INTELLIGENT INVESTMENT
Sustainability: The key to Futureproofing
Real Estate
Introduction
As environmental concerns gain prominence, businesses globally are recognizing the urgency of embedding sustainability into their core operations. This trend resonates within the real estate sector which is witnessing a pronounced thrust towards sustainable practices. In this report, CBRE delves into the state of sustainability in the Indian real estate, with particular focus on the office sector. The report presents the various eco-commitments of developers and occupiers, the growing significance of sustainability in this fast-paced sector. CBRE also presents actionable insights for firms looking to enhance their sustainability journey through consistent measures.
1. The road towards net zero
2. Developers, occupiers and their commitments
3. Green financing and push from investors
4. Outlook: Building fit-for-future assets
The Road Towards Net Zero 01
Building operations and construction account for one-third of overall emissions globally
India: The third-largest global emitter of CO2, despite
India’s Journey Towards Net Zero: From Ambition to Action
Key initiatives by the Government of India towards sustainability – A timeline
NATIONAL ACTION PLAN ON CLIMATE CHANGE (NAPCC) INTENDED NATIONALLY DETERMINED CONTRIBUTIONS TO UNFCCC*
INTERNATIONAL SOLAR ALLIANCE (ISA)
NATIONAL CLEAN AIR PROGRAMME (NCAP)
‣ Support climate change adaptability and ecological sustainability
‣ Emphasis on importance of energy efficiency in buildings
‣ Increase in electric power installed capacity from non-fossil sources
‣ Reduction of emission intensity of GDP
‣ Creation of additional carbon sink through forest and tree cover
Note: *United Nations Framework Convention on Climate Change
‣ Promotion of solar energy deployment across developing countries
‣ Commitment of INR 175 crore by government for setting up of ISA
‣ Target to achieve 20-30% reduction in Particulate Matter concentrations by 2024, with 2017 as base year
FOCUS SECTORS Power Industry Transport Building
Source: Ministry of Environment, Forest and Climate Change, Government of India CBRE Research, Q4 2023
India’s Journey Towards Net Zero: From Ambition to Action
initiatives by the Government of India towards
ADOPTION AND MANUFACTURING OF ELECTRIC VEHICLES (EVS)- I
‣ Reduction of vehicular emissions and air pollution levels by incentivising adoption of EVs
– A timeline ‣ Target to achieve an installed capacity of renewable based power of 175 GW by 2022** ‣ Demand creation for EVs by providing dedicated subsidies to various categories ‣ Establishment of charging stations with an aim of one charging station in every grid of 3 km x 3 km grid
‣ Target of net zero emissions by 2070
‣ Reduction of total projected carbon emissions by one billion tonnes by 2030
‣ Fulfilling 50% of the country’s energy requirements from renewable energy by 2030
‣ Reduction of carbon intensity of the economy by 45% by 2030, over 2005 levels
ESG Integration: Paving the Way for Net Zero in Corporate Real Estate Sector
Key milestones of ESG adoption in Indian Corporate Real Estate (CRE) landscape
2000 - 2010
(Early awareness & adoption)
2001
‣ Formation of the Indian Green Building Council (IGBC) as part of the Confederation of Indian Industry (CII)
2009
‣ Commencement of environmental and social responsibility reporting in India with the Ministry of Corporate Affairs issuing voluntary guidelines on Corporate Social Responsibility
2011
-
2020
(Policy & regulatory push)
2012
‣ Security and Exchange Board of India (SEBI) mandates BRR* filing for the top 100 listed companies by market capitalisation
2017
2021 and beyond (Rise of ESG investments)
‣ SEBI defines green debt securities as funds raised for projects and asset falling under a set of categories to deliver environmental benefits
‣ Inclusion of Energy efficiency including efficient and green buildings under green debt securities
2022
‣ SEBI mandates ESG disclosures under BRSR** for top 1,000 listed companies from FY 23
‣ Government releases a framework for sovereign green bonds
2023
‣ Government issues first tranche of its maiden sovereign green bond worth INR 80 billion (USD 980 million)
‣ Mindspace Business Parks raised INR 550 crore (USD 67 bn) through a green bond, becoming the first real estate investment trust to make such an issuance in India
* Business Responsibility Reporting. ** Business Responsibility and Sustainability Reporting
Source: Ministry of Corporate Affairs, Government of India; Securities and Exchange Board of India (SEBI), GoI CBRE Research, Q3 2023
Capital
Stamp Duty Waiver, Total Fixed Capital Subsidy, Registration Fee Waiver, Reimbursement of IGBC certification
Building
Power
Additional FSI/FAR, Infrastructure subsidy and land allocation support
Electricity Duty Waiver, Exemptions on the manufacturing cost of electricity
Industry
Reimbursement of expenses, Fostering local employment
Transport Electric Vehicle Policy
Note: In a few cases, though the policies do not directly mention about a particular incentive, an indication of indirect initiatives have been considered.
