National homebuilders: Laggards on global warming
It probably won’t surprise anyone who loves walkable communities, but a new report shows that America’s biggest homebuilding firms score pathetically low on sustainable land use practices.
Calvert Asset Management Company, an investment fund based in Bethesda, Maryland, examined how the 10 largest publicly-held homebuilding firms in the US are doing on sustainability. The verdict: Most of them fare poorly.
Of the ten largest such firms, KB Home, based in Los Angeles, has taken the greatest steps toward environmental sustainability. Pulte Homes, based in Bloomfield, Michigan, is second-best. Meritage Homes of Scottsdale, Arizona; Toll Brothers of Horsham, Pennsylvania; and Standard Pacific of Irvine, California, rank lower on “green” performance, but have improved somewhat in the past two years.
As for the rest of the top ten (Lennar of Miami; DR Horton of Fort Worth; NVR of Reston, Virginia; Ryland Group of Calabasas, California; and MDC Holdings of Denver), don't expect much. Despite a global drumbeat about the dangers posed by greenhouse gases and other environmental provocations, DR Horton and Ryland Group actually lost ground on the sustainability front from 2008 to 2010.
“Homebuilders have a long way to go with regard to climate change,” says the Calvert report, titled “A Green Recovery for America’s Homebuilders? A Survey of Sustainable Practices by the Homebuilding Industry” (available here).
Builders have improved since Calvert produced its first report on homebuilders and sustainability in 2008, but not by much. The top score possible on its survey, which looked at land use, building materials, energy, water conservation, and climate change, was 42 “green data points.” The average score the big builders achieved amounted to just over six points — or 15 percent of what was possible. If KB Home and Pulte had not been in the study, the average score would have been less than 6 percent of the potential points.
Stu Dalheim, director of shareholder advocacy for Calvert, issued a stern statement about the disappointing results:
With the increasing importance of issues such as energy supply, climate change, and smart growth, investors will need far greater disclosure from homebuilders in order to understand their capacity to address these major drivers. As with our previous survey, we found that the homebuilding industry still does not provide the information investors and consumers need.
We believe that if these companies wish to continue as market leaders in new residential construction, they must not only embrace green building as a core business strategy, but also make information about their sustainability practices publicly available so that stakeholders can better understand, assess, and appreciate the efforts being undertaken.
What the builders focus on
Of the five areas covered in the survey, builders were found to pay the most attention to energy efficiency and conservation. “Every homebuilder reviewed for this analysis had some level of policy or program focused on curbing residential energy use,” Calvert said. “Our analysis shows that KB Home, Meritage Homes, and NVR (through its subsidiaries) have national commitments to build all new homes to EnergyStar standards.”
“The 10 companies pay more attention to sustainability issues that can offer nearer-term financial benefits to operating costs and customers, such as building material recycling and energy and water efficiency measures,” the report continued. “Issues with longer-term benefits, such as climate change, are not well addressed by this industry.”
Some builders are embracing the US Environmental Protection Agency’s WaterSense program, which enables new houses to save an average of 10,000 gallons of water a year, reducing annual utility costs by at least $100.
“The best companies will use water-efficient fixtures and systems as well as water-conscious landscaping, designed to WaterSense or Leadership in Energy and Environmental Design (LEED) standards,” the report noted. “They will also offer the option of water collection and wastewater recycling for some customers.”
Within the building materials category, there are many ways to go beyond the practices of the past. These include waste reduction (through pre-constructed panels and pre-engineered roof trusses) and use of low-VOC paint and low-VOC carpets. KB Home does the best job of choosing building materials responsibly, according to the report.
What the builders ignore
“Climate change is considered to be the most critical environmental challenge of our time,” the report states. EPA has forecast that the global mean temperature will increase by 3 to 7 degrees Fahrenheit during this century.
That is something that homebuilders should care about. An altered, less predictable climate could make the supply of raw materials for building and land development uncertain. Yet the largest builders in the nation are, for the most part, not communicating with the public about this issue, let alone doing all that’s possible to limit climate change.
