ESG and logistics: the times they are a changin’
When most people think of industrial logistics buildings, factors like energy efficiency, technology and carbon innovation don’t usually spring to mind.
However, the reality of what is happening in logistics warrants closer attention. Proper analysis suggests that parts of the sector are taking environmental, social and governance (ESG) issues seriously.
At the end of the 2018, we surveyed over 100 owners and occupiers of logistics facilities across Europe. We wanted to better understand a range of issues affecting the sector. The results painted a nuanced picture of how the market is taking account of ESG issues.
There are four ESG forces affecting global real estate investments, which we believe are useful lenses through which to view the survey results.
- The changing environment and climate
- Increasing governance, engagement and calls for transparency around investments
- Changing demographics
- Rapidly increasing technology, connectivity and infrastructure
Here we examine the three forces most pertinent to the logistics sector.
Changing environment and climate
Around 71% of respondents say they are introducing ESG initiatives to offset any negative environmental impact from their activities. These include LED lighting (29.1%); alternative energy, such as solar panels (22.3%); and the use of electric vehicles (6.8%).
Around 71% of respondents say they are introducing ESG initiatives to offset any negative environmental impact from their activities.
We’ve seen this trend in our own recent logistics acquisitions. The assets we have purchased are designed to be highly energy efficient. Some of them have achieved environmental excellence in building design and also produce their own low-carbon energy through solar systems.
Managing operational costs, including energy bills, is a key way to maintain competiveness. Therefore, the ability to guarantee low-cost, locally generated energy is one way to do that. At the same time, building in extra capacity and infrastructure to take account of evolving technology, such as electric charging and autonomous vehicles, helps to future-proof a building’s ability to adapt in the years to come.
Changing consumption patterns are deemed by logistics operators to be the second biggest risk they face. Meanwhile, location is going to become even more important, according to 54% of respondents. There is a clear trend towards locating closer to the end consumer, which will create competition for sites and land in fringe urban locations. This will, in turn, lead to debate over environmental impact versus job creation and service provision.
Changing technology and infrastructure
The impact of technology on the sector is potentially one of the most important and sensitive findings of the research. Barely 10% of those surveyed are currently investing in robotics, but 56% plan to do so in the future. Over 60% are preparing for the impact of autonomous trucks on the design and location of logistics facilities. The survey also suggests that while 25% have invested in warehouse automation, a further 43% intend to invest in the future.
Technological developments will undoubtedly have an impact on the approximately 11 million people working in Europe’s logistics and transportation sector. Many of this workforce hold lower-skilled, lower-cost, highly manual roles, such as picking, sorting and moving goods. The size of this labour force looks set to shrink – 47% of respondents said that warehouse automation will affect the number of people required to operate facilities.
Nevertheless, people remain critical to the success of the logistics sector. Around 48% of respondents said labour was the cost to which they are most sensitive, and 60% of companies are undertaking initiatives to improve working conditions.
Where we expect to see most change is in the nature of the work. As facilities become more sophisticated, there will be greater need for highly skilled workers able to service and maintain increasingly specialist equipment.
The advent of more skilled, better paid jobs in the sector is something to welcome. But it could come at the expense of individuals in lower-skilled roles as their work becomes automated. This poses a challenge that logistics operators, if not governments, need to grasp now. They should be considering how their workforces can adapt as technology becomes more sophisticated.
As our research highlights, the winds of change are clearly blowing through logistics. But encouragingly, the sector is adapting. ESG considerations are no longer viewed as an ‘add on’ or something that is ‘nice to have’. They are instead featuring in the fundamental business decision-making of logistics owners and occupiers. For advocates of ESG, this is positive.
With greater integration of ESG considerations into investment decision-making, it makes for interesting times ahead.
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