Growthpoint Properties, an international property company with assets in South Africa, Eastern Europe, Australia and the UK, is the largest South African primary REIT listed on the JSE. In our first GCX Client Spotlight interview, GCX CEO, Kevin James, talks to Grahame Cruickshanks, Head of Sustainability and Utilities at Growthpoint, about the company’s sustainability journey, key milestones and future focus areas; as well as his view on ESG, and current sustainability trends.
Included in the FTSE JSE Responsible Investment Index & the FTSE4GOOD Emerging index, Growthpoint owns and manage a diversified portfolio of over 500 properties, locally and internationally. They are also a platinum founding member of the Green Building Council South Africa (GBCSA), and with 105 buildings certified to date, at an estimated book value of R19.5 billion and 1 165 550 m2 GLA, they own the largest collection of Green Star rated buildings in the country.
Growthpoint’s sustainability journey – lessons learnt
“The starting point of Growthpoint’s sustainability was easily over five years ago. At the start, they set some targets based on their knowledge, and the trends taking place in the market at the time both locally and globally. Some of those targets have been exceeded, some have not been met, and some have been met,” says Cruickshanks.
“Where we have exceeded targets, it has been with the understanding around the energy consumption on a per square metre basis in commercial office buildings. Five years ago, the target of 200 kilowatts per square metre per annum for office space was seen to be quite an ambitious target to achieve by 2020, but we’ve exceeded that.”
Going forward, he says that Growthpoint will need to do an assessment, a prioritisation and essentially a reset to establish an appropriate sustainability journey for their organisation.
“What we want to do is get to a point where we’re extracting value from our assets and our sustainability initiatives. Sustainability as a crucial part of the business strategy is embedded in the organisation and looking ahead; we need to make sure that our sustainability measures are adding the right kind of value, financial and non-financial. A vital component of that is going to be a carbon-neutral strategy with measurable targets,” he says.
This does not, however, mean that Growthpoint will focus solely on net-zero carbon.
“People sometimes talk about priorities in the plural sense. It’s a misuse of the word. To have a priority means singularity and a singular focus within our sustainability strategy will create the right kind of momentum. That’s not to say that because carbon neutral is being positioned front and centre that other resources and ecosystem services are not incredibly valuable and worthwhile. They will be a part of the overarching plan.”
The adjunct discussion to the net-zero carbon discussion is science-based targets, and Growthpoint is one of two real estate companies to join the We Mean Business Alliance website in South Africa, where they that have registered their intention to prioritise these targets.
“The great thing about science-based targets is that they lend a measure of metrics and credibility to what we want to do. So, if we ignore them, we do so at our peril. They need to form part of our understanding of setting an appropriate and meaningful sustainability strategy. It may be a little difficult to attach value to something like science-based targets now, but once we figure out how to do that, they become much more important. For now, science-based targets are a useful tool in informing our plan and our strategy,” he says.
Growthpoint has achieved a great deal over the years throughout its sustainability journey, creating a reputation for themselves as a sustainability leader in this space.
“Establishing sustainability as an integral component of the business strategy was a milestone in itself. On the opposite end of the spectrum, a more measurable milestone is when Growthpoint, five years ago, publicly announced that they were going to achieve a minimum 4-star Green Star rating on all of their long-hold commercial office properties. That was a real stake in the ground,” says Cruickshanks.
“There are a number of other initiatives published in our ESG report, but those are two that stand out.”
As part of their offering, Growthpoint’s sustainability-driven Thrive Platinum Portfolio boast buildings with a SAPOA Premium- or A-grade rating, as well as 4-Star or higher GBCSA rating or an Energy and Water Performance (EWP) certification. Gold Thrive Portfolio buildings are SAPOA B-grade rated or higher, and have a GBCSA EWP certification or have received at least a 3-Star Existing Building Performance (EBP) certification.
“The Thrive portfolio is an awesome concept, one that was perhaps ahead of its time. There are also green bonds, and Growthpoint has dipped their toe in the water to raise a green bond against a number of our green assets. Some of those are sitting in the Thrive portfolio, and they have to be reported on at quite a high level of detail on an annual basis to retain the contract component of the green bond,” he says.
“What we would like to see are more green bonds raised by other listed property funds, so that it becomes a competitive market. At the moment there is typically an oversubscription of green bonds, and an undersupply.”
When it comes to sustainability, the relationship between landlord and tenant is a key, and there is often a need for collaboration to ensure any meaningful impact.
