Simon Property Group in Indianapolis, Ind., the nation's largest shopping mall company, and Liberty Property Trust of Philadelphia, Pa., a real estate manager with more than 700 office and industrial properties, also have agreed to disclose such information in response to recent shareholder requests.

Together, these four companies manage nearly 600 million square feet of building space.

Focus on Energy Management

The impetus for these disclosure requests comes from a group of environmentally minded investors who see a connection between these companies' ability to control energy costs and their own bottom lines. They know that property managers play a critical role in shaping the nation's energy demand and greenhouse gas emission trends. According to the Environmental Protection Agency, 70 percent of all U.S. electricity use and 40 percent of total energy demand is consumed in residential and commercial buildings.

With energy prices and concerns about global warming on the rise, more attention is being focused on how companies are controlling their energy costs. However, few companies in the buildings sector report on their energy use and energy management strategies in their annual reports, securities filings or on their corporate websites.

So, starting in 2005, shareholder proponents led by the Nathan Cummings Foundation, the New England Yearly Meeting of Friends Pooled Funds (Quaker) and the Sierra Club Mutual Funds started filing shareholder resolutions with major homebuilders and commercial property managers, asking them to assess "rising regulatory, competitive, and public pressure to increase energy efficiency" and report to shareholders.

Their efforts got a boost in October 2005, when Wal-Mart made a major announcement that it would invest $500 million a year in technologies to reduce its stores' greenhouse gas emissions by 20 percent within seven years, mainly through energy efficiency measures. Wal-Mart is the world's largest Big Box retailer, with 3,800 stores in the United States and 6,000 worldwide.

As Wal-Mart CEO Lee Scott explained at the time, "If you had told me 12 or 18 months ago that we would be doing a focus on the environment, I would have told you that that would be a good public relations campaign, nothing more. But the truth is, the more we learned, the more opportu-nity we saw for Wal-Mart."

Apparently, Wal-Mart is not alone. The Home Depot and Lowe's arrived at the same conclusion four months later. Having received energy efficiency shareholder proposals for their 2006 annual meetings, they agreed in February to issue detailed reports on their energy management programs in exchange for having the resolutions withdrawn. Lowe's report is due in September 2006. The Home Depot will issue its report in February 2007. (Download file to see a comparison of energy efficiency commitments made by Wal-Mart, The Home Depot and Lowe's.)

2006 Proxy Season

Altogether, 10 homebuilders, commercial property managers and Big Box retailers received energy efficiency shareholder proposals for the 2006 proxy season. With four withdrawal agreements and exclusion of one proposal by the Securities and Exchange Commission, five of the resolutions are expected to come to votes. (Download file)

Support for two proposals at companies whose annual meetings came early in the year were modest. Only 5.5 percent of the shares voted were in favor of the proposal at homebuilder D.R. Horton in Fort Worth, Tex. At Whole Foods Market, a natural foods chain in Austin, Tex., which has pledged to purchase all of its energy needs from wind power, making it the largest private buyer of renewable energy credits in the United States, just 8.9 percent of the votes were cast in favor of the energy efficiency proposal.

At Standard Pacific's May 10 annual meeting in Irvine, Calif., however, the homebuilder saw support for its shareholder proposal soar to 39.3 percent. That vote was the highest ever for an energy efficiency or global warming proposal.

Other resolutions are pending at Bed Bath & Beyond in Union, N.J., and at homebuilder Centex in Dallas, Tex., whose annual meetings are scheduled during the summer.

REIT Disclosures

Of the two retail estate investment trusts that ne-gotiated withdrawal of their shareholder proposals, one already has made good on its pledge to increase its disclosure on energy efficiency. Simon Property Group added three paragraphs to its annual Form 10-K securities filing, issued on March 31, 2006.

Under the heading "Energy Costs Conservation," Simon reported that it began monitoring and benchmarking its energy consumption in 2003 and started "a process to assess energy efficiency across our enclosed mall properties." This effort grew into a comprehensive strategy to improve energy efficiency in 2004, when the company launched its "Energy Best Practices Program."

Simon Property Group expanded its energy monitoring efforts in 2005 with a web-based tracking tool for managers, which allows them to review energy use and trace costs in real time. In 2004 and 2005, Simon cut its overall electricity use by 6.8 percent compared to 2003 levels. The savings avoided more than 84,000 metric tons of CO2 emissions, or enough to power nearly 10,800 U.S. homes for a year, according to EPA estimates.

In 2005, Simon Property Group also was named a finalist for the Platts Global Energy Award for Industry Leadership. The National Association of Real Estate Investment Trusts gave the company its Bronze Leader for the Light Award, which is awarded in collaboration with EPA. Simon was the only REIT to receive this award in 2005.
Liberty Property Trust also plans to expand its reporting on its energy efficiency programs in its next Form 10-K filing. In a memo to proponents from the New England Friends, James Bowes, the company's general counsel, said that Liberty "would provide, in reasonable detail, a discussion of the projects and steps undertaken" in 2006 "in furtherance of these efforts, and would also include, to the extent reasonably practicable, quantitative measure of the success of these efforts."

As in other discussions with other companies, the proponents want Liberty to be able to document how its energy efficiency programs are affecting its financial performance and industry competi-tiveness. In 2007, the company will open a new 57-story office tower in Philadelphia, Pa., for which it is seeking Gold Certification under the U.S. Green Building Council's Leadership in Energy and Environmental Design ("LEED") program.

Also 'Walking the Talk'

Given the progress made in recent months, share-holder proponents believe their campaign to promote energy efficiency in the buildings sector has "legs" that will extend into future years. They also now have backing from some of the nation’s largest institutional investors. The California Public Employees' Retirement System and TIAA-CREF, for example now routinely support shareholder resolutions that seek systematic disclosure of energy use and energy management strategies by homebuilders and property managers.

These funds are themsleves major property owners and are finding that they, too, have to "walk the talk" when it comes to achieving energy savings. CalPERS owns approximately $5 billion of core real estate that includes investments in office, retail, industrial and apartment properties. Its board has set an energy reduction goal of 20 percent in these properties over the next five years.

"Besides collecting information [on energy use], we will strongly support shareowner resolutions at individual companies to address environmental impacts," said Chuck Valdes, Chair of CalPERS Investment Committee in March 2006. "In the long run, we believe it's possible to do well in business by doing what's good for the environment."

To read about the energy use commitment by the three big box retailers plus view the 2006 energy efficiency shareholder resolutions, Download file