All the incentives mentioned above to be aligned with the terms and conditions mentioned in the corresponding policies.
Source: Respective state government websites; CBRE Research, Q3 2023
What steps are different states taking to promote the use of green power?
Providing capital subsidy has been the most common form of incentive provided by all the states under analysis. About 67% of the states view incentives for sustainable buildings as important, having made provisions for the same in some form. Clean transport has emerged as a key focus area for most state governments, with all states except West Bengal, providing policies for adoption or manufacturing of EVs. While Power has emerged as a key criteria in the sustainability journey, only about 42% of the states that were analysed provide energy-based incentives. Incentives offered by Telangana are seen to be competitive, spanning across facets including capital, building, power, industry, transport.
Developers, occupiers & their commitments
Key sustainability criteria crucial for businesses
In an era of heightened ecological consciousness, environmental due diligence has gained significance
Climaterelated impact
Developing a comprehensive climate action plan to reduce emissions and mitigate hotspots. Almost 70% of dealmakers prioritized climate action as part of due-diligence.
Energy efficiency
Enhancing energy efficiency through smart building technology and via aspects such as design, HVAC, envelopes, and shared spaces. More than 75% of CRE professionals consider on-site renewable energy and energy reduction in their real estate decisions.
Water & Waste management
Improving water & waste management through monitoring, recycling, and conservation. Nearly 60% of dealmakers cited resources management as a crucial part of real estate transactions.
Biodiversity Protection & Conservation
Protect, restore, and sustainably manage land. Understanding the impact and dependency on biodiversity is a key focus area cited by more than 40% of investors.
Green Certificate & Materials
Green building certifications & materials are critical tools for promoting sustainable development and resource conservation in the real estate industry. More than 50% of deal makers consider* green certifications and ratings to be important factors while making investment decisions.
Increased Due Diligence
Investors are looking to increase the usage of environmental due diligence. The number of investors who expect to conduct ESG due diligence “very frequently” is likely to double to almost 50% over the next few years.
Key Strategies adopted by prominent listed developers in India
Re-imagining the built environment through a sustainability lens
Brookfield India REIT
• Renewable Energy Deployments at site & marketing offices.
• Sustainable procurement of materials.
• Implementation of Internal Carbon Price.
• 90% of the area green certified as of FY 23
• By 2025, target to achieving building certifications for 95% of portfolio
2040
Adhering to international benchmarks and standards
• Energy Conservation Building Code (ECBC)
• Energy Performance Index (EPI) Water
to landfill diversion; recycling; reuse at site
• Transitioning 100% of power consumption to renewables by 2027
• Lower energy footprint through various measures, resulting in energy savings of 15-20%
• Energy monitoring installations
• Minimizing water consumption through water meters, low-flow fixtures
• Reusing, recycling and diverting waste from landfills
Conducting carbon sequestration stud to reduce emissions and promote biodiversity Embassy office park
Achieved 100% USGBC LEED Certified Portfolio by FY 23 2040
Environmentally-conscious developers are more likely to attract investors and reduce emissions
Leading developers set the gold standard for climate action.
