Smart Sustainable City Development for the Real Estate & Infrastructure Industries

Authors: Jinna LI, Sal MUN, Mukul AGGARWAL

1. Choose one or more of the UN Sustainable Development Goals that are relevant to an industry that you are interested in.

Sustainable Development Goal 1 (End poverty), Sustainable Development Goal 9 (Industry, Innovation and Infrastructure), Sustainable Development Goal 11 (Sustainable Cities & Communities) and Sustainable Development Goal 13 (Climate Action)

 

2. How do these goals compare to the industry’s current sustainability goals?

The aforementioned UN Sustainable Development Goals (SDGs) are consistent with the industry’s current sustainability goals. However, the issue lies primarily in investment in raising awareness of and driving these goals rather than the alignment of sustainability goals.

Overall, only 27% of real estate companies seem to be aware of the challenges and associated responsibilities raised by the UN Sustainable Development Goals (SDG). The average overall score of businesses in this sector stands at 39.9/100 for Promotion of social and economic development, and 31.6/100 for Properties’ social accessibility. Typically, companies under analysis perform better on environmental issues within the Sustainable Development Goals.

 

3. Are the current initiatives in this industry contributing towards achieving your sustainability goals? Where do these initiatives fall short?

As it relates to the 3 aforementioned sustainable development goals, the majority of the real estate industry has made limited progress and there is a long way to go. A detailed analysis of how the industry is performing relative to a specific set of goals is defined below:

 

• SDG 1 (End Poverty)

~52.6% of Real Estate companies operating in the residential segment report specific support programs to promote the affordability of property portfolio. 36.8% have adopted initiatives to promote the affordability of housing, such as low-cost ownership units, homes for the elderly, students or a combination of both. 21.1% of them are developing social housing and the same proportion have adopted targeted support for low income residents. Support programs for tenants in financial distress are less common (10.5%).

Best practice initiatives in supporting this development goal include combining complementary social programs (housing, medical services, etc), promoting intergenerational diversity and providing financial advisory/assistance.

 

• SDG 9 (Industry, Innovation and Infrastructure)

~86.1% of companies support social and economic development, but only 8.1% of them have set up targets in this respect! 32.4% of companies under review have made significant efforts to foster economic development, contributing to learning, training or employability of local suppliers. Supporting small businesses (43.2%) and guidelines to promote local employment (32.4%) are the programs the most frequently observed. Finally, 75.7% of companies provide a significant corporate tax report, showing a geographical breakdown of their tax payments in addition to operational figures. Nevertheless, 29.7% of companies operate in locations considered by the IMF as ‘offshore financial centres’ or in jurisdictions considered by the OECD as insufficiently compliant on tax transparency rules.

Best practice initiatives in supporting this development goal include public consultations for development projects, SME support, measurement of local socio-economic impact for projects and prioritization of projects with strong environmental or social impact.

 

• SDG 11 (Sustainable Cities & Communities)

~40.6% of real estate companies under review commit to integrating sites’ connectivity in their investment decisions, as well as promoting site proximity and multi-modal transport, while only 26.3% of companies active in the residential segment reference or commit to developing social housing and promoting affordable housing.

Measures promoting the connectivity in real estate investors’ property portfolios mainly consist of including connectivity in guidelines for investment decisions, promoting site connectivity through infrastructures, cooperating with local authorities and stakeholders and monitoring connectivity and transport data. 51.4% of real estate companies display such efforts, but only 16.2% of them disclose associated performance indicators

Best practice initiatives in supporting this development goal include connectivity to sustainable and resilient public transportation, access to charging stations and constant monitoring through public mobility indicators.

 

• SDG 13 (Climate Action)

~56.7% of companies demonstrate robust or advanced performance, while 21.6% of companies display weak performance. All companies under analysis commit to combating climate change, and 70.2% of them have set quantifiable targets to reduce the energy consumption or GHG emissions of their portfolio.

94.6% of companies adopted energy efficient technologies, with updates to lighting and energy efficient boilers being most common. The use of renewable energy sources also appears widespread in the sector. Only 2 companies (5.4%) do not make sufficient efforts to improve the energy efficiency of their properties.

Best practice initiatives in supporting this development goal revolve around the investment in and use of energy efficient and emission reducing technologies throughout residential and commercial properties.

