Jon Powers (00:02):

Welcome back to Experts Only. I’m your host, Jon Powers. I’m the co-founder of Clean Capital and serve as President Obama’s chief Sustainability Officer. On this podcast, we explore solutions to climate change by talking to industry leaders about the intersection of energy, innovation and finance. You can get more episodes@cleancapital.com.

Jon Powers (00:29):

Welcome back to Experts Only. I’m your host, Jon Powers. Today we are going to dive into the world of ESG and Healthy Buildings with the vice president of ESG and investing for Health at the International Well Building Institute. Kelly Warden Kelly has been a leader in this space, helping understand the connection between public health, our buildings, and then of course the emergence of ESG and how we measure those things both at the portfolio level for investors, but at the building level so folks can demand better buildings to be working in. I really have enjoyed the conversation because of my background in the space on the federal side and the progress that this space is making is really important for all of us. So you can get more episodes@cleancapital.com and I hope you enjoyed the conversation. Kelly, thanks so much for joining me on Experts Filming.

Kelly Worden (01:12):

Yeah, thank you for having me.

Jon Powers (01:13):

Before we get into the work you’re doing today and the effort of the organization that you’re helping to drive, I want to hear a little bit about you and how you decided to get into this space. What was the motivation to get into sustainability?

Kelly Worden (01:28):

Yeah, I had a bit of a roundabout path when I was going to undergrad. I applied as an environmental engineering major. I really liked math and there wasn’t much you could do with math at the time besides teach or engineering, and I wanted to optimize systems for the betterment of the environment and people. I got a bit distracted from that goal. I went to University of Texas at Austin for undergrad and during orientation I thought environmental engineering sat within the civil engineering department. I thought that sounds boring, learning about bridges, I like chemistry, let me switch to chemical engineering. So I did that. But most people studying chemical engineering, particularly at the University of Texas, want to go into oil and gas, which is exactly opposite of what I wanted to do. So I ended up graduating with a Bachelor’s of Science in biology, and the one class that I took that really piqued my interest was on the sociology of health, the sort of predates more robust organization of the public health sector, but it basically was a public health class talking about how societal infrastructure and neighborhood infrastructure really correlates with health outcomes.

(02:44):

Something that I was always really bothered by health disparities and the idea that depending on what part of town you grew up in, what kind of socioeconomic status you were born into that really had a high predictive level of your long-term health outcomes. And so I wanted to do something about that, but I didn’t really know what a lot of people that were in my program, bachelor of Science and Biology, most people want to go to medical school, which is not what I wanted to do. I wanted to focus on keeping people out of the healthcare system. So I was very fortunate. My aunt is an amazingly brilliant cardiologist who has worked for the American Heart Association for a very long time, and she at the time had taken a job with the World Heart Federation in Geneva, Switzerland. I being a type A person who likes to plan ahead, I was pretty anxious about not having a job lined up when I graduated.

(03:42):

But that allowed me for the opportunity to actually just go intern with the World Heart Federation in Geneva. And at the time, they were preparing for a general assembly meeting in 2011, a high level summit on chronic disease, which was only the second time for the UN General Assembly to meet on a health issue. The first time was the hiv aids summit in 2001, which led to a lot of global investment in the fight against hiv aids. So 10 years later, they have this high level meeting on chronic disease, noncommunicable diseases meaning cancer, cardiovascular disease, diabetes, respiratory illness, and the purpose of that meeting was to call attention to the economic threat that chronic disease posed, especially to the global economy. And I was able to help prepare for and then participate in that meeting. And I saw a lot of conversation around the challenges associated with rapid urban development in middle income countries.

(04:45):

So having these cities that were sprawling out, making a lot of the same mistakes that we made in the US around urban design when it comes to overdependence on cars. So there was discussion of how that was bad for the environment, but then also how it was bad for people and for health outcomes because we know that urban sprawl and sort of unhealthy neighborhood conditions increased the risk for chronic disease. And there was this amazing report done by the World Economic Forum, the World Health Organization, and the Harvard School of Public Health. That was the first time that anyone quantified the economic burden of chronic disease globally. It was just astronomical, both from a perspective of treatment costs and then also reduced productivity when you have a chronic illness and you’re not able to work and contribute to the overarching economy. So that experience gave me the encouragement and confidence to pursue a job at this intersection of sustainable urban development and public health.