‣ Global Reporting Initiative (GRI)
‣ Science-based targets (SBTi)
‣ Global Real Estate Sustainability Benchmark (GRESB).
‣ Sustainability Development Goals (SDGs)
Source: CBRE Research, Q4 2023; * Scope 1&2 targets, integrated annual and sustainability report for top listed real estate developers
Mindspace REIT
• 2025: 21% reduction in emissions
• 2030: 42% reduction in emissions
• Monitoring air emissions
2050
• 75% renewable energy consumption share by FY 25
• 52% renewable energy consumption share as of FY 23
• 2023: Added 5.6 MSFT of green-certified space
• 2030: 50% renewable energy
• 2050: 100% renewable energy
• Installation of smart AHUs
• 2025: 20% green energy generated; integrating the Task Force on Climate-Related Financial Disclosure (TCFD)
• Most developer assets follow LEED certification guidelines, with 40.4 msft of platinum-certified rentals
• By 2030, at least 90% of the total rental portfolio is Green Building certified
•
• 2030: Cut energy consumption by 15%
• 2025: Increase renewable energy intensity by 20%
• 7% Water Consumption Reduction by FY2025
• Upgrade capacity of organic waste converter to 25% by FY 25 Incorporated biophilic designs, butterfly parks in projects
• Water Treatment
• Reusing Treated Water
• STP Technology Upgrade
• Technology Implementation -
•
• Adhering to Energy Conservation Building Code (ECBC)
• Local raw material sourcing
• Use of Portland Pozzolana Cement (PPC)
• 90% of the upcoming office developments are LEED and WELL-certified
•
Energizing Real Estate with Renewable Energy
Top developers are following a structured approach towards the adoption of renewable energy by increasing their share of renewable energy consumption
Developers taking a green pls leap through building certifications
With climate consciousness gaining momentum, India’s leading developers are focusing on creating green-certified stock
In the preceding seven years, almost half of the total certified stock constituted tier I and institutional developers
The Green Premium: Are occupiers and investors willing to pay extra?
Nearly 60% of the global CRE professionals indicated that the presence / absence of green lease clauses would impact their real estate decisions
Q: How would the presence / absence of green lease clauses impact your organisation’s real estate decision?
About 43% of the investors across the APAC region are willing to pay a minimal price premium to acquire a green-certified property
Q: What is the price premium that you would give to an ESG asset compared to a non-ESG asset? Source: Strengthening Value Through ESG - Survey of global
India Scenario: Since 2018, green-certified buildings have a higher proportion in new office supply. The market in India is unlikely to see a rental premium, purely on the basis of green certifications. The premium on assets is likely to be driven by an amalgamation of various factors such as type of asset, location, amenities, green certification, developers’ credentials etc.
The Green Revolution: Occupiers are making sustainability a priority
Reduced operating costs: Sustainable buildings can help tenants save operational expenses on energy costs
Improved employee health and productivity: Certified buildings can boost employee health and productivity, leading to reduced absenteeism, increased morale, and improved bottom line
Enhanced corporate image: Green buildings can boost enhance the brand value of a firm, and help attract top talent, especially for businesses committed to sustainability
Source: CBRE Research, Q3 2023
Key green initiatives undertaken by prominent occupiers
TCS (Net Zero 2030)
‣ Head office is certified BREEAM and WELL Building
All the top 20 office occupiers in India have committed to achieve net-zero before 2050
About 40% of them are targeting to achieve net-zero much earlier by 2030
‣ Achieved zero waste to landfill accreditation at several offices
‣ Installed energy efficient lighting, zonal thermal controls (time and temperature)
‣ Installed metering for energy management
Energy efficiency is the top-most priority for occupiers, with all the top 20 occupiers having specific targets
Tracking carbon footprint has emerged as yet another key priority, with 95% of the top occupiers taking active steps towards it
Note: * denoted net zero in company’s operations
Amazon (Net Zero 2040)
‣ Energy-efficient lighting, low-flow water fixtures, composting, and recycling are common features in the corporate offices.
