Featuring Sameer Chopra, Su-Fern Tan, Robert Ewing & Mark Boulter
Thursday 17 February 2022
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Welcome to ‘Talking Property with CBRE’, a podcast where industry-leading experts share insights into the way we live, work and invest through the lens of commercial real estate.
Hello, my name is Sameer Chopra – I’m CBRE’s Head of Research and ESG in the pacific, and I am pleased to be co-hosting this episode with Su-Fern Tan, CBRE’s National Director of ESG. In this episode, we explore the latest trends, innovations and requirements in ESG for the industrial and logistics real estate sector.
To help us unpack this topic, we were joined by ESR’s Head of Asset Management, Robert Ewing. ESR manages industrial and business park real estate through its leading logistics platform. We are also joined by Mark Boulter principal of Safe Sustainable Seafood, a consultancy that provides input on topics such as supply chain management, traceability and responsible sourcing policies. Mark provides seafood technical support in these areas for Bidfood Australia.
We hope you enjoy the conversation as much as we did.
Let's start by talking about your customers. Robert, what are ESR's 2025 ESG goals?
RE:
Firstly, ESR is a relatively new business. So, much of what we're trying to do is set ourselves up for success, so we can get back consistency across the group. We've set out a roadmap that places ESG at the heart of ESR. So, we're looking at enhanced building designs, sustainable practices, responsible investing.
SC:
What’s the value of taking a leadership position? Is this something you do that's a must-have to win and retain your customers? Is there a revenue case around ESG or do you see it just being good from an operating cost perspective?
RE:
I think the answer is the same, which way you look at it. What we want to do is talk with our customers, understand what they want, implement that into our building design. We want to be more efficient, we want to have sustainable buildings. Sustainability, efficiency drives lower operating costs, and then in itself, it focuses on the customer. We're either attracting customers to our product or retaining them with our buildings.
SC:
Mark, I may pull you into this as well. Can you paint a picture of your customers, the sorts of products that Bidfood is involved in, the supply chain and how many depots does Bidfood have?
MB:
Bidfood has 40,000 foodservice customers in Australia and New Zealand. So, it's essentially every aspect of the foodservice industry from your white table cloth hotels, to your little cafes, to your age care facilities, cruise ships, prisons, you name it, the whole gamut of everything that falls under food service. So under that, Bidfood is selling about 87,000 different products. So, every product you can think of that the foodservice industry needs, both in terms of the food items, but also the non-food items. In Australia, there are about 50 depots, in New Zealand, there are 30. So, there's a fair number of depots serviced with about 2,000 staff in Australia, 2,000 staff in New Zealand, so it's quite a sizable operation. It's one of the biggest, if not the biggest foodservice operation here in Australia.
ST:
Robert, is it possible to get a sense of whether it's more economical to install rooftop solar versus buying renewables directly from the grid?
RE:
There are a lot of variations and variables to answer that. I think clearly any existing building with solar already on the roof will produce electricity at a cheaper cost than buying from the grid. Buying renewables from the grid equally is fantastic. So the real, I think, strategy for us and what we're trying to target is how do we get solar on the roofs to kind of access that piece? And, much of our kind of discussions and planning and looking at when we're talking with our customers is to unlock that. So, from a feasibility point of view, the payback on the solar was around about four years, and it is reducing and new products are coming out. If you look in Australia, the average lease term is around that five-year mark. So, it's a difficult piece to kind of fit the puzzle together.
RE:
Where we've been targeting, and especially had a lot of success is speaking with our customers and kind of moving... Usually, a landlord would place some type of rental incentive to encourage leasing of a product or retaining a customer within the building. We're diverting that from a kind of cash incentive to a capital incentive and then implementing and placing solar on the roofs. That's been very successful. There are a number of great examples in our portfolio today. With the newer developments, it's a little bit easier. You can put them at the construction pace, at the time of construction, but the existing portfolio is where we're really targeting.
ST:
Mark, what are some of the initiatives that Bidfood uses to reduce energy consumption? Is it rooftop solar, purchasing renewable energy, or more emerging efficient refrigeration?
