Why sustainable cities could be ESG’s ultimate embodiment
Henning Stein, PhD, GCB.D
Results-Oriented Investment Solutions Executive | Certified Board Member | Asset & Wealth Management Change Agent | International Presenter & Author
Dystopia’s demise
Many of our cities are most readily associated with problems. We do not think of them in terms of benefits and advantages. We think of them in terms of pollution, overcrowding, substandard infrastructure, social inequality and other failings.
In the age of ESG – environmental, social and governance considerations – we have a chance to change these perceptions. More significantly, we have a chance to change the reality. The world is belatedly embracing the notion of sustainability, and cities could prove to be the ultimate embodiment of this ideal.
The term “sustainable cities” is now gradually entering everyday parlance, but what do we actually mean by it? It may be tempting to envisage a scene worthy of a sci-fi movie, but this rather depends on which sci-fi movie you have in mind.
After all, most fictional visions of the future are determinedly dystopian. This is understandable, since a story about a perfect society would be far less interesting that one about a society with conspicuous flaws.
This means that the stuff of sci-fi – the neon-spattered chaos of Blade Runner, the bleached expanses of THX 1138, the teeming landscapes of Metropolis, the drab conurbations of Alphaville – serve mainly to tell us how sustainable cities should not be. At least in so far as is possible, sustainable cities ought to exemplify dystopia’s diametric opposite: utopia.
This might sound fanciful, but let us think about what could be achieved: cities that combine state-of-the-art technology and hyperconnectivity with quality of life and an authentic sense of community. Compared to what currently passes for the norm, this surely qualifies as utopian.
So how might such a dream be realised? As with most aspects of ESG, long-term thinking and patience are likely to be vital. By way of illustration, we can briefly examine the history of one city that has already made substantive progress.
From sin to sustainability
Many people know Las Vegas as Sin City; far fewer know it as one of the most sustainable cities in the US. Its journey towards the cutting edge of ESG arguably began 30 years ago, when Jan Jones Blackhurst became Las Vegas’s first female mayor.
Through my involvement with the ESG Competent Boards programme, I have been lucky enough to meet Jan. She believes that her surprise election victory in 1991 was due to three factors, all of which would serve as a foundation for Las Vegas’s transformation.
The first factor was that the city was already highly entrepreneurial. The second was that the voters who backed Jan were willing to gamble on her capacity to translate victory into action. The third was the groundswell of support she received from under-represented groups.
As a result, Jan’s period in office very quickly came to be defined by coalition-building and a “progressive” ethos. It blended exciting commercial development with the inclusion of marginalised communities that had previously struggled to find a voice.
This led to tremendous economic growth. It also drove a shift in attitudes and philosophy. Today, three decades later, Las Vegas is an acknowledged leader in many areas of ESG.
The entire city is powered by renewable energy. It has an outstanding record for water conservation. It is home to Elon Musk’s new underground electric transport system. It is successful, safe and, above all, sustainable.
Las Vegas has also highlighted the importance of the private and public sectors working together. This is fundamental, because our cities suffer from systemic problems – which means that they need systemic solutions.
The environmental challenge
Arguably the most pressing of these systemic problems is the E of ESG – the environment – and in particular the blight of greenhouse gas emissions and air pollution. The fact is that buildings are central to some of the gravest threats facing our planet and its inhabitants.
For example, research suggests that buildings produce up to 40% of all CO2 emissions globally. Air pollution is the world’s largest environmental health risk, responsible for around seven million deaths a year. Buildings also use approximately 60% of all electricity, 40% of all energy and 25% of all water.
If a building is central to a problem, of course, then it can also be central to addressing that problem. Yet ensuring genuine sustainability in this respect is by no means a straightforward task.
“Embedded carbon” – a phrase used to describe the emissions generated by construction and demolition – can constitute a sizeable hurdle. It often forces developers to work with what they already have rather than with a blank canvas. Striving for sustainability without the luxury of being able to wipe the slate clean is difficult.
Relatedly, it is not sufficient for buildings merely to mitigate the impacts of climate change and other environmental issues. They need to adapt, which means that they have to adopt novel ideas.