(05:45):

It wasn’t a path that was very well mapped out. There was academic research that had been going on in the public health community for decades at that time, establishing the association between urban design and health, but there had not been much focus on how do we actually change the way that places are built with health in mind? And so I went to graduate school for public health. I knew I wanted to be the public health voice in the conversation, which is why I decided to go pursue a master’s in public health. And I made the, I don’t know, risky bet, although it wasn’t that risky, but I made the intentional choice to go to graduate school in DC because I suspected that it would give me greater proximity to organizations that I could learn something from when it came to real estate and urban development. And I was very fortunate in my first year of grad school to get connected with Chris Pike who was head of research for US Green Building Council at the time. And I didn’t know much about US Green Building Council, but I knew what the lead certification system was, and I suspected that I could learn something about how to influence decision making within real estate in a way that worked for the private sector. The timing of that meeting was really amazing because Chris had just started,

Jon Powers (07:02):

What year is this approximately?

Kelly Worden (07:03):

So that is in 20 fall. 2012 is when we met, and then I started working with them in spring 2013. And

Jon Powers (07:13):

Folks, I dunno, Chris, Chris is sort of famous in the green building space in the work he’s done at US GBC US Green Building Council. Yes, keep going.

Kelly Worden (07:23):

Yes. Yeah, he’s amazing. I was able to learn so much from Chris over the many years of working with him. And when we started working together in 2013, it was right when Chris had started partnering with Matt Trobridge, who is a professor and a pediatrician by training at University of Virginia School of Medicine. They had just started this partnership with funding from the Robert Wood Johnson Foundation, which is the largest public health foundation in the country, to basically do exactly what I wanted to do, which was look at the success of the Green building movement and explore whether there were lessons that the public health sector could learn in terms of translating academic research into practice tools, and then also creating market incentives for health oriented development.

Jon Powers (08:12):

At the same time, Kelly, this was going on. I was actually serving my role at the White House and working a lot with Chris and the US GBC team and figuring out how to implement lead within federal buildings. There was a lot of momentum around that concept. And then there was a lot of, for a much longer conversation of debate between Green Globes and lead and what the Fed should do in that space. For folks that are not as familiar at this intersection, when you think about public health or even health in general in buildings, this isn’t just about the pollution from the energy that’s being put into the electricity. This is the actual, a lot of the chemicals in the building, a lot of the makeup of the building. Can you talk for a second about what you mean by, for instance, like a healthy building or how a building could impact someone’s wellbeing?

Kelly Worden (08:59):

Yeah, absolutely. That’s a very good question. When I started working with US Green Building Council in 2013, and I said I wanted to do focus on health, oftentimes I got one of two responses. One was, oh, you mean healthcare like healthcare buildings, right? Because that was also a huge deal within green building. Hospitals had resisted green building design because they said, our systems are too energy intensive. There’s no way we can do this. And then there was great work done by Gail Vitori and others with the Green Guide for Healthcare that sort of debunked that myth. That was one reaction or the other reaction was, yeah, we do that. That’s what lead is all about is climate change is a problem for health. And so that’s what we do. And that’s true for sure. Climate change is one of the largest public health threats that we face, but there are more immediate ways to have a positive impact on health through the way that a place is built and then the way it’s operated and how it performs.

(10:01):

So as you mentioned, there was a big focus on materials, materials and many aspects of building design. You do have lots of different co-benefit moments where especially on the materials front, if something is bad for the environment, it’s usually bad for people and human health as well. So it’s easy to tackle those goals alongside one another. But it was difficult because the materials industry was not transparent about what was actually in the materials. So building teams can’t specify better materials if they don’t know what the different ingredients are. And so that’s one example. Another where there are actually really nice clean co-benefits on the green side is things like daylight and views. We know there are decades of public health research over the positive impact of daylight and views of nature on our mental wellbeing. Some research within the healthcare setting where it actually improves healing time.

