Jamie Gray-Donald on How QuadReal Is Targeting Net Zero by 2050

Last week, BCI's real estate subsidiary, QuadReal, released a statement that it is targeting net zero for its entire portfolio by 2050:

As the real estate and development industry continues to navigate global demands to reduce greenhouse gas emissions, QuadReal Property Group (“QuadReal”) is advancing an updated strategic pathway to decarbonize its portfolio by 2050 There are also several key milestones in advance of this date, especially a 50 per cent carbon reduction of its global portfolio by 2030.

QuadReal’s net-zero strategy builds on its original 2016 mandate to achieve an 80 per cent carbon reduction goal across its Canadian operations. Since 2016, QuadReal has demonstrated leadership in reducing carbon emissions across its Canadian portfolio and will use key learnings to accelerate and deepen its sustainability goals in both its Canadian and international assets.

“Sustainability has always been a key component of QuadReal’s investment and management strategies and is becoming more and more of a precondition for the long-term financial feasibility of our programs,” says Lucy Fletcher, Managing Director, Global Portfolio Management, QuadReal. “As active managers, expanding our carbon reduction targets to net zero across our entire portfolio will allow us to meet and exceed our fiduciary responsibility to all our stakeholders and clients, and help lead the market in innovation and execution.”

QuadReal’s net-zero targets align with leading global carbon commitment programs including The Climate Pledge and The Race to Zero Campaign. The measurement framework for QuadReal’s net-zero target also aligns with the science-based carbon reduction goals set by the International Panel on Climate Change (IPCC). QuadReal’s strategy includes reductions of scope 1, 2 and 3 carbon emissions, with Canadian property-level plans to be in place by 2025.

“Just as green-certified buildings have outperformed in the past decade, we believe net-zero buildings will outperform the market in the coming decade,” says Jamie Gray-Donald, Senior Vice President of Sustainability & Environmental, Health & Safety, QuadReal. “Our pathway to net zero includes very specific interim targets to help inform next steps at the property level and will be applied to all the real estate we manage. We are also committed to being transparent in our approach and measurement tools so we can help lead the real estate industry in the transition to a net-zero economy.”

To achieve interim targets and ensure accountability, carbon audits will replace energy audits and will inform property-level net-zero transition plans. Carbon reductions at the property level will be driven by two strategies: replacing fossil fuels with low-carbon electricity options combined with building upgrades that allow energy to be used more efficiently. QuadReal expects building efficiency upgrades to provide a 40 per cent reduction in emissions, based on previous retrofits. The company’s commitment will also allow offsets or credits to cover a maximum 10 per cent of baseline emissions.

In addition to focusing on its own net-zero targets, QuadReal plans to continue sharing its tools and programs with international partners and industry peers. By aligning with and supporting groups such as The Canadian Climate Institute, the Net-Zero Advisory Body, the Canadian Green Building Council, the Center for Active Design and Fitwel, QuadReal hopes to help propel the real estate industry forward in mitigating climate risk and achieving net zero.

You can learn more about QuadReal’s net-zero commitments and progress here.

On Friday, I had a chance to talk to Jamie Gray-Donald, Senior Vice President, Sustainability & Environmental, Health & Safety at QuadReal to go over the press release.

I want to thank Jamie for taking some time to chat with me.

He began by giving me some of his background, telling me he has a PhD in Environmental Education and then went to work at a university in England between 2006-2010 when the carbon agenda started to get a high profile there. 

He saw major companies shift their interest to the carbon agenda so he came back to Canada to start working in corporate real estate (see above). 

Jamie told me he joined QuadReal in 2016 when it was formed and started their sustainability program. 

He's a very nice and smart guy who really understands this subject matter extremely well.

He told me he leads a "fantastic team of eight people" who support sustainability at QuadReal. 

Even though QuadReal is an independent subsidiary, he told me:

We share our approach to sustainability with BCI,  we are well aligned with their approach to sustainability, we represent BCI with their real estate investments, so we manage the real estate investments for BCI clients which is about 20% of the overall BCI investment portfolio.
I noted that across Canada, real estate departments of large pension funds have taken the lead in sustainability, doing so early on, recognizing the importance of sustainable investing for their portfolios.

Jamie remarked:

There are a few places in the world where this is happening, Australia, Canada, London and Paris. There are a few places that were leaders on this. Some of it has to do with a corporate tight-knit community, there are a lot of real estate companies headquartered in Toronto, so we see a lot of collaboration as well as friendly competition. The other factor is the size and scale of the companies. Real estate is generally a fractured ownership structure. We get some owners who have a greater size and scale and they are able to build a dedicated sustainability team. Canada was at the forefront of that with Oxford Properties, Cadillac Fairview, Ivanhoe Cambridge, BentallGreenOak and others like that. 

