The Top 5 Ways to Integrate ESG Criteria for Sustainable Growth in Commercial Leasing
Commercial tenants in Singapore are increasingly adopting environmental, social and governance (ESG) requirements to their respective businesses. It is becoming less of a luxury and more of a must-have, as the Singapore government strives to attain its sustainability goals.
In line with businesses in Singapore prioritising the reporting of ESG efforts , an increasing number of commercial tenants are seeking out sustainable leasing that sets out environmental objectives consistent with their ESG goals.
To achieve best outcomes, businesses must work closely with landlords when it comes to managing and occupying buildings in a sustainable manner. It’s important for tenants to understand the key aspects and benefits of sustainable leasing, which will help guide tenants in the application of generally accepted methods in this field.
Characteristics of Sustainable Commercial Leasing
Sustainability in commercial real estate typically begins from the landlord’s ability to provide a building that is designed and equipped to minimise the impact on the environment.
This includes providing renewable energy sources, building-integrated water recycling systems, sustainable construction methods and materials, and the availability of open spaces for plants and gardens.
But with only 55% of Singapore’s buildings by gross floor area (GFA) considered as ‘greened’, a significant amount of commercial space requires the conscious approach by tenants to integrate sustainability in their leases.
A sustainable commercial lease must allow tenants to integrate sustainable practices and methods, while working with landlords to address the limitations and potential of their buildings. This is usually done within the framework of a Green Lease.
A Green Lease is an agreement between landlord and tenant. It defines the environmental objectives as they relate to how the building needs to be managed, improved, and occupied in a sustainable manner. This is important because the majority of an average commercial building’s greenhouse gas emissions and impact on the environment comes from tenant-occupied areas.
While not always legally binding, Green Leases can place requirements on both landlord and tenant to do their best to achieve sustainability-linked targets that conform with the tenant’s ESG goals. The longer-term nature of these commitments often result in advantages to both the tenant and the landlord.
These include longer lease contracts that provide more time for tenants to realise the benefits and cost-savings of their sustainability efforts. Tenants are able to require better resource monitoring from their landlords, while putting pressure on landlords to tap renewable energy sources where available.
Another advantage of Green Leases is the way it can proportionally distribute the cost of adopting sustainable practices among tenants and landlords. Tenants can help introduce and encourage behavioural changes within the workplace that ultimately reduces the office impact on the environment, while alleviating the burden of implementation on building owners.
Common and Accepted Ways to Integrate Sustainability in Commercial Lease
Commercial tenants today are able to seek a variety of ways to integrate sustainability into their business.
1.Lease with Certified Buildings. One of the fastest ways to achieve sustainability in commercial lease is to seek out leases with buildings that already have sustainable credentials, such as the Green Mark Certification awarded by the Building and Construction Authority (BCA).
Green Mark certified buildings have achieved a level of energy efficiency, water efficiency, environmental protection, indoor environmental quality and other green features considered essential for sustainability. There are over 4,600 such buildings in Singapore carrying the Green Mark Certification as of December 2023.
2.Adopting EUI Metrics. Tenants can integrate sustainability in their leases through the adoption of Energy Use Intensity (EUI) metrics that allow businesses to benchmark their energy use within its industry.
The EUI, expressed in energy per square foot per year, allows businesses to assess their performance relative to businesses that have similar energy requirements. It will allow tenants to better gauge the need to adopt more sustainable methods.
For instance, a tenant operating a pre-school business will have a much lower EUI than a tenant operating a laboratory. A tenant operating a refrigerated warehouse will have a far higher EUI than one operating a distribution center.
3.Energy-saving lighting and ventilation. In line with the adoption of EUI metrics is the implementation of energy efficient systems for lighting and ventilation. These include energy-saving bulbs and LED lights, automated lighting systems, the use of inverter-type HVAC systems, and energy-efficient appliances frequently used in office pantries.
4.Water conservation and recycling. Installation of water-efficient fixtures, water-saving urinals, and automated flushing mechanisms can be made even more sustainable with the addition of a rainwater catching mechanism.
This is particularly useful for commercial buildings with large area rooftops in tropical regions that receive higher than average rainfall, including Singapore. Tenants can make this part of their Green Leases to encourage landlords to integrate water recycling features into offices.
5.Sustainable office design and use of materials. During office construction and fit-out, sustainable design can incorporate the use of environmentally friendly materials. These can incorporate materials like bamboo for flooring, recycled plastics, hempcrete, laminated timber, and reclaimed wood.
As commercial tenants have more human interaction and utilisation, sustainable design can also involve the integration of elements such as daylighting , which maximises the use of natural light while minimising the need for artificial lighting. Passive natural ventilation systems can also be incorporated into the design to minimise the need for artificial cooling systems.
Commercial Tenants can Integrate Sustainability into Their Leases
The adoption and reporting requirements of ESG practices places enormous pressure on tenants to find suitable leases where they can implement various sustainable methods. It is no longer a luxury but a must-have for an increasing number of businesses today.
The good news is that it is becoming easier to implement sustainable practices in commercial leases, as Singapore moves closer to achieving its sustainable goals. The implementation of the Green Mark Certification by the BCA allows tenants to locate buildings that conform with their environmental goals.
Tenants are also able to work better with landowners through Green Leases to achieve long-term sustainable targets that will benefit both parties, particularly when it comes to the cost of implementation. These will help maximise the benefits that can be accrued from the use of various resource-saving features adopted by each tenant.
Savills can help tenants achieve their sustainability goals with workshops designed to help them better understand how green lease and voluntary partnerships work to build an effective sustainability strategy.
2.https://www.cim.io/blog/the-green-mark-certification-scheme-explained
3.https://www.savills.com.hk/services/sustainability-and-esg-services/green-lease.aspx
5.https://www.energystar.gov/buildings/benchmark/understand-metrics/what-eui
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