JP Morgan (Net Zero 2050)
‣ Installed a smart building management software at over 5 million sq. ft. of real estate portfolio.
‣ The software to analyse historical and real-time data from occupancy monitoring devices, indoor air quality sensors, building electricity meters and distributed energy resources, and HVAC in real time.
ICICI Bank
‣ Since inception, the company has received IGBC certification for 126 branches and offices with a total of 3.09 million sq. ft. of area.
Greening the Supply Chain: Sustainability in I&L Sector
ESG compliance is no longer an additional feature in I&L assets; instead, it has become a necessity, marking the competitiveness of a new project amongst potential tenants
ESG strategies adopted by prominent I&L developers in India
ESR Group
‣ ESR’s ESG 2030 Roadmap targets to instal about 1,000 MW rooftop solar power capacity globally across their assets; installed 1.5 MW rooftop solar capacity as of 2022 in India
‣ On track to obtain sustainable building certifications for 50% of the company’s portfolio, with 39% of the portfolio already certified as of 2022 Horizon
‣ Targets reducing carbon emission intensity in their assets by 15% over next three years
‣ Installing roof top solar for generating 6MW of clean energy in FY 23
‣ Certifying all new & existing parks under IGBC
‣ Creating Miyawaki urban forest across sites with an aim to absorb 30X more carbon dioxide
Source: CBRE Research: Official websites of the companies
TVS Industrial and Logistics Parks
‣ Achieved “EDGE Advanced” level Green Certification for 94% of firm’s operational warehousing portfolio
‣ Savings of 11,600,000 units of energy on an annual basis through initiatives such as heatreflective roofs, harvesting 90% daylight, and incorporating highefficiency lighting
‣ Achieved 100% water recycling in majority of facilities
Key green initiatives undertaken by prominent occupiers
DHL (Net Zero 2050)
‣ Increased focus on climateneutral building design for operations
‣ Expansion of EV fleet: 29,200 EVs in use as of 2022; aiming for a 60% share of EVs in pick-up and delivery by 2030
‣ Dependency of renewable energy: 56% of energy consumption across DHL sites is derived from renewable sources
Reliance
(Net Zero 2035)
‣ Replacing transportation fuel with electricity and hydrogen
‣ Uses next-gen technology for carbon capture utilisation and sequestration
Flipkart (Net Zero 2030)
‣ Prioritising IGBC certified warehousing facilities for operations
‣ As of 2022, Flipkart’s delivery fleet had 3600+ EVs, a 40% increase from 2021
‣ Elimination of single-use plastic packaging; introduction of paper packaging through sustainable forest-derived materials
MRF Tyres
‣ Adopting renewable raw materials from biomass
‣ Facilitating recycle of end-oflife tyres and adopting recycled materials as raw material for new tyres
Occupiers’ green agenda transcends beyond certifications
Green-certified buildings emerging as a prerequisite for occupiers, as they weigh on other sustainable considerations
Occupiers are looking at flight-to-quality: from older multi-tenanted buildings to nextgeneration green buildings
Discounts for brown buildings are likely to become more prevalent, compared to a “premium for green buildings” as supply of green office buildings rises
Occupiers explore sustainable considerations beyond green certifications as several certifications do not guarantee regular measurement of metrics
Occupiers’ future considerations: The India perspective
Sustainability benchmarking of all assets together
Preparation of BRSR (Business Responsibility and Sustainability Report)
Improve employee health and well-being through certified or compliant spaces
Use of local suppliers or sustainable procurement