They saw an early benefit of leading on this, that if you did this ahead of market requirements, you were rewarded. Office tenants were more likely to move into your buildings, tenants are happier, so there is a positive feedback loop in investments made in the space resulting in financial improvements and this led to further investments in sustainability.

I asked Jamie if QuadReal puts out a sustainability report and he told me they don't put out an annual report but they do share information with BCI for its annual ESG report, and they publish SASB reports on their website and they complete the PRI real estate sections for BCI every year. 

They also publish for all their residential and office buildings across Canada their annual energy carbon performance. "We helped meet that disclosure challenge, we felt it was important for individual buildings to disclose this information to marketplaces."

Going to the press release, I asked Jamie what is the difference between green-certified buildings and net-zero buildings  when he states:

“Just as green-certified buildings have outperformed in the past decade, we believe net-zero buildings will outperform the market in the coming decade.”

He explains:

LEED buildings are better from a sustainability standpoint. Often on the energy efficient and carbon reduction, they get you about 30% of the way there. LEED buildings don't have a net-zero requirement. They have requirements and get lots of points for more energy efficient buildings but they haven't necessarily given significant points to fully electrified buildings. Net-zero takes it further to when natural gas boilers need to be replaced instead of relying on fossil fuel based options.

I asked him in their portfolio if any buildings have achieved this net-zero status:

I can't give you exact numbers but the majority of our office buildings are LEED certified. 95+% of our buildings are certified to BOMA Best which is the Canadian green building certification which is more broadly applicable to residential buildings, retail and warehouses. From what we can tell, we are about 30-40% on the way there toward net zero and some leading offices are already at 60-70% carbon reduction. In our Canadian portfolio, we don't have any building which is net-zero certified yet. We have a new office building in London that was built to the UK net-zero standard and another one that is retrofitting to the UK net-zero standard. 

I asked if he thinks this is the wave of the future, that buildings will be required to go beyond LEED and shift to a net-zero standard:

Yes, definitely. We see regulatory pressure, right now it's mostly at the city level where cities are changing their code requirements for new developments and phase in code requirements on existing buildings. Then we see a lot of Fortune 500 companies with net-zero commitments but have not included net-zero requirements in their leasing commitments but we see that coming over the next few years. We want to get ahead of regulation and market demand knowing it takes a few years of planning and implementation to achieve this. The way we are doing it, we are not just buying carbon offsets, we are making rational changes to equipment and building that takes a couple of years of planning and capital allocation.

As far as demand for net-zero buildings, he told me they see it in London, UK where "net-zero buildings are leasing up faster and commanding a higher rent, so we expect that to come to Toronto and Vancouver over the next five years."

I then asked him the difference between carbon audits and energy audits where the statement states:

To achieve interim targets and ensure accountability, carbon audits will replace energy audits and will inform property-level net-zero transition plans.

Jamie explained:

With energy audits (ASHRAE), an engineer checks out equipment and it's inefficient and really about energy savings. The energy audit does not look into fuel type, it typically doesn't look at your building envelope (do you need to replace windows), and it definitely doesn't look at electrical capacity. If you are moving from a natural gas boiler to an electric boiler, you need to increase your electrical capacity. A carbon audit covers a lot more. It covers energy efficiency and when are natural gas pieces of equipment coming up for replacement, what are the high efficiency electrical options and are there barriers to their implementation (like the transformer capacity, space, etc). The other is you have a visualization, a waterfall of what measures will get you to net zero. With an energy audit, it's  over the next three to five years, what are the opportunities. A carbon audit looks at the rational pathways to achieve net zero. It might be five years, in many cases it will be more like ten or fifteen years.

He told me the federal government has done this carbon audit for a majority of their portfolio "in a very rigorous way" and that helped many engineering companies build the capacity in how you do this properly. "In three or four years, this will be the new default standard for companies like QuadReal."

He then explained to me the difference between achieving their climate targets for their domestic versus international portfolio (50% is in Canada, 50% is international):

The way we are structured, outside of Canada, we have other companies that manage the properties for us. In Canada, we are vertically integrated, we represent the owner, or the asset manager or the property manager. We have full visibility. I can set up a responsibility matrix from our CPO right down to the building operator. Outside of Canada, we are in joint ventures with another investor, a company that is an asset manager and then in turn subcontracts the property management. It's a lot more challenging from a contract perspective, a relationship perspective, etc. In addition, it's a new portfolio. we just finished building the international portfolio versus the Canadian portfolio, much of it BCI has owned since 2007 and we have good data and programs in place backing them.

The international portfolio is newer with many different partners. We have partners in Australia which are committed to achieving net-zero in 2025 and we are very fortunate to have global leaders and other companies we can learn from.

He confirmed that 50% of the equity portfolio and 15-20% of the debt (mortgages) which QuadReal now manages is international (took over the debt portfolio roughly two years ago). 

