Sonae Sierra: Solid Foundations Combined with Creative Innovation

Profile

  • Sonae Sierra is an international shopping centre specialist
  • Owner of 46 Shopping centres with a total GLA of 1.9 Million m2 and an Open Market Value of 6 billion euros
  • Responsible for the management and/or leasing of 85 shopping centres

Elsa Monteiro - Head of Sustainability, Sonae Sierra

At Sonae Sierra, we first began promoting environmental management as an integral part of our business as early as 1994. By 1999, we had defined and approved our Environmental Policy, established an Environmental Management System (EMS) based on the ISO 14001 standard and organised the first environmental audits for our operational shopping centres.

These initial steps formed the foundations for the development of our sustainability strategy, which, fifteen years on, allowed us to reduce our shopping centres’ electricity consumption by 40% and avoid annual costs of €18.6 million in 2014 – primarily as a result of increased energy efficiency – and make our business and our assets more resilient in the context of growing pressure on natural resources and the emerging impacts of climate change.

But we strive for continuous improvement, and recognise that there is scope to further increase the energy efficiency of our shopping centres. Innovation lies at the heart of our approach, and Bright Project is the most recent illustration of this commitment. We have developed a customisable theoretical modelling tool which allows us to monitor the energy consumption of our shopping centres and target improvement measures which lower energy consumption and reduce GHG emissions, whilst maintaining or even improving our service to tenants and visitors. The results are impressive: between 2012 and 2014 we have identified improvement measures at 28 of our shopping centres which, if implemented, could save a further €4.9 million annually (based on average electricity costs). Around 40% of these savings will have a payback of less than one year, with the remaining within four years.

Sonae Sierra: Solid Foundations Combined with Creative Innovation

 

Profile

  • Sonae Sierra is an international shopping centre specialist
  • Owner of 46 Shopping centres with a total GLA of 1.9 Million m2 and an Open Market Value of 6 billion euros
  • Responsible for the management and/or leasing of 85 shopping centres


Elsa Monteiro - Head of Sustainability, Sonae Sierra

At Sonae Sierra, we first began promoting environmental management as an integral part of our business as early as 1994. By 1999, we had defined and approved our Environmental Policy, established an Environmental Management System (EMS) based on the ISO 14001 standard and organised the first environmental audits for our operational shopping centres.

These initial steps formed the foundations for the development of our sustainability strategy, which, fifteen years on, allowed us to reduce our shopping centres’ electricity consumption by 40% and avoid annual costs of €18.6 million in 2014 – primarily as a result of increased energy efficiency – and make our business and our assets more resilient in the context of growing pressure on natural resources and the emerging impacts of climate change.

But we strive for continuous improvement, and recognise that there is scope to further increase the energy efficiency of our shopping centres. Innovation lies at the heart of our approach, and Bright Project is the most recent illustration of this commitment. We have developed a customisable theoretical modelling tool which allows us to monitor the energy consumption of our shopping centres and target improvement measures which lower energy consumption and reduce GHG emissions, whilst maintaining or even improving our service to tenants and visitors. The results are impressive: between 2012 and 2014 we have identified improvement measures at 28 of our shopping centres which, if implemented, could save a further €4.9 million annually (based on average electricity costs). Around 40% of these savings will have a payback of less than one year, with the remaining within four years.


Vision

The environmental challenge

Our business is reliant on the limited supplies of natural capital as we require mainly fossil-fuel based energy, water and non-renewable raw materials in order to build and operate shopping centres, which in turn generate GHG emissions, waste and wastewater.

Over the long term we expect significant upward pressure on global fossil fuel reserves to increase the cost of energy and contribute to growing volatility in global oil and gas markets. In addition, the GHG emissions generated by the burning of fossil fuels represent a significant environmental impact, and they are coming under greater scrutiny as governments across the globe respond to pressure to reduce the potential impacts of global climate change.

