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January 22, 2024

Cromwell releases annual ESG report, details full scope 3 inventory


In January, Cromwell released its most detailed, comprehensive ESG report to date. This report serves as a snapshot of how the business is progressing towards meeting our environmental, social, and governance commitments over the short and long-term.

The report was developed in collaboration with all relevant disciplines across the global business, and aligns with major reporting standards, including the Sustainability Accounting Standards Board and the Global Reporting Initiative. It has been designed to provide transparency through qualitative and quantitative data, while showcasing the Group’s effort to deliver tangible positive impacts, citing case studies from across the business.

Most significantly, in line with the organisation’s desire for greater transparency, this recent report details Cromwell’s full scope 3 emissions inventory disclosure for the first time.

What ESG progress means for investors

Increasingly, ESG reporting is being used by investors as another way to track an organisation’s activities and keep businesses accountable for their actions. Some investors use ESG results to determine poor performers, associating the factors that cause companies to receive low ESG ratings with weak financial results; some investors seek out high ESG performers, expecting exemplary ESG outcomes to drive superior financial results.

ESG reports are a key source of ESG performance information relied on by investors and stakeholders to make informed decisions about an organisation’s impacts. Investor and stakeholder expectations around ESG disclosure are increasing and reporting standards are rising to respond to that expectation.

Indeed, the term “ESG” was first mentioned in the United Nations Global Compact “Who Cares Wins” report in 2004 and has now become synonymous with the ability to demonstrate good corporate citizenship. Industry trends, as well as independent studies, indicate that investors are now wanting to see tangible ESG results.

A 2022 Ernst & Young Global Corporate Reporting Survey, released in November that year, found that 78% of investors want companies to focus on environmental, social, and governance activity, even if it hits short-term profits.

These days, a company’s risk profile is raised in the eyes of investors if it fails to consider ESG risks adequately and disclose its approach to them. Among other things, this makes it difficult for a company to access capital and can over time, render it ‘un-investable’ to investors, many of whom now have ESG or green mandates.


ESG and our tenants

As a commercial real estate investor and property manager, meeting the diverse needs of our tenants remains a high priority.

Through regular, ongoing engagement and detailed annual surveys, our tenants have outlined that helping meet their own ESG requirements and ambitions needs to be a key priority for Cromwell as the building owner. By helping meet these needs, we significantly increase tenant retention across our portfolio – and attract new long-term blue-chip tenants.

Cromwell’s October 2023 Tenant Satisfaction Survey Portfolio results showed that 66% of respondents rate sustainability as important or very important in their organisation’s decision to lease; and almost 60% of respondents are already at net zero, considering net zero, or already working to become net zero organisations.

For instance, over the past 12-24 months, state and federal government departments have put increased emphasis on restricting leasing properties that can’t demonstrate a credible net zero pathway for the building.

With government tenants making up a significant percentage of our Australian leasing pool, Cromwell has committed to ensuring that we take necessary steps in improving our ESG performance to retain these crucial tenants.

In this way, we satisfy current tenant needs – and future-proof existing buildings – to increase tenant retention, improved rental yields, and deliver for our investors.

This report covers Cromwell Property Group’s environmental, social and governance (ESG) performance for the year ending 30 June 2023.

The significance of understanding scope 3 emissions

Scope 3 emissions – also known as ‘value chain’ emissions – are indirect greenhouse gas emissions both upstream and downstream of an organisation’s main operation. Consequently, for this reason, they are also traditionally the most challenging emissions scope to calculate and address for many businesses as they are not directly controlled by the organisation.

Regardless, the UN Global Compact has found that scope 3 emissions generally make up more than 70% of an organisation’s total emissions footprint and it is accepted that understanding them is critical to identifying the greatest reduction hotspots, avoiding future value chain risks associated with the transition to a zero-carbon economy, and mitigating against greenwashing.

Group Head of ESG Lara Young said that reducing scope 3 emissions, and including this emission scope in net zero carbon targets, is critical to ensuring legitimate net zero targets that deliver tangible change. Addressing scope 3 emissions, she said, can deliver substantial business benefits by providing a clear transparency, understanding, governance, and oversight of an organisation’s full value chain and the evidence of the positive impacts delivered.

“Despite the industry challenges of data quality and availability for scope 3 emissions, the Group is proactive with joint venture partners in Oceania – and its supply chain partners, clients, and tenants globally – to collate scope 3 data via the roll-out its green lease initiative and ESG schedules,” said Ms. Young.

