Tenant Engagement–The road to corporate sustainability

The ideal way of tenant engagement would be leading, where tenants, landlords and property management companies all play a chief role in sustainability-related activities and fostering regular dialogues with each other.

In recent years, the interests of tenants in green or sustainable occupancy have gradually grown in prominence, ranging from green and/or healthy building accreditations to optimization of resource management and mitigation of environmental footprints. In response to the evolving concerns, landlords and property management companies can make good use of effective tenant engagement to disseminate sustainability-related information and attain continuous improvement of the occupancy’s environmental, social and governance performance.

Conducive tenant engagement brings abundant advantages. Tangible ones include reduction in water and energy consumption, and hence utility cost savings, whereas intangible ones refer to enhancement in environmental awareness, fostering landlord-tenant communication and cohesion, improving overall environment of occupancy, and promoting health and well-being of occupants.

Moreover, there are various investor-driven assessment tools in place such as GRESB and National Australian Built Environment Rating System (NABERS). These tools not only scrutinize and benchmark corporates’ material issues in sustainability performance but also measure the effectiveness of tenant engagement as part of the process. There have been a growing number of investors using the ratings to facilitate their investment decisions, implying that tenant engagement and property value are strongly correlated.

Approach to strategic tenant engagement

Under the framework of AA1000 Stakeholder Engagement Standard 2015[1], a standardized process of stakeholder engagement or particularly tenant engagement can be divided into four stages, namely Plan, Prepare, Implement, and Act, Review and Improve. The whole process aims to facilitate the development of sustainability strategies that align with stakeholders’ major concerns.

At the Plan stage, upon the identification of the key stakeholder groups, the organization shall decide on the purpose and scope of tenant engagement by catering to characteristics of different groups, such as levels of concerns about the material issues, their expectations of the engagement, and social and cultural contexts.

Prior to mobilizing resources and building capacity for successful engagement, it is crucial to identify the level of engagement. This can be represented by a wide spectrum including ‘inform, involve, collaborate and lead’ in ascending order. In general, the level of engagement is subject to the direction of information flow and communication methods. To illustrate, installing digital energy monitoring portal may be one of the common ideas to enhance green awareness among tenants. Although it helps to keep tenants informed on the real-time updates of their energy consumption, the information flow is only one-way.

Therefore, the ideal way of tenant engagement would be leading, where tenants, landlords, and property management companies all play a chief role in sustainability-related activities and fostering regular dialogues with each other. One salient example is offering educational training for tenants, covering specific sustainability strategies and addressing their concerns with a series of feasible solutions and suggestions.

There is a case study that demonstrates how to steer tenant motivation and build capacity for implementing sustainable initiatives. The Crown Estate, one of the property giants in the United Kingdom, provides commercial and retail tenants with a Sustainability Fit-out Guide[2], epitomizing the common green practices in regard to ‘Management & Procurement’, ‘Health & Wellbeing’, and ‘Transport & Travel’.

After carrying out the initiatives that revolve around tenant engagement, it is essential to evaluate their effectiveness to look for areas of improvement and to guide management decisions. In addition to comparing year-over-year changes in data, a holistic system of regularly collecting and analyzing tenants’ feedback and comments such as circulating tenant satisfaction surveys and convening focus group interviews is much needed.

Green tenancy and green lease

In the meantime, green tenancy has arisen as the ideal outcome of tenant engagement, with the aim of boosting rental value and occupancy rate, and equipping the buildings with more future proofing against potential increases in operational costs and climate resilience.

As one of the key elements of green tenancy, green leasing is effective in the sense that they are binding, and call for tenants’ solid actions. It stipulates specific terms and conditions on a new or existing lease such that tenants are engaged in joining hands to scale up the sustainable impacts through green practices.

For instance, green leases require tenants of premises to procure construction materials containing recycled materials in the fit-out phase, develop a comprehensive waste management system, and purchase energy-efficient appliances. It is also common that some green leases call for tenants’ regular disclosure in performance-related electricity usage, waste generation and water consumption. With complete and systematic management of resources of the premises, landlords and property managers are enabled to monitor and proceed with feasible performance improvement plans.