This growing pressure on natural resources, combined with the increasingly likeliness that their use will be subject to more stringent regulation, poses immediate and long-term risks to our business. On the other hand, having alternative, efficient and clean natural resource strategies in place will help us contain our operational costs and support our assets in maintaining their long-term value.

Furthermore, adopting a more sustainable approach to business may yield commercial benefits. Our tenants are concerned with shopping centres’ energy efficiency in the way that it impacts on their bottom line through service charge costs, and the findings of our own consumer behaviour survey have found that 75% of consumers feel more satisfied when they visit a ‘sustainable shopping centre’.


Developing our approach

Sonae Sierra’s approach to environmental management, including energy efficiency as a core component, is governed by our Safety, Health and Environment (SHE) Policy, first established as the Environmental Policy in 1999. This policy commits us to conducting our activities so that risks towards people, assets and ecosystems are minimised, and their benefits are enhanced. It iterates our pledge to strive for continuous improvement in SHE performance across all our sites.

Our initial strategic approach to sustainability was based around identifying and managing environmental and social risks which we considered to be material to our business. In 2006, we carried out a materiality review which enabled us to identify nine significant issues, (‘CR impact areas’), among them climate change, water, waste and land use. These issues formed the backbone of our strategy over the course of the following six years.

As a part of our CR Strategy we established a series of long-term objectives and developed corresponding short-term targets and strategies for implementation. We established our Climate Change Strategy with an aim to reduce our direct and indirect GHG emissions. This covered scopes 1 and 2 and business air travel (part of scope 3) according to the guidelines of the GHG protocol developed by the World Resources Institute (WRI) and the WBCSD.

Increasing the energy efficiency of our activities – and in particular of our buildings – constituted the primary approach to help us to reduce our GHG emissions. Beyond this, we also identified opportunities to procure green energy and, where feasible, introduce on-site renewable energy within our shopping centres, but specifically decided against a policy of carbon off-setting.


Planning - Embedding our commitment

Data collection, analysis and reporting

Following the establishment of our Environmental Policy, we set about integrating environmental management into all key business activities and at each stage of the shopping centre life cycle.


Sonae Sierra’s Safety, Health and Environment Management System

In the year 2000 we established environmental indicators and began to track the environmental performance of our operational shopping centres by establishing baseline data for energy, water and waste. With use of an online data platform we continued to increase the quality and scope of environmental data collection, analysis and reporting.

We created a comprehensive set of Environmental Standards for Retail Development (ESRD) with reference to internationally recognised standards such as LEED® and BREEAM, best available technologies and our unique expertise as shopping centre specialists, and we began to apply these standards on all new developments and major expansions and refurbishments from 2002. We also launched an EMS for construction works, and established the mandatory requirement for all approved investments to be preceded by an Environmental Due Diligence study (EDD).

We proceeded to monitor the implementation of these standards and requirements on all new developments, report both internally and externally on the results achieved and use outcomes learned to help inform the approach taken by future projects.


Benchmarking

We began measuring, monitoring and targeting energy use in our shopping centres in 2002. Our baseline data for energy (2002), water (2003), waste (2002) and carbon emissions (2005) enables us to track our performance and evaluate long-term achievements in terms of both reduced environmental impact and operational costs avoided.

From 2004, we began to participate in external environmental performance benchmarking in order to compare our shopping centres’ performance with peers and help to identify potential improvement measures. Since its commencement in 2009 we have also participated in the Global Real Estate Sustainability Benchmark (GRESB), which provides an overview of the current level of integration of environmental management in all listed property companies and private property funds across the globe. The most recent 2015 GRESB report (which analyses 2014 performance) placed Sonae Sierra 2nd among its non-listed peers in the retail real estate sector in Europe, and 7th place among companies in the same sector globally.

A roadmap to the optimal shopping centre

The team developed two benchmarks: a reference benchmark and an operational benchmark. The reference benchmark calculates the optimal energy consumption of the shopping centre if it contained state-of-the-art equipment. The operational benchmark calculates the optimal consumption, based on the equipment the shopping centre actually contains. The model therefore indicates shopping centres that are underperforming due to their equipment, and those that are underperforming due to management practices.