Upgrade older offices / facilities for energy efficiency
Global Real Estate Sustainability Benchmark (GRESB) or any other ESG reporting
Undertake environmental due diligence before site selection for a new premise
Globally, energy-reducing features top occupier’s agenda
Essential green lease clauses in a typical lease agreement
ENERGY MANAGEMENT
‣ 100% renewable energy usage in the building premises to be ensured by the developer
‣ Occupier may also purchase renewable energy from the developer if provided on-site
‣ Occupier may opt to procure green electricity from third parties for their leased premises
‣ Regular tracking of energy usage to be ensured by the developer by installation of energy meters to all sources
WATER MANAGEMENT
‣ Installation of water-efficient fixtures should be ensured by the developer in building premises and also by the occupiers in the leased spaces
‣ Increase usage of recycled water
‣ 100% reduction of water wastage
‣ All contractors in the premises should comply to water management practices
‣ Regular data sharing of water consumption should be ensured between developers and occupiers
WASTE MANAGEMENT
‣ Maximum reduction of wastage in the building premises
‣ Optimisation of waste processing with better use of selective sorting and recycling
‣ Replacement of polluting products with eco-friendly alternatives
‣ All contractors in the premises should have suitable policies on waste management, recycling supplies and re-use of nonperishable redundant materials
BUILDING MANAGEMENT
‣ Landlord should ensure accreditation for the building under the LEED system or any equivalent certification
‣ 100% usage of ecologically acceptable cleaning agents in the building premises
‣ Avoidance of any materials / furniture containing a high level of volatile organic compounds in the premises
‣ Avoidance of any ozone depleting or global warming substances in HVAC systems
Green financing and push from investors
Assessment of
‣ Stating framework of measures to lender and ascertaining project study
‣ Green loans can be utilised for:
‣ a) Refinancing existing debt of green projects
‣ b) Existing projects that have regional / national / global green certifications
‣ c) Sustainable greenfield projects
‣ Creation of dedicated account for the green funds to ensure transparency ‣ Periodic tracking of fund utilization ‣ Ensure annual reporting of fund utilisation
‣ Provide information of all quantitative indicators along with project description, expected impact and progress update
Greenfield Developments
For greenfield developments, developers can explore sustainabilitylinked bonds, reducing their dependency on conventional sources of lending
Green financing sources
Banks (HSBC, Deutsche Bank, ICICI, YES Bank, HDFC)
International Organizations (World Bank’s IFC, ADB’S Green Finance Facility ACGF)
Green Retrofitting
Landlords can also use proceeds from green loans to green retrofit (energy efficiency, HVAC commissioning, green façade etc) their existing projects.
Refinancing Existing Debt
Developers / landlords can use green finance to refinance / restructure existing debt, and use proceeds on aspects such as energy efficient assets.
Outlook: Building Fit-for-Future Assets
Evolution of priorities: From Greenwashing to Concrete Action
‣ Indian Green Building Council certification CERTIFICATIONS
‣ LEED certification (silver)
‣ LEED-Good, Platinum certification, WELL certification
‣ WELL+LEED streamlined certification
‣ SEAM Certification
SUSTAINABILITY PRIORITIES
‣ Waste reduction, Energy audits
‣ Energy efficiency, Sub-metering
‣ Benchmarking initiatives, Reporting, Setting net zero targets, Carbon trading
FINANCING LANDSCAPE
Source: CBRE Research, Q3 2023.