 

4. Propose and explain a business model innovation for a company (or set of companies) in this industry that can help achieve your chosen UN SDGs and that is also profitable. This can be an existing business innovation or a new business model that you propose. State clearly the context and the social/environmental challenge addressed. Furthermore, explore the following questions:

Sidewalk Labs— the urban innovation subsidiary of Google’s parent company, Alphabet — is thinking about using an unprecedented amount of tall timber technology, in which layers of timber are glued together in panels, to build a high-tech neighborhood on Toronto’s waterfront, called Quayside. The neighbourhood will include many innovations that contribute to sustainable goals, like heated roadways, etc.

Toronto, like many other cities, is struggling to maintain its socioeconomic diversity due to a rise in housing costs and congestion. Climate change is also contributing to the city’s challenges. Quayside, which used to be an industrial space and dockland, is Sidewalk Labs’ planned pilot location for testing what could be implemented on a larger scale.

The neighborhood, which is one of the largest areas of underdeveloped urban land in North America, covers about 3 million square feet. Zoning laws allow 90% of Quayside to be residential space — about 3,000 units — but Sidewalk Labs has not specified how many units it plans to build.

 

4. How does this business model outperform existing business models both financially and environmentally/socially? Do financial growth and social/environmental impact form a feedback loop (i.e. the faster the growth, the larger the impact and vice-versa)?

Traditional real estate or urban planning businesses focused on the creation of long-lasting buildings and structures and the providing a highly liveable space for inhabitants. Sustainable construction promotes an approach that appreciates and develops smart growth, walkability, architectural tradition and classical design.

Sustainable cities like the aforementioned Sidewalk Labs innovation minimize the use of energy and water while minimizing outputs such as waste and pollution. Aside from the obvious societal and environmental benefits of sustainable cities, there are also economic benefits in attracting a smart and diverse workforce (which prefers sustainable cities), and indirectly boost the corporate bottom line by improving workforce health and time efficiency:

• Increased time efficiency: Commute times are reduced when people live closer to their jobs, and the transition from private cars to public transit or non-motorized transit reduces traffic congestion. Companies benefit when employees avoid sitting in traffic, earning back nearly two days’ worth of time every year.

• Access to talent: Skilled workers increasingly want to live in walkable and centrally located places close to services, amenities and job opportunities. Not only are companies more attractive to skilled workers if they are located nearby, but their central location accesses a greater talent pool for hiring.  
• Improved health: A physically and mentally healthy workforce is a more productive workforce. Shorter commutes means more time for people to get involved in activities improving their minds and bodies — research shows every hour per day spent driving increases the risk of obesity 6 percent. Alternatively, biking even just a couple miles to work can increase cardiovascular fitness and reduce cancer mortality. A healthy workforce reduces workplace absenteeism while increasing job productivity (quantity of work) and performance (quality of work).
• Innovation inspired by diversity: Sustainable cities attract demographically and professionally diverse talent — a major catalyst for new ideas.

All of these factors combined will attract businesses to build offices in sustainable cities and be willing to pay a premium to capture the aforementioned benefits. This, in turn, will drive profitability for real estate organizations investing in sustainable cities or communities like Sidewalk Labs.

 

5. Why could this innovation be game-changing (demand and/or supply point of view)?

A sustainable building model is the first step toward creating an affordable neighborhood. The innovation from Sidewalk will potentially be game-changing in certain ways. Starting from the supply point of view, they are able to differentiate themselves in the following way:

• Flexible and Adaptable:

The proposed modular housing, for example, could be used as a model for more neighborhoods that offer low-cost, quickly built residential spaces. They are focusing on making Quayside buildings adaptable and sustainable. The neighborhood design features units that can accommodate a range of household incomes. All these innovations give flexibility to Sidewalk to be able to match the demand.

• Sustainable:

Quayside’s buildings have also been designed to include centralized parking throughout the neighborhood. The buildings will feature green roofs to improve sustainability. Sidewalk Labs wants Toronto residents to double the number of hours they spend outdoors. To facilitate that, Quayside will feature low-cost structures that can shield people from rain and wind. The ground floors of certain buildings will also be turned into interactive spaces where residents can move walls to suit their needs. The planned self-driving shuttles could form a transit system that doesn’t rely on private cars, and the neighborhood’s renewable energy system could act as a blueprint for other locations.

Sidewalk Labs is looking for innovative ways to improve transportation — both for pedestrians and vehicles. Quayside’s streets will feature wide sidewalks, bike lanes, and a main road for cars and other transit. Some paths for pedestrians and bikers may not be accessible to vehicles, and autonomous vehicles (AVs) would be restricted to bike speeds for deliveries and local access. Some lanes are designed for walking speed, requiring bikes to be walked and AVs to go about 5 mph at most.