MB:
The two big areas for Bidfood is improved refrigeration efficiency for definite. There's a big move now across towards the more ammonia-based refrigeration plants, but also following up on Robert's comments, rooftop solar as well. Out of the 50 depots here in Australia, I think six have had rooftop solar installed in the last 18 months. In the last 18 months with a combination of the new rooftop solar and improved refrigeration plants, rooftop solar has gone up by a million kilowatts a year and overall power has come down by 10 million kilowatts a year, so a lot of that is to do with the ammonia refrigeration plants. So, that's the 17% reduction in greenhouse gas emissions from electricity over that couple year period with those two initiatives.
SC:
Mark, and who measures the energy consumption on a site? Is that something Bidfood does, or does a landlord help you out with that as well?
MB:
It depends, some of the Bidfood depots are owned, and some of them are leased. So, it depends on which depots we're talking about. It's a bit of a mix there.
SC:
And, are there any sort of handy benchmarks that you recommend around energy intensity cold storage versus dry good storage?
MB:
Really, the benchmarks that Bidfood is looking at is measuring its fuel, measuring its electricity, measuring its refrigeration use, measuring its wastage. They're the four big-ticket items that Bidfood measures and sort of reports against. Fuel is obviously an important one because it's 1,200 vehicles running around Australia delivering all this product to the foodservice industry, and as we've just talked about, electricity is important because all of these depots are freezer stores and chiller stores, as well as storing ambient goods.
SC:
What would you ask of your partners, like in real estate, the industrial landlords in terms of how they can help you manage your ESG goals?
MB:
The main aspect for Bidfood is to have the right size depot in the right location. So, it's about having mid-sized depots in all the strategic locations that Bidfood needs rather than relying on a centralized one depot per state sort of model. So, it's about having depots of the right size that can do freezer, chiller, ambient in the right locations, and that's what's going to work for Bidfood in terms of being able to get the product to customers quickly, but also have those sort of efficiencies, so that's sort of what works.
SC:
So, Bidfood is basically moving its locations much closer to the customer.
MB:
Oh, absolutely. Obviously, in the big cities like Sydney and Melbourne, you have big depots, but other than that, it's about location, location, location, and getting smaller midsize depots out there and more spread out around the country, and those smaller depots can then service customers better, you've got shorter truck times for your van deliveries and having those depots as energy-efficient as possible.
SC:
Something that's quite topical is EV strategy, so does this change your EV strategy?
MB:
That's a very good question. A bit like the rest of Australia, Bidfood has probably been a bit slow here in Australia on EVs. If you look at Bidfood in the UK, Bidfood Europe, Bidfood China, they've been into EVs for quite a while, but Bidfood Australia is just starting to roll out EVs here in Australia and also looking at options around hybrids.
SC:
I'll just shift gears and move to ESG data. Robert, what role does technology play in ESG data caption analysis?
RE:
Definitely data's key. Without having the data, it's very hard to set targets and manage that emission control or detail. So, a lot of our investment in technology is cloud-based technology, trying to get data from the buildings. We're at a stage where most of the operational control of the building is actually with the customer. As Mark indicated, they're running those facilities. So, for the landlord to try and understand what's occurring within those buildings is key for us, and that is the data. So we look at data loggers, automate the process, remove that kind of obligation to supply the landlord with information to try and make an informed decision. That data has three essential goals, one is the report, and understanding what it is. Two, and probably more where we are focused, is being on a proactive manager, trying to kind of pre-predict how the maintenance, how do we look after those buildings. And, then the third is to work with the customers, understanding what the emissions are and where those problems may lie and how we can kind of facilitate.
SC:
Any interesting tools and techniques that you're experimenting with?
RE:
Nothing that's not widely available. Simplicity is probably the key. The big thing is about efficiency. How can we implement something that works for all?
SC:
And for the industrial portfolio, do you work with NABERS, GRESB, which of the rating agencies and all?
RE:
Well, we work with both. Obviously, NABERS is really the office-related side of the business. We're not there yet in industrial or logistics. However, the market commentary is indicating that it is coming. So, part of what we're trying to do is kind of be ahead of the curve, get that data, understand those buildings before retrospectively going back and trying meet a regulatory piece. GRESB, we've been a participant in that for a number of years. We think it's a good global benchmarking system to understand how a business is managing its assets and much of what we try to put in place other than speaking to customers is, what is the outcome from that benchmarking results? Where do we need to improve? What do we need to focus on?