“Cromwell has committed to positively contributing to the communities in which we operate, and that goal involves supporting tenants and investors with achieving their net zero targets and evolving ESG needs.”

“Cromwell’s FY23 ESG report is the first time that Cromwell will publicly disclose scope 3 emissions, and this will place the Group among the minority of industry peers that publicly disclose this data. This outcome is a testament of the Group’s capability and desire for full transparency.”

Cromwell’s FY23 ESG report is the first time that Cromwell will publicly disclose scope 3 emissions, and this will place the Group among the minority of industry peers that publicly disclose this data.
Lara Young – Group Head of ESG, Cromwell Property Group


Progressing on our ESG commitments

The FY23 ESG report shows that Cromwell made notable advancements toward our ESG commitments during FY23 – including the development and implementation of our updated ESG Strategy; preparing a globally aligned approach to decarbonising the business to meet our targets of net zero scope 1 and 2 emissions by 2035, and all scope 1, 2, and 3 emissions by 2045.

This activity is supported by emissions abatement cost modelling for our Australian and European portfolios to facilitate emissions reductions and associated decarbonisation costs.

The report also highlights the progression the business has made in the past 12 months regarding specific ESG results. Among our key achievements, emissions intensity (scope 1, 2, and 3) was reduced by 12% in Australia, compared to the previous financial year; European assets recorded reductions of 22%.

Cromwell’s Direct Property Fund was third in the Australian NABERS Sustainable Portfolio Index (SPI) – the highest ranked geographically diversified fund in Australia – and Cromwell’s Australia investment portfolio was fourth in the same index.

Cromwell Polish Retail Fund (CPRF) achieved a five-star rating and a Cromwell record-high overall score of 90 points, ranking 11th out of 32 European retail non-listed peer funds and 17th out of 87 in the European Retail category.

And, significantly, Cromwell’s Australian gender pay gap decreased by 44% since it was first calculated in FY21.

Lara Young said that, among other metrics, these key achievements highlighted the progress the organisation is making.

“We know that ESG is not just about carbon emissions. While reducing emissions is crucial, this cannot be at the expense of biodiversity, social value, or natural capital. These topics are all interlinked and the Group recognises we cannot be successful if focusing on each in isolation,” said Ms. Young.

McKell Building case study

One of the largest, and most involved, ESG-led projects this year was the electrification of the McKell Building in Sydney’s CBD.

The multi-million-dollar project has involved converting the building’s existing commercial gas-fired heating system to an electric heat-recovery reverse cycle heating, ventilation, and air conditioning (HVAC) system.

Cromwell’s Head of Property Operations, Tessa Morrison, said the upgrade of the 24-storey building has been designed to help ‘future-proof’ the asset by replacing outdated, 1970s-era infrastructure with modern, energy saving equipment.

““The McKell building is a 1970s-constructed building with an existing NABERS 5.5 Star energy rating, so while it is already significantly energy efficient, we are undertaking this project to reduce emissions and drive further energy efficiencies,” said. Ms. Morrison.

“This is the first time that a multistorey, 25,000sqm commercial building in the Sydney CBD has undergone an electrification upgrade – and we’re excited to have engaged experienced mechanical air conditioning contractor Velocity Air to help deliver the project.”

Efficiencies in the new reverse cycle HVAC system will mean that hot air removed as part of the building’s air conditioning process will be recycled back into the system for use elsewhere, including heating the building’s water.

Looking long-term

Through its data informed approach, Cromwell is working focus on the broad spectrum of the ESG agenda, while prioritising the most relevant aspects. Cromwell recognises that the industry needs to remain pragmatic, but also strike a balance with a wholistic systems view.

Cromwell’s key long-term targets remain:

  • Net zero operational emissions (scope 1 & 2) by 2035.
  • Entire portfolio (scopes 1, 2, & 3) including tenant and embodied carbon by 2045.
  • Significantly reduce our gender pay gap year on year.
  • Achieve 40:40:20 gender diversity at all levels.
  • Integrate ESG into risk register and business strategy, including objectives and key results.

“Cromwell recognises the ESG challenges that the property industry faces; however, we also recognise the opportunity to deliver tangible positive impacts. The Group has a global in-house ESG team and dedicated Australian and European teams that supporting all Cromwell ESG targets and activities,” said Ms. Young.