(11:08):

And that’s an example of where daylight from a green building perspective, the primary intent might be to reduce energy use of the building for lighting, but you’ve got also the added benefit of positive social outcomes, air quality and water quality of course, sound comfort. And then there are other things that have to do more with the location of the building and proximity to active transit and green space and healthy foods, other things having to do with social interaction as well. So lots of the various ways, and many of which were at some level included in the lead rating system and other green building systems because green building at its origin was in response to Sikh building syndrome when you closed up buildings and focused only on energy performance that led to bad outcomes for people. And this grouping of symptoms like headache and dry eye and fatigue that we refer to as sick building syndrome.

(12:09):

And so green building rating systems really were designed to have a balance towards energy performance and some of these health issues. That said lead at the time, it was hard to use the rating system with health as a primary goal because health outcomes were sort of embedded throughout and not always explicit. My first project at US, GBC, was doing a health review of the lead 2009 rating system and categorizing the different credits according to their health relevance. And it was, at first it sounded like an easy task. It ended up being very, very hard because not only is the credit language not always clear about what the health benefit might be, but also there’s a couple different scales of health impact within building design and operation. And once we quantify those and are explicit about those, it’s easier to categorize the different opportunities. But you’ve got impact on the building user.

(13:09):

So that’ll be things like daylight, air quality, water quality, things like that. You also have impact on the surrounding community potentially and how you engage the community through the construction process, local hiring practices, things like green roofs that help with stormwater management and urban heat island effect. And then you also have the supply chain that’s impacted in terms of exposure to different toxic ingredients in the creation of materials. And then the global community, which is where a lot of those climate change mitigation impacts are going to come into play when it comes to the health benefit,

Jon Powers (13:48):

Which is more of a community additive versus the people in the building itself. So you correct me as I walk through what my understanding of the history of the space, and I’ll sort of speed through it so we can get to sort of the heart of the conversation today, but the concept is in the two thousands, the idea of creating the concept of green buildings started to develop, the idea of lead was developed as a way to actually score and build out buildings or even on the road retrofit buildings to make them a better impact both on the environment outside of the environment inside the building as well. And that continued to mature over time and the scores of lead became something that you could actually measure down to an auditor going into a building and saying, it’s got these 10 things, so it’s a lead silver and you can have that tag.

(14:40):

A tag created a demand. So people wanted to start moving into buildings that were healthier. And so the demand for things like lead silver even down the road lead platinum began to create, you had of America build the largest skyscraper in New York City at one Bryan Park, which is I think a lead platinum building. They were able to build that because there was a scorecard that allowed the architects and others to build around. As that matured, the concept is you’re talking about the health began becoming more and more understood and folks started even pushing demand for that. And the concept that is now sort of the healthy building, I may be saying that term wrong, but helped create what is now the International Well Building Institute, which is almost a step above lead in terms of how you’re looking or parallel to lead, how you’re looking at buildings. First of all, correct me where I missed anything there, but two, then can you talk a little bit about the institute?

Kelly Worden (15:36):

Yes. And that was I think a really accurate summary and it has been an interesting time to be engaged in this intersection because we did see health emerge as an organic interest within the real estate industry long before the COVID-19 pandemic. The pandemic definitely emphasized how important building design and operation is for health, but especially in certain markets where lead became very widely used, it became harder and harder to differentiate yourself from your peers based off of lead alone and green performance alone. And so that health aspect really came into play. This is a bit within the corporate occupier space, also instigated by Google’s approach to workplaces and kind of rethinking what the workplace looks like.