The improvements that can be achieved through Bright Project are exemplified in the case of LeiriaShopping in Portugal. Despite being awarded the highest energy efficiency certificate (A+), the centre was among the largest electricity consumers in our portfolio. Bright Project identified a number of deviations from the optimal energy consumption of equipment such as chillers and air handling units. The findings where checked on site and a number of measures (representing an investment of €58,000) were implemented and monitored for a year. As a result, LeiriaShopping reduced its electricity consumption by 29% between 2011 and 2013, which corresponded to financial savings of €139,000.

Bright project illustrates what can be achieved by pairing our relentless focus on energy efficiency with a commitment to innovation. What started as a process of fine tuning an internal benchmarking tool has ended up unveiling a huge potential to improve energy efficiency and reduce costs across our portfolio. Bright Project makes it possible to not only track the energy performance of our shopping centres, but also define yearly performance targets and support investment decisions at the corporate level. Furthermore, there are opportunities to commercialise the project and we are able to offer the tool as a service to third parties.


Conducting audits

We first began carrying out environmental audits on the operational shopping centres in our Portuguese portfolio in 1997. Since then, we have extended the scope and coverage of audits in line with the roll out of site-level Environmental Management Systems.

From 2009 we established a standard practice for external energy consumption audits to be carried out on all operational assets every six years (compared with every five years before 2009) in order to ensure that we continue to identify all available opportunities to increase our assets’ energy efficiency.

On new projects and major expansions and refurbishments, both internal and external assessments are undertaken to establish the extent of compliance with our Safety, Health and Environment Development Standards and any applicable international certification schemes such as LEED®, BREEAM and DGNB.

Implementing action plans

This strategy enabled us identify and implement environmental management improvements on an ongoing basis. No or low-cost measures identified were integrated into management action plans, whilst measures requiring investment capital were put forward for consideration by asset owners within annual asset-level business plans.

Through this approach, we were able to, among other things:

  • Roll out effective sub-metering technology
  • Upgrade plant and other energy consuming equipment
  • Roll out the use of LED and other energy efficient lighting
  • Improve management practices to optimise the use of lighting and HVAC
  • Engage with tenants to encourage them to reduce their energy consumption
  • Procure green energy for the Iberian portfolio

Refining our strategy

Whilst we were very proud of the results achieved, in 2012 we recognised that it was time for us to refresh our sustainability and energy efficiency strategies in order to take into account the changing operating context and to develop a more future-looking orientation.

The global financial crisis and subsequent economic downturn had impacted upon our business, in particular in our core markets of Portugal and Spain where government austerity measures and stalled investor interest resulted in a drop in tenant sales and a decline in the Net Asset Values of some shopping centres between 2010 and 2013. These events put greater pressure on our business to contain costs and to ensure that our sustainability focus was delivering tangible value for the business, whilst they also emphasised how our shopping centres depend upon the continuous prosperity of the communities in which they operate.

At the same time, we saw a number of significant trends emerge, among them:

  • The increased likelihood that natural resources will become scarcer and costlier, particularly as rapidly developing economies consumer greater resources and the impacts of global climate change begin to be felt;
  • Technological and demographic changes, which are driving significant evolution within the retail sector as well as within the workplace; and
  • Changing consumer preferences, including the growing interest in ‘healthy’, ‘ethical’ and ‘green’ retail concepts.

Creating shared value


Turning global challenges into opportunities – our creating shared value approach

In this context, we developed a revised sustainability strategy based around the concept of ‘creating shared value’ (CSV), focusing on five areas where we can turn these global challenges into opportunities to create value for both our business and society or the environment, namely: Resource Resilience; Prosperous Retailers; Leveraging Knowledge; Sustainable Lifestyles and Safe People and Eco-Efficiency.

