts, creating 22.6x returns versus 15.4x.49, 50 And while correlation and causation are two
different things, companies that are fully committed appear to be reaping the rewards.
43. McKinsey & Company. The Business of Sustainability: Putting it into Practice
44. McKinsey & Company. The Business of Sustainability: McKinsey Global Survey Results
45. McKinsey & Company. The Business of Sustainability: Putting it into Practice
46. McKinsey & Company. The Business of Sustainability: McKinsey Global Survey Results
47. McKinsey & Company. The Business of Sustainability: Putting it into Practice
48. MIT Sloan Management Review & The Boston Consulting Group, Sustainability’s Next Frontier. 2013
49. David Kiron, Nina Kruschwitz, Holger Rubel, Martin Reeves And Sonja-Katrin Fuisz-Kehrbach. Sustainility’s Next Frontier. MIT Sloan
Management Review & The Boston Consulting Group, 2013
50. Eccles, RG, Ioannou, I., Serafeim, G. The Impact of Corporate Sustainability on Organizational Processes and Performance. Harvard
11
3
The Case for Sustainable Investment
Grows Stronger
With few exceptions, real estate developers need significant financial resources and results in order to have
a serious impact on the industry. Because of this, the investor audience – whether it’s private investors or
the stock market – has become a more and more important stakeholder group over time.
Increasingly, investors in the real estate category have been interested in the CSR practices of real estate
companies. A PwC study focusing on key drivers for real estate asset managers highlighted an increasing
number of requests from institutional investors (namely pension funds such as APG Investment, CalPERS,
and CalSTRS) for information on environmental, social, and governance (ESG) performance from real
estate investment funds. This increased interest from institutional investors is mirrored by research and
analyst groups.51
Overall Interest in CSR Investment Strategies Continues to Grow
Looking beyond real estate-focused investments, CSR-focused investment strategies continue to
demonstrate strong results for investors across categories. The Forum for Sustainable and Responsible
Investment (USSIF) now lists 146 different investment funds dedicated to socially responsible investments
(SRI) (up from 55 in 1995) reflecting an almost 300% increase. The group also found that total investments
in socially responsible platforms have increased by more than 600% to a staggering $3.7 trillion from 2005
to 2012.52 Importantly for the real estate industry, the USSIF has found that one of the most aggressive
areas of growth in SRI is in the alternative investment category.
ESG Assets Under Management Identified by the US SIF Foundation
(Billions of USD)
2010
2012
Growth
Alternative Investments
$37.80
$132.00
249%
Mutual Funds
$316.00
$641.00
103%
Community Investing Institutions
$41.70
$61.40
47%
And, while in the early stages of SRI, the perspective was that investors were sacrificing maximum returns
in exchange for investing with a clear conscience. However, just as the studies in the prior section show
that corporations are shifting their perspective on sustainability as a performance driver instead of just an
image driver, SRI is being shown to demonstrate comparable returns to less restrictive strategies.53
A 2012 study by the Deutsche Bank Climate Change Advisors reviewed numerous academic papers on
the topic of performance in green investing and found compelling evidence for a commitment
to sustainability:54
• 1 00% of the studies found that firms with high ratings for corporate social responsibility and
environmental and social governance have a lower cost of capital
• 89% of the studies show that these firms outperformed
Business School Working Paper. July 29, 2013.
51. Deed, Ron and Cope Willis. Key Sustainability Trends Driving Business Value in the Real Estate Sector. PwC, 2013
52. Social Investment Forum, Sustainable and Responsible Investing Trends in the United States 2012.
53. Bloomberg’s Environmental, Social and Governance (ESG) Data Service, Sustainable & Responsible Mutual Fund Chart. 2014.
12
There Is Increasing Clarity For CSR Real Estate Investment Performance
This investor interest is echoed by the expanding academic research on the topic of connecting
responsible property investment and financial performance. Gary Pivo, a category expert from the
University of Arizona, has done significant research on the topic, including a 2011 paper calling for the
creation of Sustainable and Responsible Property Investment Indices.55 In addition to making a compelling
case that a lack of information on investment performance is a major roadblock to increased investment,
Pivo’s preliminary model for these indices suggested that a portfolio of increasingly responsible properties
would outperform an average portfolio:56
300
250
Index
200
150
100
50
NPI Office
Transit
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
RPI Score > .50
This gap is beginning to be addressed in the marketplace with the introduction of the FTSE Group,
NAREIT, and US Green Building Council’s investable Green Property Indexes in late 2012.57
Piet Eichholtz and other researchers at Maastricht University have also studied the relationship between
portfolio greenness and financial performance in REITs. Their research and analysis found a positive
relationship between the greenness of a REIT’s portfolio and its operating performance, return on equity,
and investment performance.58
Their research found that an increase in the share of LEED-certified properties in a REIT portfolio results in:59
• a predicted return on assets increase of 3.5%
• a predicted return on equity increase of 7.39-7.92%
• a reduction in market beta (a measure of volatility) by .14
Note that their findings did not show a relationship between greenness of a portfolio at measures of alpha – abnormal stock market returns – indicating that these measures may already be accounted for in stock price.
54. Fulton, Mark, Bruce Kahn, Camilla Sharples. Sustainable Investing; Establishing Long-Term Value and Performance. Deutsche Bank
Climate Change Advisors, 2012.
55. Fisher, Jeffrey and Gary Pivo. Toward Sustainable and Responsible Property Investment Indices. Strengthening the Green Foundation:
Research and Policy Directions for Development and Finance. 2011.
56. Fisher, Jeffrey and Gary Pivo. Toward Sustainable and Responsible Property Investment Indices. Strengthening the Green Foundation:
Research and Policy Directions for Development and Finance. 2011.
57. FTSE Group, NAREIT and US Green Building Council Develop the First Investable Green Property Indexes. 2012.
58. Eichholtz, P., Kok, N., Yonder, E. Portfolio Greenness and the financial performance of REITs. Journal of International Money and Finance, 2012
59. Eichholtz, P., Kok, N., Yonder, E. Portfolio Greenness and the financial performance of REITs. Journal of International Money and Finance, 2012
13
Conclusion
The conclusions reflected in this paper support a clear argument for the economic benefit of CSR practices
in the real estate development industry.
Importantly, with increased communications on best practices in the CSR space from industry firms, more
and better reporting on CSR practices, and an increasing data set created by the real estate market, the
opportunity associated with these practices will only become more apparent. And, given the importance
of differentiating with consumers and employees, it’s clear why companies that are proactively investing in
these efforts are reaping the most reward.
It is core to Crescent’s mission to create value for our customers, our colleagues, our partners and our
investors and with a committed and focused effort in support of CSR efforts, we are confident that the
value we create will exceed expectations. Our projects are fundamental to the way people live their lives.
And we recognize that companies who have proven their ability to consistently improve our world, both
holistically and individually, rarely lack for return on investment.
At Crescent, we will be publishing our first Stewardship Report later this year to explore our efforts as
stewards of our planet, our people, and our communities. The Stewardship Report will assess and calibrate
our efforts as we intend to deliver above-market returns to our investors and to the communities where we
develop. Core to Crescent’s stated values, the commitment to a comprehensive and evolving Stewardship
platform is embedded in doing “What’s Right” but is also a critical component of innovating always and
delivering excellence in everything the company does.
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