Jon Powers (16:28):

When I was on the federal side, I met with the Google team in Palo Alto and remember the folks working on the facilities told me a story about the co-founder of Google. I think it was literally walking around the monitor, checking the certain chemicals within the facilities he was in, and then calling back the facility guys asking if for it to change. And then they didn’t have the data to figure out how to change it, which to me is where a healthy building began to come up. I dunno if that’s true story a hundred percent true, but it was told to me,

Kelly Worden (17:00):

Well, I’ll say I know that Google also played a role in helping accelerate progress on the materials transparency front, both in some grant funding that they provided to create market oriented guides, but then also in the participation in somewhat of a buyer’s club at the U-S-G-B-C, Northern California chapter where a bunch of big buyers of materials came together and put pressure on the materials industry collectively to say, we’re not going to buy materials from you if you don’t specify what’s in them, which is a really amazing example of market organization and its influence

Jon Powers (17:34):

And a simple version for that. For folks that don’t understand, if you think about buying a cereal box and there’s a label on the cereal box of what’s in it, your desk may have something similar explaining what not to that simplicity, but what was used in building it.

Kelly Worden (17:47):

Exactly. So all of that led to the International Well Building Institute. Well, at the time it was Delos created the Well Building standard, which they released in 2014, and then soon after that spun off the International Well Building Institute as the separate entity to maintain and continue to develop the Well standard. And so the Well Standard is a bit, it is inspired by Lead and other building rating systems, but it’s a bit different in its approach. So it’s explicitly focused on health and wellbeing as is indicated in the name. And it’s addressing the entirety of the building design, construction, and operation process all within the same certification. So within lead you’ve got that separated into two different certifications with Well, it’s all together. And on the operation side, it also brings in organizational policies, HR policies related to employee performance as well. And so the Well Standard was launched in 2014.

(18:54):

Since then, it has evolved quite a bit to become more flexible and easier to adapt to different use cases. So I like to Simple way, I would refer to the Well Standard as a certification, a health focus certification for both organizations and places. And increasingly companies are engaging with well through the Well at scale program, which allows companies to enroll their entire portfolio into the well standard and then be very intentional about setting goals across their portfolio and making more incremental progress towards those goals. So taking an intentional lens on which specific individual well features a A strategies you would choose in a way that aligns with your goals.

Jon Powers (19:40):

Are you seeing portfolio managers on the real estate investment side doing the same companies that sort of manage their own facilities?

Kelly Worden (19:48):

Both. Both. So we’ve got both large corporate occupiers that are doing, this trend really took off during the COVID-19 pandemic, especially with the release International Well Building Institute released the Well Health Safety rating, which was a subset of features specifically focused not only on infectious disease control, but also emergency preparedness in general. So it’s actually something that’s going to remain relevant, especially as it relates to climate resilience and sort preparing for more extreme events. But many companies chose to deploy the well health safety rating throughout their entire portfolio. And of times these were companies that had retail branches that they wanted to keep open, or sports facilities that wanted to be able to reconvene in a healthy way. But then you also have real estate fund managers that are bringing in portfolios into the Wells program. Within both cases, corporate occupier utilization and the real estate fund manager, we are seeing more companies using well within their overarching ESG strategy and also using well to help inform their ESG reporting and really emphasizing the value of that third party verification, even down to individual performance metrics and the value that brings on the reporting side.

Jon Powers (21:14):

Yeah, let’s talk a little about that. I mean, I think as we’ve talked a lot on the show about the development of ESG and I think there’s so much capital looking to go in. There’s still in many cases a lack of transparency across a lot of different portfolios of what you’re looking at and what ESG really is, but you guys have now partnered with Greg. Can you talk a little bit about what that partnership looks like, why that real estate standard is something you guys have really looked to help move forward and what that partnership will lead to?

Kelly Worden (21:49):

Yes. So GREs is the leading ESG benchmark for Real Assets, provides an annual benchmark that real estate investors utilize to manage and assess the ongoing performance of their investments. GRE has similar to green rating systems at a building scale, GREs being at a portfolio scale. They are an ESG benchmark. So there are a lot of existing GREs indicators that speak to social performance of real estate portfolios. Some of the most robust of those

Jon Powers (22:25):

Indicators, folks that are tracking as a solar owner, we own solar assets. We are required to report undergrads even though technically it’s not thinking about buildings. This is something that our investors required of us to report up through real assets,

Kelly Worden (22:39):

Which is really interesting and it’s in part potentially because part of the GREs assessment speaks specifically to management of the fund. I know in the early days of GREs, a lot of the interest, well investors came together and funded the creation of GZ back in 2009. Some of those investors using GREs did so because they understood the long-term risks associated with ESG performance and they wanted a way to better understand those. But others, other investors simply saw ESG performance as a bit of a proxy for good management. If you’re doing a good job managing these risks and opportunities, you’re probably doing a good job managing everything.