‣ Global organizations, Green loans
‣ Green bonds, Sustainability-linked loans
‣ Impact investment funds, Green deposits, Green banks
Outlook: Measure, benchmark to save
CBRE Expertise
“ CBRE aided one of the largest professional investment firms in Hyderabad to benchmark and optimize carbon footprint, targeting 40% emission reduction. CBRE also assisted the client regarding LEED and WELL Platinum certification ”
“ CBRE assisted a leading developer in publishing their first ESG Report, establishing a net zero pathway and completing their first GRESB assessment within 60 days. ”
While GRESB participants from India has room for growth, the country saw a 70% increase in participant count during 2022
Outlook: Rejuvenating existing buildings into new
Business case for green retrofitting
CBRE Expertise
“CBRE aided a global technology company in Bengaluru in increasing the energy efficiency of the office building. CBRE helped the firm retrofit existing utilities, which resulted in energy savings of 1.3MWh and about 1050 tonnes reduction in carbon emissions .”
155 Mn sq.ft.
Of Grade A office buildings have opportunity to undergo retrofitting / upgradation
Potential leases to focus on green quotient
Ensuring green quotient would to be a priority for their future leases / renewals. 95 Mn sq.ft.
Of office leases by key global / domestic corporates are lined up for expiry over the next 3-4 years.
Outlook: Integrating “social” with “environmental”
Desirable factors for more frequent office visits by employees
Promoting social well-being through amentization to be a major consideration for developers and occupiers
LEED + WELL streamlined certification as a combination for sustainability-induced well-being
Occupancy sensors, building automation systems can prevent sick-building syndrome
Optimum indoor environment
CBRE Expertise
Optimal commute time a key criteria for employees
Respondents who preferred a one-way travel time of not more than 30 minutes 3/4th
Of the respondents currently have a commute not more than 30 minutes 50% Thermal comfort & lighting Earmarking green open spaces
Decentralised offices Linkages to public transport nodes Partnerships with local metro / BRTS
“ CBRE aided a large multi-national corporation in carrying out social and environmental technical due diligence of their offices, followed by measurable actions arising of LEED and WELL certification. ”
Sustainability permeating into other sectors
Residential: Sustainability in decision-making
Data Centers: Towards greener centers WIND AND SOLAR ENERGY MODULAR STRUCTURE AND DESIGN
Data Centres are highly energy intensive, with servers accounting for about half of the energy consumption
Retail: Sustainability in everyday life
‣ More than 70% of survey respondents in CBRE’s survey stated that they have chosen to buy environment-friendly products despite the additional cost associated with it.
‣ About 65-70% of respondents, especially late millennials stated that have purchased more locally sourced products and smaller / independent brands.
Contacts
Research
Abhinav Joshi
Head of Research, India, Middle East and North Africa abhinav.joshi@cbre.co.in
Vidhi Dheri Head of India Research Operations vidhi.dheri@cbre.co.in
Research
Vaishnavi Bala Senior General Manager Vaishnavi.bala@cbre.com
Mohamed Atif Khan
Assistant General Manager mohamedatif.khan@cbre.com
Ram Chandnani Managing Director, Advisory and Transaction Services, India ram.chandnani@cbre.co.in
Nitin Rao Director, Consulting & Advisory Services, India nitin.chandra@cbre.co.in
Business Line Contacts
Advisory & Transactions
Ram Chandnani
Managing Director, Advisory & Transaction Services, India ram.chandnani@cbre.co.in
Consulting & Valuation
Rami Kaushal
Managing Director, Consulting & Valuations, India, Middle East & Africa
rami.kaushal@cbre.co.in
Capital Markets
Gaurav Kumar
Managing Director & Co-Head, Capital Markets, India
gaurav.kumar@cbre.co.in
Capital Markets
Nikhil Bhatia
Managing Director & Co-Head, Capital Markets, India
nikhil.bhatia@cbre.co.in
Global Workplace Solutions
Rajesh Pandit
Managing Director, Global Workplace Solutions, India & Property Management, India, SE Asia, Middle East & North Africa
rajesh.pandit@cbre.co.in
Operations
Rajat Gupta
Managing Director, Operations, India
rajat.gupta@cbre.com
Project Management
Gurjot Bhatia
Managing Director,
Project Management, India, SE Asia, Middle East & Africa
gurjot.bhatia@cbre.co.in