Published: February 26, 2024
Updated: March 18, 2024
In this exclusive Q&A session, BDO Canada’s Chantal Cousineau, Partner and Real Estate and Construction Practice Leader, is joined by Isabelle Melançon, CEO of the Urban Development Institute of Quebec (UDI) to gain insights into the real estate industry’s ESG journey, and how UDI is supporting this remarkable progress.
The UDI is the largest commercial real estate representative in Quebec. Appointed almost a year ago, Melançon is seeking to actively contribute to shaping the industry’s new approach to ESG by bringing together, empowering, and fostering dialogue with all stakeholders.
Isabelle Melançon (IM): The main reason was to help our members navigate through the massive amount of ESG information available. We wanted to assemble an advisory team and gather all available resources to develop an ESG kit, helping our members make the right choices for their own business purposes. For instance, the developer of a 250-unit complex is in a completely different position than someone building triplexes. They will integrate ESG considerations differently, just as they will finance their projects differently.
We are aware that our members already have their hands full. That’s why we want to support those who have not yet incorporated ESG principles into their business and are willing to do so. We’ll help them evolve their thinking and take the right tack.
So far, we’ve set up the unit. Members have met once and are in the process of defining its roles and responsibilities. While we have not yet achieved our goal, there’s a will to succeed. We see that it’s a real concern for our members and a prerequisite for the sustainable advancement of our industry.
Want to know more about Women Driving Growth?
CC: How are developers addressing ESG considerations?
IM: Currently, it varies significantly from one developer to another. Some have a dedicated ESG team. For them, it’s a core value and an intrinsic aspect of how they do things. Others are just now recognizing the competitive advantages of integrating ESG into their operations.
One thing is clear: the industry has undergone a major transformation over the past five years. Back then, no one suspected that ESG considerations would become a fundamental aspect of real estate developers’ decision-making process.
Today, I’d say that 90% of industry players I meet acknowledge that ESG issues are relevant to them in one way or another. This is fantastic news. Everyone is now compelled to address the issue, and that propels our industry in the right direction.
CC: Business owners in the real estate industry face ESG challenges and obstacles that are manifold and complex. How is UDI able to support them?
IM: All levels of government have ESG targets, such as improving energy efficiency or achieving net-zero emissions. As a lobbyist, UDI meets with elected officials to discuss these objectives and identify how governments can help developers, landlords, and tenants meet these targets. Without government backing and incentives, the industry will struggle to make progress as quickly as expected. No one is against virtue, everyone wants to succeed, but the practical reality is catching up with us.
We also want to ensure that bills and objectives at all levels of government are somewhat aligned, especially since we also have to contend with international policies. From our perspective, all that matters is that our industry performs as well (or better) than its counterparts, both nationally and internationally, and follows the same standards. Many industry players are not only operating solely in Quebec but in other provinces, as well. Since most tax-advantaged funds are invested in entities from across Canada, Canadian portfolios must be assessed using common criteria.
CC: Class B and C building owners are arguably the ones who need to make the biggest strides given that these buildings are older. At a time when they are incurring losses due to vacancies, how can they invest to meet ESG considerations?
IM: Investments might be substantial, but this is precisely the kind of situation where the potential gains can be greatest. The issue is that the existing programs and incentives don’t necessarily meet the needs of Class B and C building owners. Once again, UDI is speaking out on their behalf, calling on governments to provide guidance and support in the face of these new requirements.
For instance, governments offer financial incentives to make buildings more energy efficient. The problem is that the landlord must make an investment, yet it’s often the tenant who pays the hydro bill and reaps the financial benefits. So, from a strictly economic standpoint, it’s not worthwhile for a building owner to invest in energy efficiency. That’s why some programs need to be overhauled to yield some return on investment, or, at the very least, drive landlords to take action.
CC: Tenants also increasingly need to prove their commitment to ESG, with regard to financing, compliance, personnel, and so on. What are the dynamics between building owners and their tenants?
IM: We have a collective duty to embark on an ESG journey. All industry players must equally shoulder their share of the responsibility. It requires making radical changes in the way we build and manage our buildings and forging closer relationships between owners and tenants.
Of course, not all landlords are in the same position, but sharing responsibility is definitely key.
CC: How do you see the industry’s next steps in this ESG path?
IM: While we’re faced with a climate crisis, we still need to successfully navigate through all the stages of this process. We should avoid unnecessary red tape, or rushing into things too quickly and slip up. Results are achieved by making improvements at every level.
I also believe that governments need to reward those who excel, rather than punish the underachievers. We need to shift the paradigm. The industry is reeling from the economic conditions, the housing crisis, and commercial real estate woes. Let’s not forget that construction costs are up 30% since 2020. For companies, adopting ESG practices involves making investments that will come at a cost when their other expenses are also on the rise.
We need to get everyone on board. Otherwise, we are bound to fail—but that’s not an option. We owe it to the next generation. I am still an optimist, which is why I have brought together leading figures in our new ESG unit, and why I want to rally all stakeholders to the mission.
At UDI, we wish to take an active part in transforming our industry by supporting our members every step of the way.
Start your ESG journey with tailored support
BDO offers a range of ESG solutions to help real estate companies develop, analyze, and implement sustainability programs that comply with ESG best practices. Contact us now to discuss your organization’s needs.