Jon Powers (23:24):

I heard someone referred to it as night vision goggles or you can see within your systems and find the opportunities where you can address ‘EM stuff.

Kelly Worden (23:31):

Yes. And ensure that you’re taking a standardized approach throughout your portfolio. Because what’s very common in the real estate world is maybe a fund manager. They celebrate and talk highly and a lot about a couple of landmark properties in their portfolio, but those landmark properties don’t really say anything about the entire portfolio. You could have not really great properties that you’re not talking as much about. So yes, but we just announced a partnership with G Gz at the end of last year, which I’m quite excited about, which is going to allow us to work together to really elevate social sustainability performance within the real estate industry, utilizing existing data that’s already being gathered by the GZ real estate assessment. So we’ve also conducted an alignment exercise looking at the alignment between the well standard and the GRE real estate assessment. We’ve got about 40% alignment between the two, which is indication of how many social indicators are in the GREs real estate assessment.

(24:39):

Some of the most robust of those social indicators do STEM from the G Gz Health and Wellbeing module, which ran as a voluntary standalone thing from 2015 to 2019 that I was involved in. And now that those indicators are in the gz real Estate assessment, it’s not easy for the average GREs participant or the GRE investor member to use GREs results as they’re currently communicated to understand social performance specifically. And so that’s what we’re going to be working on together, really leveraging IWI and our insight on the aspects of health and social performance that matter most and kind of helping provide that expertise on what those criteria should be. And then on the GREs side, leveraging the data that they’re already collecting and creating a new lens of social sustainability performance that allows investors to gain more insight into that performance is also, another aspect of this will be developing engagement tools that really guide that engagement process between the investor and the fund manager around social issues. I think while there’s been increased understanding that and awareness of the importance of social performance and its ability to be a source of potential risk and also opportunity, there is growing understanding of that, but there’s not yet a widespread understanding of, okay, well then what do we do about it? And what are the most important things to be addressing? And especially on the investor side, which metrics, which specific metrics should they be paying most attention to?

Jon Powers (26:15):

And if you look at what gross will do versus what the efforts you guys have underway are doing, you have what you can do at a portfolio level and you guys actually can provide the look at what you can do at a building level to increase the sustainability of that building, literally step by step with something which is a lot of portfolio managers are looking for, whether it be energy efficiency or better lighting and windows or can’t really change location, but can you help drive public transportation, et cetera. If you look at this initiative in the flow of the larger efforts that are happening, the European standards are coming out on ESG SEC’s efforts and treasuries efforts. What does the world look like in 2030 when all of these things really have taken hold and investors are able to really look at where they are putting their dollars, how this is helping to educate both investors and also I think the demand are folks looking at both.

Kelly Worden (27:19):

Yeah. Well, I hope that in 2030 we’re in a state of the market where there’s truly an integrated approach being taken to environmental and social issues side by side and that it’s not seen as a separate or an add-on thing to do the social issues, but it’s actually just the way that good high performing funds are managed or the way that good high performing buildings are managed is simply by addressing environmental and social issues hand in hand with one another. We’ve been very excited about Mexico’s sustainable tax taxonomy being the first to actually address both environmental and social goals alongside one another in the same taxonomy. Of course, learning from and building off of the eus progress on doing that separately for environmental and social issues. But I think that that’s the direction that we’re headed and also making social issues more tangible. One of the things that I observed in my work with GREs on the health and wellbeing module was that as we talked about previously, health had emerged as an organic trend and interest within the real estate industry, but it was really more of a bottom up trend.

