TDD must look beyond today to ensure buildings will last

Sustainable development is not new. It was defined in 1987 by the UN Brundtland Commission as 'meet[ing] the needs of the present without compromising the ability of future generations to meet their own needs'.

Both this and the overlapping environmental, social and corporate governance (ESG) agenda, which has emerged more recently, have inevitably affected building surveyors' scope of work.

This means that – for investors as well as building surveyors – sustainability is no longer a noble extra; it is an integral part of risk and asset management. This is why ESG considerations must now be embedded into technical due diligence (TDD) reports, rather than tacked on.

A TDD inspection should also investigate the potential legacy of a building, not just determine its capital expenditure for the next ten years. What if the property is still standing in 100 years' time? If not, why not?

No one wants to own a building that turns out to be structurally unsound, environmentally harmful or out of sync with modern expectations on accessibility and community amenity – and discover on top of this that it costs five times more than anticipated to put right.

During Cromwell Property Group's acquisition of the asset in the 2000s, the company considered whether the tenant–customer, the Department of Social Services, would stay there for the long term. If not, could the building be repurposed? A college, hotel or aged-care facility – what might its next incarnation be?

As part of its own due diligence, Cromwell asked consultants to run simulations to determine the most energy-efficient window sizes, types and locations, as well as room depths allowing the greatest natural light. The goal was not just to have the best building for the time, but to ensure it would remain the best building ten years later.

Eventually, the government tenant did plan to leave and, following an expression of interest in 2013, Cromwell and its new construction partner were chosen to develop a separate office building for the department on the same site.

By 2015, more than 2,000 staff were relocated to their new offices at Soward Way, Greenway, mere metres from the old workplace. The office buildings they left vacant could easily have become stranded assets, but Cromwell's managers had already laid the groundwork to safeguard the investment.

In an industry first, the firm converted the vacant office buildings into a 350-apartment, 500-resident retirement and aged-care community, the seed asset for a new aged-care fund in a joint venture with LDK Healthcare. Cromwell's preparations for this will undoubtedly form part of the TDD of the future.

The materials used in construction, their sustainability and their ability to remain compliant as regulations and performance standards change are now critical considerations.

For example, cross-laminated timber may be touted today as the next big thing, but what about in 50 years? Will it be surpassed by better, more sustainable options, such as steel recycled using 100% renewable energy?

Similarly, replacing old chillers and gas boilers with electric systems is a great idea. However, what happens if the refrigerants themselves become environmentally unacceptable?

Bear in mind that city office buildings designed to last 50 years often last only eight before requiring major refits – not just superficial changes but complete overhauls of their air conditioning systems, for instance. We therefore need to consider the long-term viability of our investments, balancing the risks and upsides.

Representative concentration pathways (RCPs) – scenarios that describe different trajectories for greenhouse gas (GHG) concentrations – play a crucial role in such assessments by providing a framework for evaluating potential climate impacts.

RCPs offer a way to model potential changes in temperature, precipitation, sea-level rise and extreme weather events under different GHG scenarios. For example, RCP 8.5 is considered a high-emissions pathway, sometimes referred to as business as usual, while RCP 4.5 represents humanity taking moderate action to mitigate GHG emissions.

These considerations will become especially relevant to those buying property in coastal locations – which represents nearly all of Australia's building stock – since this will be exposed to increased temperature and humidity, which can accelerate the corrosion of steel. You thought I was going to say rising sea-level risk? There are many factors to consider.

The RCPs help in assessing the risks associated with the performance of building components. For example, if the average number of 40°C days per year increases from three to more than ten, will the building's air conditioning keep occupants comfortable on those days, or will they fail?

If there is a building management system, historic performance data can be queried to see whether this worked – which gives the facility managers and consultants far more credibility than relying on the manufacturer's recommended service life to determine a date for replacement.

This offers an opportunity to upgrade to a more energy-efficient option as well as saving money – not just in terms of current operations but protecting the asset well into the future. Put that into your investment product disclosure statement.

Since then, there has been a significant increase in demand from investors for improved climate-related financial disclosures. In 2023, TCFD issued its sixth and final report, before it was disbanded on the basis that it had fulfilled its remit, with its responsibilities since taken up by the International Sustainability Standards Board.

Nevertheless, it is the taskforce's recommendations that provide a foundation to improve the ability of investors and others to assess and price climate-related risk and opportunities appropriately. Product disclosure statements that comply with TCFD recommendations are now considered best practice.

Professionals must inform, not lecture, their clients about these developments, providing clear and practical advice. 

Demonstrating a commitment to the ESG agenda is linked to profit, given that it improves corporate reputation, competitive advantage and access to capital. ESG considerations now shape the legacy of a building, influencing not just its current value but its future adaptability and sustainability.

This holistic approach ensures that we not only build – or buy – for today but also for generations to come, aligning with the enduring principles of sustainability.