Calvert has updated its 2008 “Green Homebuilder” rankings based on the environmental and sustainability practices of America’s 10 largest publicly traded homebuilders. While all 10 have improved their policies and practices relating to the environment and resources, much progress remains to be achieved.
The homebuilding industry was one of the earliest and most visibly affected segments of the U.S. economy during the recent financial crisis. While new residential building projects are only a quarter of what they were five years ago, the trend in the first half of 2010 is moving upward. Green building, which is gaining momentum, offers an opportunity to the industry as it focuses on rebuilding its market and restoring financial profitability. Estimated at $36-49 billion, the green building market is considerable and expected to increase twofold between 2009 and 2013.1
Consumer and regulatory trends related to sustainability present both a challenge and an opportunity for high production builders. As consumers become more educated about environmental options and green residential construction, and as policymakers increase incentives for green development and restrict conventional development efforts, some homebuilders may be at a competitive disadvantage if they have not integrated sustainable design and construction principles into their operations. Homebuilders may also face risks from the physical impact of a changing climate, including threats to raw materials, water supplies, and altering geographical patterns of habitation.
In the green building market there is likely a first-mover advantage: companies that make a concerted national effort to integrate sustainability into project siting, construction materials, and construction processes, as well as provide energy, water, and habitat conservation options in finished products, will be able to build a brand image as the environmental choice for home construction. This brand will help empower homebuyers when making a purchase decision, and provide a signal to regulators at all levels about which companies are managing their environmental and community impacts.
As an investor, Calvert sought to discern how major U.S. homebuilders compare on policies and practices relating to the environment and resource efficiency. In an update to our 2008 analysis, Calvert has reexamined the industry’s ability to manage the effects of a changing climate, public demand, and regulatory realities. As sustainable and responsible investors, we believe that these companies are more likely to provide long-term value to investment portfolios.
Overall 2010 Green Builder Ranking
- KB Home
- Pulte Homes
- Meritage Homes
- Toll Brothers
- DR Horton
- Standard Pacific
- Ryland Group
- MDC Holdings
Our survey of the 10 largest publicly traded U.S. homebuilders uses five major ‘green’ indicators: land, building materials, energy, water, and climate change. In addition to an updated ranking (see chart), our recent analysis revealed the following key findings:
- A sizable gap still remains between what investors need and the information that homebuilders provide. Out of 42 points, the average total score was just over six points, or 15%.
- While all 10 homebuilders have made some effort to develop environmental policies or practices, or to offer environmental products, there is strong differentiation in the level of commitment to sustainability and the penetration of “green” homes in each company’s product mix. Without leading companies KB Home and Pulte Homes, the overall analytical performance of the industry in our study would have been far worse—scoring an average of less than 6% against key green data points.
- Homebuilders are not measuring and disclosing their impact on the environment in a comprehensive manner. Our analysis looked for environmental performance data points that homebuilders use to measure and manage their footprint, but nearly all homebuilders had no relevant data.
- Whereas our last report showed a preference towards regional policies and programs, homebuilders are now making company-wide, national sustainability commitments that pledge full product participation in energy, water, and climate change initiatives.
- Companies are most active in energy efficiency and conservation compared with other environmental issues. Every homebuilder reviewed for this analysis had some level of policy or program focused on curbing residential energy use.
- Ostensibly related, 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. Issues with longer-term benefits, such as climate change, are not well addressed by this industry.
In light of SEC interpretive guidance on climate change in early 2010, some homebuilders are choosing to disclose risks related to climate change through their annual 10-K filings. At this point, homebuilders appear most concerned about the effect of carbon regulation on costs, rather than direct physical impacts of a changing climate.
- KB Home has maintained its #1 spot in our rankings. Toll Brothers, Meritage, and Standard Pacific have made modest to significant progress since our last review.
1McGraw Hill Construction (2009). Green Outlook 2009: Trends Driving Change.
As of 9/30/10, accounts managed by Calvert Asset Management Company, Inc. held securities issued by the following companies: KB Home, Pulte Homes, Meritage Homes, Toll Brothers, Lennar, DR Horton, Standard Pacific, NVR, Ryland Group, and MDC Holdings. Calvert may or may not still invest in, and is not recommending any action on, companies listed.
Calvert Asset Management Company, Inc., 4550 Montgomery Avenue, Bethesda, MD 20814.