“The tenant-landlord relationship on sustainability, green leases, specifically, is intriguing. Tenants have begun to scrutinise more and more their cost of occupancy and are much better informed around issues of green leasing, and the terms and the benefits of green leases, to ensure that it is, in fact, a dual benefit to landlord and tenant. We are being held accountable, and this will lead to a better understanding of how to implement the best version of green leases.
“We think that indoor environmental quality is the obvious place to position the shift in sustainability trends around occupied spaces. Human beings are funny things. For years and years in South Africa pre-2007, we happily carried on consuming resources as if they would be cheap and abundant indefinitely, and it took an issue with electricity supply to shift that mindset. What we are experiencing with the pandemic is the shift in thinking when it comes to the quality of the environments we are in every day. The questions are starting to be asked about air quality, and this will still extend to energy issues, energy security, energy efficiency and then other sustainability issues,” he says.
The Growthpoint sustainability team believe that air quality, light quality, acoustics and a range of different factors influencing people’s experience in indoor environments will also become more of a focus.
“We, as a landlord, need to be ready to respond, and we are in the process of doing so. There is the WELL building certification that has been awarded to the Exxaro building, and that’s a measurable criterion through an independent third-party verified standard. We are also trying to understand what to do with HVAC plants to ensure air quality is maintained, and that is happening on a far more functional level across the portfolio.”
A big risk for Growthpoint, in terms of cost of operation, is waste, and this is due to the gaps in supply chain currently evident in the waste sector.
“We’ve had examples of biogas projects being put in place and then not being financially viable, so we might be producing a fertiliser, but we don’t have a market for it. That sort of thing is quite frustrating. If we overlook waste and we allow it to be business as usual for too long, we’ll find ourselves in a position where cost of operation is going to shoot up, and we are going to have to play catch up. That for us is the strategic approach, balanced with a frustration around actual implementation,” he says.
New team, same passion!
While Cruickshanks may have only been with Growthpoint for a few months, he is an industry stalwart and a sustainable building expert. Since his appointment, he has had some time to familiarise himself with GCX’s service offering, and this is what he found:
“For me, not being part of the introduction of working with GCX to Growthpoint, I focused my energy around the GCX-Growthpoint dashboard that has been implemented. What I’ve experienced there is the system was initially introduced as a way to simplify emissions tracking, and reporting but has grown into what is potentially quite a powerful tool to drive resource efficiency on an operational level. That is something that I’m quite excited about. What that dashboard can do is take a strategic imperative and turn it into something measurable and manageable at a coalface operational level,” he says.
Before joining Growthpoint, Cruickshanks was head of Market Engagement for the GBCSA. Having moved into a more corporate setting, have his priorities changed?
“The target – sustainable built environments – remains the same, but the context has changed. My vocational driver is still the same. The big change is the Rands and cents. Working for an organisation like the Green Building Council, we positioned ourselves front and centre in the green building movement in South Africa, and we needed to maintain a balance between driving the green building movement and making that accessible to the South African property sector. Now, I’m on the implementation side, and the Rands and cents drive so much more of what we are doing,” he says.
The future of sustainability
There is a perception that ESG is gaining momentum as an influencer in real estate investment decisions, but for Cruickshanks, it could be happening faster.
“While it is gaining momentum, I’m impatient, and it’s just not fast enough for me. There are specific examples where ESG is an influencer in real estate decision-making, but I want it to be in all real estate investment decisions. It’s selective at the moment,” he says.
“Investors also don’t always ask the right questions. The vast majority of South African investors take a superficial view. They are selective, diving into detail on specific sustainability targets. We’ve been engaging with overseas investors from the US and Europe who take a more serious view. In some cases, they’ve actually prompted us to produce quite detailed reports over and above what we would typically do to demonstrate our sustainability credentials and that we meet their ESG standards before they are willing to invest. That is not the majority, but it is extremely encouraging to me on a future trends level that this is something that is gaining momentum.”
When it comes to linking ESG to cost of debt, capital providers are being influenced.
“It’s more about market attractiveness rather than a direct financial relationship. The capital providers see the opportunity and understand in many cases what is required, but the market is still driven on a cost basis and is not receptive to that product. So, it’s figuring out how to deliver based on a differentiated product, because it’s greener or more sustainable, in a way that is not compromising margins is the holy grail,” he says.
And what about asset prices and cost of capital truly reflecting the benefits of more sustainable management practices?
“I have always said that when we figure out how to attach an actual financial value or other forms of value to ecosystem services, we’ll see that transition. It hasn’t happened in SA yet, but I think it will happen as long-term investors start to acknowledge climate risk more and more. It is something I would like to see in my lifetime, and I’ll work towards it. As I said, human beings are funny things, and while I’m not convinced that it will actually happen in my lifetime, I will do my damnedest to try.”