SC:
And, we spoke about this when the two of us caught up, but what are some of the issues in retrofitting older assets to become more ESG friendly? And separately, I guess, how do you incorporate ESG into the development pipeline?
RE:
Definitely, the existing buildings are the challenge. They were built at a different time and for a different, I guess purpose. The whole future-proofing piece is probably more of a current item as opposed to those buildings that were built 10, 20 years ago. So, much of the issue, solar panels on roofs is an additional weight that the structure of the building they never have been designed for. So, it doesn't limit the ability to put solar without putting...you can put the structure and increase the structure. The electric side, it's the infrastructure around the right cabling, the right distribution boards, natural light, that wellness piece that really we didn't care for much in the past in the industrial asset class, now takes front of stage. We want to build healthy, sustainable buildings, and that's the easy piece. Now, in terms of putting it into our developments and creating it from the start, we're more well-attuned as to how to future-proof that building.
SC:
Mark, just any specific technologies and platforms that you found useful for monitoring energy and also just communicating it with your customers.
MB:
I think from the first perspective, we're a bit ambivalent on what technologies are used so long as something's there to capture the relevant data. It's more about understanding the KPIs and actually making sure that the correct data for those KPIs is being caught and then can be assessed by management and determinations made as to whether those KPIs are being met and whether for future years, they should be pushed a bit harder and a bit more, so a bit sort of technology ambivalent when it comes to data collection, just as long as it can be collected.
SC:
I might shift gears and move on to packaging and waste. Robert, waste can be an issue, particularly during reverse logistics. Any examples that you can share on work that you're doing with occupiers to manage this type of waste?
RE:
And definitely, again, operational control sits with the customer, so where can we facilitate or assist in that? Unfortunately, waste is a byproduct of the process, but you can be creative with what it is. We own the perimeter warehousing at the Fresh Food Market in Melbourne, for example. There's a mass amount of organic waste that comes out of that. How do you use it rather than diverting it to landfill? It's engaging with the likes of local farms, zoos that can actually use that product for a better outcome.
RE:
Amazon's always quoted about reverse logistics and the problem they're facing. They'll have their large fulfilment center and next door and equally large returns facility. So, it's getting creative in that space. We've got a customer in Australia that's in apparel, in clothing and they've got a lot of returns and then that reverse logistics does place pressure on their business, but it's seeing them get creative as well, inventing ways to care to get a circular economy, creating a platform for instead of returning those garments back the facility, it may be returning it to another person in the public that also wants to acquire those goods, so thinking smarter.
SC:
Great. Mark, and how do you monitor waste generation at the depots?
MB:
The biggest waste issues in Bidfood's depots are cardboard, shrink wrap, and wood where you get broken pallets, but the biggest challenge around waste in terms of what we've been doing at Bidfood is not the waste that we generate, but the products that we sell that are going to be somebody else's waste. So, in the last couple of years, there's been a big push to move away from things like plastic cutlery, the old-fashioned style throwaway coffee cups. So, a lot of the innovation has been in Bidfood's products that are going to be somebody else's waste further down the supply chain. Coming up with bamboo cutlery, getting rid of plastic straws, getting rid of the old-fashioned sort of foam coffee cups, so that you get into single-use products that are biodegradable. And so, that's been a big push and a big change in products, which is not Bidfood's waste, but the next guy down the chain's waste.
SC:
Mark, are these sorts of initiatives something where you can engage with the landlords, can they help you out?
MB:
The bigger engagement has probably been with social groups, with some of the community groups. So, engagement's more been done that way rather than with landlords. With landlords, it's more about efficient removal of waste in terms of keeping the cardboard that could go down one particular waste stream aisle, separate from other things that can't be reused. So, it's about having the right sort of waste distribution networks in your depots.
SC:
And, I'm going to shift gears and modern slavery has been very topical in Australia. Mark, so how do you identify risks around modern slavery in your supply chain?