(28:34):

Real estate companies were the ones starting to compete with one another on health. The upstream investor wasn’t paying attention to that and wasn’t really asking for information on health performance or social performance. I think that’s in part because they’re further removed from the impact, like it’s easier for a fund manager or an asset manager to know that if I’m positioned in a place with better walkability, I’ve got more daylight in my space, better access to green space, it’s going to rent easier than one that doesn’t have those factors. And the fund manager can see that easier than the investor can, but we’re making progress towards daylighting that interaction and enabling that investor engagement, that top-down engagement in a way that’ll hopefully drive additional capital to those better for people assets. Similarly, I think there’s

Jon Powers (29:29):

Also a false narrative, sorry, there’s a false narrative that you’re sacrificing returns to have more sustainable, and I think that’s a false narrative. I think the data that you guys are providing and will to provide, we’ll show folks that you actually in many cases can do better by investing in this holistic approach, but there’s still a pretty antiquated approach of we’re going to make these environmental efforts at a premium and a cost to us as investors, which is not true at all.

Kelly Worden (29:55):

Absolutely. And I’ve recently realized that with the positioning of social issues, we have kind of followed the path of environmental issues and clung onto frames such as systemic risk and talking about how social issues expose investors to systemic risk and that they need to be addressed just like environmental issues. And that’s true. I think one of the largest ones would be rising inequality is a massive risk from a financial perspective, which has been well-documented. That said, there are many ways in which social issues actually provide more short-term risk and opportunity as well. And you might be able to actually balance out some of the, if you’re achieving and pursuing environmental performance in a way that might take longer to see the impact that you want to see. There are really short term ways that the social lens adds value, and we do excitingly have research to back that up in terms of increased asset value by square foot, increased better leasing terms and things like that.

(31:01):

So I’m hopeful that plus the rise of sustainable finance will continue to drive additional investment into places that perform better for people. So we’ve got, as you said, we’ve got that very well-defined with strategies within the well building standard in terms of how to make places better. And then pairing that with the trends that are driving additional capital into those sorts of places, hopefully will lead to us making a good amount of progress over the next couple of years and really being able to take that fully integrated holistic approach to both environmental and social issues.

Jon Powers (31:44):

I love it. Thank you so much for the leadership. You guys continue to show on this and if folks want to learn more, where should they go?

Kelly Worden (31:52):

Yes. So the IWI website, which is, well, I should actually confirm well certified.com, we’ve got actually a whole section of our website that talks about our efforts within ESG and sustainable finance also talks about our investing in health initiative. And I actually just, we at the end of last year just released a new standalone resource specifically on well and social sustainability. And so that goes through how the rating system can be used to support a social sustainability strategy. And so that would be the best place. We also have a global event series that we’re kicking off this year. So we’ve got our conference, California in the spring, and then also events around the world. So encourage folks to check those out as well.

Jon Powers (32:47):

Awesome. And if you could go back to yourself on sixth Street in Austin when you were graduating from UT and could sit down and have a beer, what piece of advice would you give yourself?

Kelly Worden (32:56):

I think I would tell myself not to worry so much about having everything all planned out. I was very envious of my friends that were going to law school or had an MBA and were just getting a standard job. But yeah, I would tell myself just to be patient and be confident that something even better will open up for you. And actually the circuitous path is sometimes the better, one

Jon Powers (33:18):

Better. I agree with that. I was an elementary education major, so I agree that a hundred percent. Yeah. Amazing. Kelly, thank you so much for joining us. I’d love to hear Chris Pike’s name raise. I haven’t heard his name in a long time. Thank you for the leadership that you guys continue to show. Thanks to Bill UE for helping to set this up and our producer Colleen Young. As always, you can get more episodes@cleancapital.com. And Kelly, I hope we can have you back some of the time to talk about the continued progress.

Kelly Worden (33:46):

Yes, would love to come back. Thanks again for having me.

Jon Powers (33:50):

Yeah, thanks so much and thanks for listening. I look forward to continuing the conversation.