The authors of Calvert’s report, sustainability analysts Rebecca Schlesinger Henson and Jennifer Green, examined the 10 builders’ websites and policy documents. They found that “seven of the 10 homebuilders did not report any significant information on its climate impact or the risks or opportunities that climate change may pose to the company.”
Pulte Homes and KB Home, unlike the other builders, have responded to the Carbon Disclosure Project — an independent not-for-profit organization (link here) that has assembled the world’s largest database of corporate climate change information. Pulte and KB Home “are the only companies that currently report their levels of greenhouse gas emissions,” Calvert said, noting that both companies are in “early stages of capturing and disclosing this information.”
Blind to land-use consequences
In a phone interview with New Urban Network, Henson and Green talked about one of the weakest areas of the builders’ performance: land use. Builders are well aware that houses consume a lot of energy, especially if they’re not constructed to high standards. According to the Calvert report, “Homes account for about 21 percent of US energy-related carbon dioxide (CO2) emissions.”
But while builders are doing an increasingly good job of reducing energy waste in houses, they largely ignore the impact of the locations, density, and street networks of those dwellings. The national builders frequently build in collector-and-cul-de-sac pods, which make it hard for residents to walk to services and which lengthen each car trip.
The big companies often build at densities too low to support efficient bus or other mass transit — this despite the fact that the transportation sector is America’s second-largest generator of greenhouse gases (behind electrical generating plants). In addition, the builders often choose to develop in locations that are not close to jobs and regional centers.
Standard Pacific, KB Home, Toll Brothers, and Pulte Homes currently have commitments aimed at increasing infill development,” the report notes. But the moves in that direction by the industry as a whole have been inadequate. “Overall, major homebuilders are not taking progressive steps with regard to land use,” the report declares. And the relevant information disclosed by the companies to Calvert and the public “is very limited.”
To figure out how well the companies were doing, Henson and Green analyzed three key areas:
• Policies (formal commitments from the management team to explicit goals).
• Programs (integrated methods for implementing policy commitments).
• Performance (reported data on the companies’ progress toward stated goals).
By the standards of the homebuilding industry, the KB Home website is extraordinarily comprehensive. Posted on it is an annual KB Home Sustainability Report (available here), which shows what is being done to carry out the company’s “My Home. My Earth” environmental initiative. The latest report, covering 2009, runs 38 pages, packed with data on KB Home’s policies and programs and their progress year by year. If the rest of the industry followed in KB Home’s footsteps, the public would be far better informed about how homebuilding relates to caring for the environment.
Greater disclosure is needed
One of the problems that Henson and Green identify is this:
The homebuilding industry has been slow to join the growing trend of corporate America that discloses environmental, social, and governance (ESG) data through comprehensive sustainability reporting. Recent studies indicate that about four-fifths of the largest companies disclose important ESG information through sustainability reports. … At this point, KB Home is the only large U.S. homebuilder to produce a comprehensive sustainability report.
Discussing the issue with New Urban Network, Henson pointed out that “auto makers will talk about the emissions associated with the vehicles they’re producing.” This move toward candor is present “in almost every industry,” she said. “Homebuilders are sort of slow to talk about environmental or social issues.”
In some industries, the candor emerges because of a public outcry. Nike has had to report on its supply chain and human rights because of concern about workers being exploited overseas. Certainly community concerns about homebuilding and its impact have been expressed in many sections of the US, but they have not yet brought a full and effective response.
One goad to action is the Investor Network on Climate Risk (INCR), which supports more than 90 institutional investors (whose assets total more than $9 trillion) by identifying the financial opportunities and risks in climate change and, INCR says, “by tackling the policy and governance issues that impede investor progress toward more sustainable capital markets.”
INCR (link is here) is coordinated by Ceres, which is described as “a coalition of investors and environmental groups working to advance sustainable prosperity.”
Green says that in the United Kingdom, “homebuilding companies appear to be disclosing more about these issues” than is the case with American companies. “Some of their best practices should be brought over here,” she says.
Without a doubt, the report from Calvert, a company with about $14.7 billion in assets under management, will be a help. Our national homebuilders need to do a better job, for the well-being not only of investors but also of the public and of the environment on which we all depend.