The goal of strengthening real estate’s resilience and enabling the necessary transition from “brown” to “green” therefore demands innovative, disruptive thinking. This could simply involve planting more trees or using “smart” water management – or it could involve incorporating “urban heat island” effects or taking steps to safeguard biodiversity.
All this underlines that we need to view real estate in two distinct yet inextricably linked ways. We can view it as a source of global risk; and we can view it as a source of long-term benefits for multiple stakeholders.
Beyond E
Despite the temptation to think principally about E, the S and G of ESG must not be overlooked. Sustainable cities should give rise to widespread social gains, and they should also be underpinned by good governance.
When Invesco invests in real estate, for instance, it engages with property managers on a range of sustainability matters. We encourage ESG-centric practices among tenants and communities. We promote diversity and inclusion. We seek transparent disclosure around strategy and performance.
In other words, we do not treat real estate purely as bricks and mortar. Such an attitude is utterly opposed to the concept of sustainability. We instead see real estate as a mechanism for respecting, protecting and enhancing prosperity.
This means regarding buildings as what they are – places where people live and work. It means recognising their role in defining quality of life and improving health and social cohesion.
We have proof that this approach works. One far-reaching corollary is enhanced wellbeing. Studies show that the occupants of “green” buildings have better cognitive functions and mental health and are less prone to sickness and absenteeism.
Policymakers are now starting to pay attention. Research has associated buildings’ poor ventilation with asthma, headaches, fatigue, shortness of breath, nausea, dizziness and other ailments, as well as decreased productivity. President Biden’s American Rescue Plan assigns more than $120 billion to school infrastructure and identifies ventilation as a priority.
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It is concerns such as these that we need to take into account when we talk about true sustainability. It is not just a question of reducing pollution or using less water. It is a complex, multifaceted challenge – the responses to which must be shaped by data, stakeholder interaction and a forward-looking mindset.
A collaborative approach to a collective future
I recently chaired an expert panel discussion that brought together political figures, campaigners and real estate investors. We ended by exploring which qualities might characterise a genuinely sustainable city, and I believe that two are especially compelling.
The first is what we might call lifestyle changes. These are likely to include the phasing out of major sources of greenhouse gas emissions and air pollution, including petrol-driven cars; financial incentives that make inaction more costly than action; and increased adaptation and adoption rather than mitigation.
The second, as in the case of Las Vegas, is a culture of success and safety – one that will endure for generations to come. This will require holistic thinking and an acceptance that people are no longer looking just for a roof over their head: they are looking for a home, a hub and a place where they can thrive in every way.
Cities like Las Vegas are already showing what can be done. Crucially, the individuals who have overseen effective transitions so far – like Jan Jones Blackhurst – report that the key lies in committing to the process and systematically attaining the objectives.
It is also worth noting that, according to some estimates, half the technology needed to engineer the “smart” elements of sustainable cities has not yet been invented. This presents extraordinary opportunities for companies and their investors.
Looking ahead, collaboration will be essential. Policymakers must provide direction and impetus; businesses and entrepreneurs must use their imagination and skills to conceive ESG-aware advances that deserve to be taken forward; and investors must allocate funds with prudence and farsightedness.
None of this is going to happen overnight. Remember that Las Vegas has taken 30 years to get to where it is today. But if we all work together – and if we really do care about the future – we can make sustainable cities a reality.
Disclaimer: The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. This is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment-making decision. As with all investments, there are associated inherent risks.
Links
YouTube: “The beauty of Blade Runner”
YouTube: “THX 1138 official trailer”
YouTube: “Metropolis trailer”
YouTube: “Alphaville trailer”
Medium: “Leading Las Vegas: how former mayor Jan Jones Blackhurst is taking the fight to gender equity in the workplace”
ESG Competent Boards: “ESG Competent Boards Certificates & Designation Program”
New Civil Engineer: “Elon Musk’s Boring Company completes Las Vegas tunnel”
Invesco: “Meet biodiversity: the next big thing?”
Invesco: “Living Las Vegas: Towards Sustainable Cities”