With respect to energy, we recognised that whilst improvements in energy management had enabled us to reduce our environmental impact and avoid costs, research into solutions for effective resource resilience was vital to protect our assets against higher costs and penalties associated with natural resource consumption and environmental pollution, as well as the risk of energy shortages. We sought to turn the challenge of energy management into an opportunity – an opportunity for our shopping centres to exploit the latest technologies in order to operate as efficiently as possible, become energy independent or even net producers of energy.

The revised strategy was accompanied by a change in our governance structures. We created a Sustainability Steering Committee (SSC) which is responsible for overseeing the delivery of work under our long-term opportunities and risk management. The SSC reports directly to the Executive Committee and is chaired by our CEO. Senior-level employees have been appointed to champion each of our long-term sustainability priorities, including Resource Resilience, and they are required to report to the SSC three times per year on progress made. Our Sustainability Office supports the SSC around the definition and implementation of the sustainability strategy and Safety, Health and Environment (SHE) Management, which encompasses our climate change strategy and eco-efficiency, among other aspects.


From reduction to mitigation and resilience


Improvements in the energy efficiency of our owned portfolio since 2011

Under the umbrella of Safe People and Eco-Efficiency we have set the following long-term climate change and energy efficiency objectives:

  • Achieve an 85% reduction in GHG emissions per m2 of GLA, by 2020, compared to the 2005 level (GHG protocol scopes 1 and 2, plus business air travel).
  • Strive to increase the energy efficiency of our operations, aiming to attain a maximum average electricity consumption of 400 kWh/m2 (mall and toilet area) per year across sierra owned shopping centres, by 2020.
  • Implement climate change adaption measures identified in our 2013 climate change study, by 2020.

We have also reviewed the climate change strategy developed in 2006 and, following a study conducted in 2013 to explore the business case for climate change adaptation, we decided to pursue the implementation of a number of soft adaptation measures. These include, for example, integrating climate change risk adaptation procedures into our current risk management processes and updating our acquisition checklist to ensure key risks related to weather related events are evaluated. Consequently, our climate change strategy is now two-fold: on the one hand we continue to study, develop and implement new ways of improving the energy efficiency and to minimise the carbon emissions generated by our shopping centres; on the other we aim to address specific climate change adaptation priorities for each business activity.

In parallel to our approach to energy efficiency, our new CSV focus area ‘Resource Resilience’ aims to challenge the conventional energy management model by seeking ways to make our assets energy independent. This has involved research into potential concepts such as waste-to-energy and performing technical and cost analyses for different types of renewable energy. Due to regulatory, technical and cost barriers, our progress has been limited, although we will continue to pursue this approach as part of our long-term strategy.


Measurement and Verification

Bright Project – a fresh approach to energy efficiency

Traditionally, energy consumption across Sonae Sierra’s shopping centres has varied greatly, with only some of this variation being attributable to local factors such as climate, size and opening hours. We have found that a major problem in achieving continuous improvements in energy efficiency is the difficulty associated with predicting how people use technology. How people interact with equipment such as HVAC systems, for example, can have a profound effect on energy consumption. It is therefore important to be able to differentiate between inefficiencies that are due to technical reasons and those that are behavioural in nature.

Finding a model that could account for both these factors proved extremely difficult. Quite simply, it did not exist. A further challenge was overcoming scepticism amongst local shopping centre teams – their buy-in to the project would be critical for its success, but theoretical benchmarking was not widely understood. It was through an experimental process to tackle these challenges that we created Bright Project.

Bright Project uses a theoretical model to produce optimal energy consumption figures for each of our assets. Whilst traditional benchmarking tools struggle to account for local or regional-specific factors, Bright Project allows us to monitor the energy consumption of our shopping centres against a virtual simulation, identifying technical improvements and enhancing management practices.

Bright Project’s complex model was developed by a dedicated internal team which adapted a commercially available solution to create the ‘virtual standard shopping centre’ (VSSC) tool. The tool allows Sonae Sierra to accurately predict the optimal energy consumption of every shopping centre in its portfolio.