“They don’t do it to improve the world, but because it’s good business.” For the $5.5 billion NSW Local Government Superannuation Scheme (LGSS), improving the environmental sustainability of its commercial property investments has generated some financial benefits, such as lower energy bills and longer leases with tenants. But these payoffs are gauged by qualitative means, and often not backed up by vetted numbers. Tenants are often attracted by more energy-efficient air conditioning and lighting systems because they lower outgoing costs, and often extend leases if the LGSS guarantees that it will install further environmentally friendly technologies, says Brian Churchill, property portfolio manager at the fund. Sometimes tenants even share the cost of these improvements, or “upgrades,” he adds.

Even though there is no concrete evidence that more sustainable properties are more profitable, there are “trickle-down effects” that reward the fund’s efforts, he says. Chief among them are cost savings, which can range as high as 40 per cent as a result of using a more energy-efficient air conditioning system, Churchill says. Roger Walker, national head of sustainability at Napier and Blakeley, a property consultancy, says on average a commercial building in the central business district of an Australian city generates an energy bill of about $20 per square metre, and that halving this spend will improve the value of such a property. But it can be difficult to calculate the cost of installing more energy-efficient systems to arrive at this reduction, because a “very wide” range of costs are usually quoted for this work, he says.

For the past 18 months, Walker has helped the LGSS improve the National Australian Built Environment Ratings System (NABERS) score of their buildings from 4.5 to five – the top of the scale. Quoted costs for this work range from $60 to $150 per square metre, “so there is a range depending on the property and the strategy you take for the upgrade work”, he says. But demand for such highly rated properties rarely comes from outside the commercial office of government market, Walker says. “In the office markets, this is very significant and will continue to grow with the introduction of mandatory disclosures of energy performance of commercial office buildings later this year,” he says. Government bodies, which account for about 20 per cent of the office leasing market, clearly prefer to use buildings with NABERS ratings of at least four, Churchill says. This motivates managers to become more environmentally minded, as any properties falling short of this ranking will be excluded from a large sector of the market.