MB:
Very interesting topic, especially with legislation here in Australia now. Bidfood has 3,000 suppliers from all around the globe, so this is a topic we have to be very mindful of. Bidfood has a modern slavery policy and has sort of declarations that all suppliers have to sign and adhere to. So, that's sort of step one. Step two is Bidfood has signed up to an organization called Sedex that does these sort of supply chain audits on modern slavery. So, they audit high risk factories. I did quite a lot of work in the home brand side of the seafood side of Bidfood, and we have our own internal risk assessment tools that we use, and if they flag certain products or certain categories as ones that are going to be high risk, then we delve deeper into those supply chains and ask more questions of those particular high-risk suppliers. What are they doing to make sure that there are not problems in their factories or in the boats that supply their factories?
SC:
Great. And so, most of the partnerships are with companies like Sedex?
MB:
On the modern slavery side. The other partnerships tend to be more around sustainability and environmental management. So, we have partnerships with the likes of GAA, which is a global aquaculture initiative, MSC, which is the Marine Stewardship Council, ASC, which is the Aquaculture Stewardship Council. We've also been sitting on a committee of the Sustainable Fisheries Partnership, which is another NGO-led organization. We're on their squid working group looking at issues to do with modern slavery and the sustainability of squid in the Pacific. So, you need to partner with these various NGO organizations, some of whom offer certification schemes, so you can have certified product, so that you can sort of know that you're doing the right thing, and tick the box and be able to sort of, in some instances, even sort of brand your product with certified sustainable products.
ST:
ESR has a target of at least a 40% female workforce. How are you tracking towards that?
RE:
We're well advanced down the diversity path and getting that gender balance. Across the group level, we're sitting at 38% female workforce. So, the 2025 targets will be done. Targets are great for kind of keeping us accountable, and definitely moving past those. The importance for us is gender diversity. It sits as one of our core goals and using that diversity in terms of how it kind of benefits the business. Unfortunately, the industrial asset class for many years has been a male-dominated space, unlike the retail and office, and it's actually great to start seeing that gender balance and it's showing in how we manage and work with our customers by having that kind of, I guess, enhanced, I guess, communication through our business and onto our customers.
ST:
Also, the new distribution centres in Japan feature onsite childcare and canteens. What are some of the onsite features, which we might expect in Australia over the next few years?
RE:
Very innovative designs, and especially with our Japanese business, and again, that goes straight to the core of what the customer wants. Group for us is definitely challenging all countries to come up with various initiatives to meet their local, social and cultural needs. For us, it's all about designing our new estates, putting a lot of effort into those and around about health and wellbeing. Our customers have been speaking to us about creating 30 minute, I guess, health breaks. So, what do we do in that space? Using our biodiversity areas to kind of create those water-themed parks, walking tracks, running tracks, amenities such as basketball courts, just for that kind of relief, it's in our food offerings for the onsite cafes and cafeterias, making sure that they service what the customer wants. And again, goes back to that piece of a better, more efficient operation. It attracts customers, it retains customers.
ST:
What are some of the strategies that the company is using to focus on employee diversity, both gender and on Indigenous Australians?
MB:
In a gender context, about a third of the staff here in Australia are female, right from the CEO, Rachel Ruggiero, down to people who are driving forklifts, a lot of admin staff, a lot of office staff who are in procurement side of things, some people in sales. So, I think they're already doing quite well in that space. There's already a lot going on there, and that's been driven from the top. In an Indigenous sense, Bidfood has partnered with Reconciliation Australia, and through that partnership is looking at ways to be able to better understand how to be able to incorporate more Aboriginal and Torres Strait Islander peoples into the Bidfood workforce. So, that's still a work in progress, but there's a partnership there on which to build. So, we look forward to that sort of giving us some positive benefits in the future.
SC:
What a great look at the industrial and logistics real estate sector. I hope you enjoyed the episode.
Thank you for listening to talking property with CBRE if you like the show and want to check out more, visit cbre.com.au/talking-property or subscribe through Spotify and Apple Podcasts. If you would like to find about more about the work CBRE is doing in ESG, please visit cbre.com.au/about/ESG.
Until next time.
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