I asked him to give me some final thoughts, key takeaways from this press release:

It's an opportunity for us to grow. In terms of the value to the portfolio, we really see net-zero as the future. We think there are a lot of great opportunities between now and 2030 to reduce carbon. It's very important to send a signal to the market to say we are looking for solutions to help us. We know there is a lot of innovation needed in this space and we hope that by sending a signal, others in our supply chain will come to us and say 'let's partner up and figure it out' how to do low carbon construction materials, how to get heat pumps in low temperature areas. We know a lot of innovation is required and we are keen to participate on that side to help create a future we want.

Jamie told me that QuadReal performs well on GRESB, number one for diversified in North America and top 2-3% globally for diversified for the last couple of years. "We tend to perform well, we like our results to speak for themselves."

More importantly, he added:

The other takeaway from our net-zero targets is we are committed to taking action now. The executive felt very strongly about not sending a generic commitment to net zero by 2050.They wanted to ensure we are taking action now and communicating about investments that we are making in the near term. I think that's what leadership looks like. 

Lastly, Jamie told me QuadReal collaborates with other global investors, for example in REALPAC's sustainability committee and PREA which is mostly US based and other Canada, US and European associations which have very active sustainability committees.

He also said they are presenting at the Greenbuild conference in November:

We are presenting on how we do carbon planning, how we take those carbon audits and put them into a systematic process that enables us to plan at a portfolio level. We feel a responsibility that not all real estate companies can have a big team and success on net zero and if we can help other players get their results, that's fantastic. 

You can view the details of that presentation here, it will take place on November 2 at 11:30 am.

I want to once again thank Jamie Gray-Donald, Senior Vice President, Sustainability & Environmental, Health & Safety at QuadReal for sharing so many great insights with me.

In August, Jamie wrote a great paper on unlocking warehouse ESG for IPE Real Assets which you can read here

I also invite you to read more about QuadReal's ESG approach here.

You can also read QuadReal's latest activity report here and the latest news releases here.

Here are some highlights:

"Time and time again teammates across the globe demonstrate their dedication and unparalleled work ethic to deliver strong, sustainable returns to BCI, RBC GAM and their clients. This is while frontline colleagues engage each and every day with our tenants and residents to ensure their comfort, wellness and safety. Everyone has been attentive to the needs of those around them, working collaboratively and creatively. It all reinforces to me the value of being part of a well-connected community of professionals as we strive to share the same spirit in the neighbourhoods of which we are a part."

                                                                     -- Dennis Lopez, Chief Executive Officer

I'd say Dennis Lopez and all 1,200+ QuadReal employees are doing an outstanding job delivering great value to their clients. 

Canada has great real estate companies and they are leading the way in sustainable investing.

In a recent post on the world's best and worst pensions in 2020, I noted this:

Admittedly, I was a bit surprised reading this because I cover Canada's largest pensions and they're all fully funded or close to it and they are global leaders in responsible investing

In Canada, we have some incredible people in responsble investing like Barb Zvan and Brian Minns (UPP), Richard Manley (CPP Investments), Jennifer Coulson (BCI), Marc-André Blanchard and Bertrand Millot (CDPQ), Katharine Preston and Michael Kelly (OMERS), Sarah Takaki (HOOPP), Hyewon Kong (IMCO), Alison Loat (OPTrust), Carmen Velasquez and Ben Hawkins (AIMCo), Vincent Felteau (PSP) and Stephen McLennan (OTPP). 

There are plenty more, I am just giving you some names of people working hard to improve sustainable investing in Canada and abroad.

Also, Sebastien Betermier and his co-authors published a paper recently, Green Urban Development: The Impact Investment Strategy of Canadian Pension Funds, where they find the following:

This paper investigates the investment strategy that large Canadian pension funds implement in the private real estate market. Even though they manage just 6% of global pension assets in our data, Canadian pension funds are responsible for 60% of the total value of private real estate deals that directly involve a pension fund. A key component of their strategy consists of internally developing and greening urban properties in core downtown areas. Using a common benchmarking methodology across funds, we show that this impact strategy delivers superior performance net of fees and drives the green development of major city centers.

Anyways, from the large Canadian pensions I cover, there are NO sustainability issues, they have more than enough assets to pay out long-dated liabilities and they are global leaders in sustainable investing. 

There are also a lot of real estate experts in sustainable investing like Jamie Gray-Donald (QuadReal), Stéphane Villemain (Ivanhoé Cambridge) and others who I have not spoken with yet. 

As I've said before, real estate portfolios are going to be an important contributor to all of Canada's large pension funds as they seek to achieve net zero by 2050 or earlier.

Below, celebrating Team QuadReal's global activities and accomplishments from 2021 to 2022.