The proposal also includes tall colonnades along the retail and public use areas to provide seasonal weather protection. The neighborhood’s “public realm” — its parks, plazas, shops, and sidewalks — is designed to be comfortable all year long.

Quayside’s pavement will be made of conductive concrete that can melt snow and ice. It will feature precast slabs that can be maintained and replaced quickly, and LED lights will be used to signal changes in road use. Pavements will also include tree-filled zones that help absorb stormwater.

• Cost Effective:

On the whole, Sidewalk Labs wants its buildings to be modular, and it believes this can be done at the same cost — or even less — as conventional buildings. The Quayside proposal envisions a “bold” system of public spaces and connected waterfront parks.

On top, Sidewalk plans to increase purchasing power by using resources found locally. They plan on using Canadian timber to achieve this and are interested in building all or most of Quayside’s buildings using tall timber, to support Canada’s timber industry. Proponents of tall timber technology say the material is a viable replacement for steel and concrete because it is strong and fire-resistant, provides warmth to residential spaces, accelerates construction times, and saves money in the long run.

On the demand side, as more companies become conscious of environmental impact of their operations, the number of firms wanting to relocate to a space that is sustainable and cost effective will keep increasing. The entire ecosystem being built within these spaces will be attractive to companies and will drive the demand up.

 

6. What are the potential costs and risks of this innovation? What are the barriers to scaling this business model?

There are certain risks that have been identified for such an innovation. Building tall timber comes with some restrictions. The Canadian construction code limits tall-timber buildings to six stories in order to avoid structural issues, so regulations would need to be amended for Quayside. Also, current timber supply chains need to grow before they can support such a large construction project.

Some concerns have also been raised about the company’s plan to collect data via sensors that monitor energy usage, noise, traffic, and pollution. Experts say there is a need for safeguards that allow people to opt out of having their data be commodified. Sidewalk Labs says it wants to use data on how Quayside works to help make the neighborhood function better. On these lines, data protection also remains a risk.

In terms of costs, sidewalk Labs has committed about $50 million to the project’s first phase, though the company is still waiting on a final approval Waterfront Toronto intends to build infrastructure that can help protect Quayside from flooding, and it received a $996 million investment from the local and national governments to support the project.

 

7. What are possible next steps to mitigate the risks associated with this business model and to allow it to scale?

In the short-term, to counteract the recent negative sentiment published in the Toronto press, Sidewalk Labs need to build public confidence regarding data security and privacy issues. For example:

• Full visibility on what data is being collected
• Identifying the data collection points
• Ability for citizens of the neighborhood project to opt-out if the data is collected on a individual bases
• Ability to set permissions / settings like Facebook security settings
• Which authorities or companies will have access to the data
• What the purpose and benefits are for collecting data
• How the data will be protected or encrypted
• Capture and store data in aggregation and not based on individuals

In the long-term, as with the adoption of all products and technology, once the benefits are experienced by the user, there will be more support, as such, to enable this, Sidewalk Labs and the City of Toronto should:

• Widely publish the successes and achievements of the project to demonstrate feasibility and benefits to other cities considering similar projects
• Continuously capture learning and optimize to reduce initial investment required
• Create a feedback mechanism for citizens to share experiences, and make suggestions
• Collaborate with suppliers of building materials to develop new innovations for materials to replace tall-timber (which has negative effects on the environment), such as recycled materials, or more efficient building methods

Undertaking the above suggestions will provide a blueprint for other municipalities to adopt and adapt in their own execution plans, as well as increase the effectiveness and efficiency of similar projects.

 

8. What are the potentially negative social/environmental impacts of this business  model?

One criticism that this new idea has generated is around inequality. Some people are of the opinion that such a space will transform into the new “Silicon Valley” which may potentially create inequality in the society. This somehow goes against the goal 10 – Reduce Inequality. The sustainable development goal number 10 advocates businesses to reduce inequalities within and among countries.

 

Sources:

1. Sustainable Development Goals: challenges and perspectives for real estate companies with the 2030 Agenda (Vigeo Eiris Rating, October 2017);
2. UN Sustainable Development Goals;
3. Google’s parent company revealed its plan for a high-tech neighborhood in Toronto — and it could be the world’s largest tall timber project;
4. Innovation and Funding Partner Framework Agreement – Summary of Key Terms (For Public Disclosure)