Like the parties to any relationship, landlords and tenants embrace joint sustainability agendas through a mix of circumstances. Sometimes one woos the other; sometimes it’s a collision of likeminded outlooks; and sometimes their parents — investors, shareholders, corporate head offices — exert a little pressure.
Results of the union can be consequential for greenhouse gas (GHG) emissions, operation costs, asset value and business reputation regardless of the path to togetherness. Sustainability executives from both sides of the equation discussed their experiences during the Building Owners and Managers Association (BOMA) of Canada’s annual national conference earlier this fall — offering perspectives from an influential tenant and landlords accommodating a mix of engaged and hesitant partners.
“In our asset class, there’s a realization that we’re not going not going to get too far without the cooperation, participation and collaboration of our retail tenants,” maintained Melissa Ferrato, vice president, ESG, with First Capital REIT. “We have quite a few large national tenants — the banks, the large grocers — where we’re having conversations at the corporate sustainability level. Then we have the mom-and-pop type shops where they’re not thinking about this on a daily, weekly or monthly basis, if ever.”
On the flipside, Jon Douglas is tasked with pushing an inventory scattered from Class AAA trophy office towers to aging strip plazas toward a target of net-zero emissions by 2040 in his role as Royal Bank of Canada’s (RBC) director of global sustainability. That comes with a mission to foster progress and the clout to drop the hammer.
“I do have an advantage that we’re a very large organization, and we try to use our size and scale to move the needle on this,” he acknowledged. “We want to see organizations that are going to decarbonize for the long haul and we will take that into consideration when we are making future decisions, whether at one location or across the country.”
Tenant leverage
That strategy unfolds somewhat differently for office and retail space. Notably, it’s embedded in the lease for the flagship company headquarters, dubbed RBC Centre, in Toronto’s financial district. Sustainability-related clauses require net-zero building performance by 2040, for which the landlord, Cadillac Fairview Corporation, must develop associated transition and capital plans to spell out how it will be accomplished.
From the landlord’s side of the deal, Karen Jalon, vice president, sustainability, energy and smart technologies, with Cadillac Fairview, noted that it was a unique experience for her to sit at the table during lease negotiations. Both she and Douglas participated in the process that conventionally tends to be restricted to leasing specialists and other senior executives who may or may not seek outside feedback from supporting teams.
“Often with leases, there’s a sustainability requirement, but they’re very standard. This was so important to RBC that we were at the table,” Jalon recounted. “It was made very clear that we had to commit, which meant proactively planning and thinking about capital,”
With retail landlords, RBC has opted to negotiate memorandums of understanding (MOU) to set out its expectations — with an objective to switch from fossil fuels to electrification getting high priority. That allows participating landlords, including First Capital REIT, to have advance understanding of what kind of space will meet RBC’s requirements in any of their malls or open-air centres.
“So, if we’re doing an RFP for a new space, or if facility managers see that an HVAC system needs to be replaced, they can say: We already know what RBC wants; we know we need to fuel-switch,” Douglas advised.
RBC’s leasing representatives likewise have guidance. That includes education sessions for both in-house teams and external brokerage services and a detailed primer that explains the reasoning behind each sustainability objective.
Fostering tactics
Turning to how retail landlords interact with a wider complement of tenants, Ferrato and Nathan Hines, vice president, operations, with Crombie REIT, sketched out some of their initiatives to promote sustainability. That has taken form as both capacity-building exercises, exemplified in First Capital’s collaborative brainstorming forums, and action-oriented efforts, such as Crombie REIT’s introduction of composting and other waste diversion tactics.
First Capital recently published a model climate action roadmap to give industry peers and potential adopters a look at some of the strategies arising from last year’s landlord-tenant brainstorming session. That involved more than 60 senior-level representatives from First Capital and its tenants talking through issues of joint concern, such as split incentives and data management challenges, and bringing a range of perspectives from leasing, operations and construction. The resulting roadmap identifies key factors to enable emissions reduction, each with a menu of measures that landlords and tenants can take either cooperatively or independently.
“In earlier days, maybe we were trying to sell sustainability to tenants in a kind of high-level way, like: ‘‘This is a good thing, and we’re going to do x, y and z’,” Ferrato reflected. “Having at least some of the larger tenants at the table co-developing solutions for the space that they are going to be occupying, and ultimately paying the bills for, is the better approach, I think. That’s a newer concept that we’re all starting to tackle.”
Meanwhile, Crombie REIT filled a void in Newfoundland and Labrador, where organics recycling is not commonly available, with an in-house program to compost food court waste at the Avalon Mall. In addition to providing collection and composting facilities for food waste generated in the province’s largest shopping centre, the company also sourced local farmers in the St. John’s area to take the compost.
“It really has benefitted everybody. It decreases hauling and increases diversion rates. Tenants love the story and love being part of it,” Hines said.
To further support recycling and diversion, the landlord has also introduced games and prizes tied to the food court’s AI-powered receptacles, which incorporate scanners and voiced instructions to help users properly sort the items they’re discarding.
“We’re looking at any way we can improve,” Hines reported. “We’re trying to put our best foot forward and have that be the example for some of the smaller tenants that may not know the (sustainability) journey.”
Shared data demands
Data is a joint resource that poses potential for cooperation or conflict. Landlords often need access to utility consumption data that tenants control, while a growing contingent of tenants needs proof of how their leased space aligns with their own sustainability commitments.
Anti-greenwashing rules introduced into Canada’s Competition Act last year and mounting pressure — from insurers, investors and regulators — to disclose climate risk exposure and/or GHG emissions add to the demand for credible data to consistently measure and verify building performance within portfolios and among industry competitors and peers. Last year, for example, Jalon’s department received 144 requests for data from Cadillac Fairview’s investors and tenants. As well, environmental data now commonly comes under auditor scrutiny as part of insurers’ protocol.
“Who would have thought that we would have auditors triple-checking and treating it like financial information?” she mused. “There are stakeholders and tenants who are thinking about that and preparing for a future where we’ll be disclosing this more.”
A range of smart technology — such as fault-detection diagnostics that provide real-time imaging of building systems — along with lease clauses that require data sharing help make it easier to fulfill requests, while also expanding and reinforcing information needed for capital planning and other decision-making.
“We’re making daily and long-term decisions based off of it, and now we’re getting really deep into measurement and verification to prove out that, yes, we’re getting returns,” Jalon affirmed.
It all flows into plotting the measures that will be needed to reduce GHG emissions.
“The data that we’re getting today is helping us make sure that we’re hitting our horizons,” Hines said. “For our targets for 2040 or 2050, we need to know: How long is the usefulness of x? How do we expect to replace y? How do we budget for that? So long-term planning is absolutely where we’re transitioning to.”
It’s not just the fuel that’s switching out, but also the talking points.
“Our priority is reducing fossil fuels in the heating system. I’m not having a conversation about paybacks. I’m asking: How are we are going to get this transition? When can we get this done?” Douglas reiterated.
“If the tenant comes to us today and says: How will you get to net-zero by 2040?, there are a lot of technical and financial components that go into that,” Jalon concurred. “You have to be proactively thinking about the future with a lot of considerations around affordability and tenants’ needs and investors’ needs, and all of that needs to be phased into your plan.”