Green tenancy in Hong Kong

In 2014, the Hong Kong Green Building Council Limited published a voluntary guideline entitled Green Tenancy Driver for Office Buildings[3], educating tenants and relevant stakeholders about the concept of green tenancy and how landlord-tenant collaboration on energy reduction can be reinforced.

While green leases are mandated in other countries such as Australia[4] and New York City[5], green tenancy has yet to be widely adopted in Hong Kong. In fact, there are a lot of voluntary initiatives that landlords and property management companies can consider implementing. For instance, New World Development Company Limited rolled out the ‘Sustainable Tenancy Pledge’[6], in which the participating tenants are provided with WELL™ and LEED® interior certification checklists, optional guidelines on sustainable fitting-out and operation, and smart metering for energy efficiency. With ample resources for tenants, it helps to add clarity to practical advice on green occupancy.

The research publication from the Business Environment Council Limited[7] determined that landlords might be reluctant to update standard lease conditions which property portfolio managers are familiar with. High costs also turn them away from installing sub-meters that monitor energy and water usage. Since bill payers (the tenant) may not be the same person as those investing in environmental protection upgrades (the landlord), the issue of split incentive tends to occur and is also a reason for why the development of green tenancy is usually hindered.

In an effort to resolve the cost issue, green leases are prepared to set out arrangements for cost offset or recovery to reflect the lessened expenditure otherwise payable by the tenant. By way of illustration, the scheme of electricity rebate is an effective method of incentivizing tenants to cut down on electricity consumption.

Additionally, regular disclosure on sustainability performance and tenant rating systems are alternatives to addressing the issue of split incentives. The Tokyo Metropolitan Government, for example, takes the lead in stepping up energy efficiency measures amongst commercial buildings by introducing a tenant rating scheme under the Cap-and-Trade Program[8]. The tenant evaluation and disclosure scheme mandates large-sized tenants to submit their annual emission reduction plans and take corresponding measures. The tenants are then rated based on the progress of their reduction measures and actual greenhouse gas emissions[9]. This tenant rating system helps promote landlord-tenant collaboration and motivate different parties to improve the buildings’ energy efficiency together.

Indeed, tenant engagement is never difficult to start with, and it is not necessarily costly either. In the long run, effective tenant engagement assists in formulating comprehensive environmental management plan, and incorporating more exceptional sustainability strategies into the building operation. Every journey to corporate sustainability begins with a small step. It is time to unleash tenants’ potential for going green together.

This article is written by Tiffany Lee, Assistant Consultant at Allied Environmental Consultants Limited

[1]AccountAbility. (2015). AA1000 Stakeholder Engagement Standard 2015https://www.accountability.org/wp-content/uploads/2016/10/AA1000SES_2015.pdf

[2]The Crown Estate. Sustainability Fit Out GuideOfficeshttps://www.thecrownestate.co.uk/media/1748/sustainability-fit-out-guide-offices.pdf Sustainability Fit Out GuideRetail and Leisure

[3]Hong Kong Green Building Council Limited. (2014). Green Tenancy Driver for Office Buildingshttps://www.hkgbc.org.hk/eng/engagement/guidebooks/green-tenancy-driver/index.jsp

[4]Department of the Environment and Energy, Australian Government: Green Leases https://www.energy.gov.au/government-priorities/energy-productivity-and-energy-efficiency/green-leases

[5]PlanYC (2012). The Energy Aligned Clausehttps://www.nyc.gov/html/gbee/downloads/pdf/eac_overview.pdf

[6]New World Development Company Limited. (July 11, 2019). K11 ATELIER King’s Road Cements a New Landmark in Island East, Redefining the Design, Purpose & Culture of Workplaceshttps://www.nwd.com.hk/content/k11-atelier-kings-road-cements-new-landmark-island-east-0

[7]Business Environment Council Limited. (2019). InvestinginBuildingsEnergyEfficiency: How to Enhance Hong Kong’sPolicy Framework https://bec.org.hk/files/images/Resource_Centre/Publications/Investing_in_Buildings_Energy_Efficiency.pdf

[8]Tokyo Metropolitan Government. (October 24, 2019). Update of the Tokyo Cap-and-Trade Program

[9]Tokyo Metropolitan Government. Tokyo Green Building Report 2015

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