Sustainability and going green has been high on the agenda in real estate before. In the early Noughties, the pages of EG were littered with commitments to BREEAM Excellent buildings, green leases and solar panels on rooftops across the country. But then the global financial crisis struck and the flurry of press releases about green measures being taken across the industry dried up.
Now sustainability is high on the agenda again, with pressure from the next generation to think about the state of the planet we are bequeathing them leaving an indelible mark on all our consciences, and from investors seeking increasingly more sustainable places to park their cash. But with another recession lurking somewhere round the corner, can we expect the current noise around sustainability to reduce again or has the conversation changed significantly enough for this to become a business-critical issue, whatever the economy?
As part of our new social values agenda, EG gathered a trio of sustainability experts to talk about the role of the built environment in mitigating further damage to the environment and how the pressure to make a real difference is affecting business.
Louise Ellison, head of sustainability at Hammerson, says for the past two years the REIT has been committed to not just reducing its carbon emissions to zero, but to become net positive.
“There are a number of reasons we decided to do that as a business and why my chief executive and board have been very supportive,” she says. “If you’re a long-term holder of real estate assets, you’re having a big impact on the environment. We cannot continue to emit the amount of carbon that we are as a society and as a global economy so we are going to have to do something about it. For a business to operate efficiently, you need to look at what is coming down the track, not just what is happening today.”
One of those things that is coming down the track is shareholder pressure.
“Shareholders are seeing risk in their portfolios and they want to know that the companies they are invested in a) understand the risks that are being presented by climate change, and b) are in a position to actually do something about it without it affecting their income in the short and medium term,” says Ellison. “This is a difficult challenge but it’s one that we absolutely cannot shy away from and one that, increasingly, our investor shareholders are expecting us to deal with.”
Ed Gabbitas, founder and director of sustainability consultant EVORA Global, says that real estate has woken up to the need to invest in environmental, social and governance strategies, with its levels of interest and action increasing five to 10 fold in the past decade.
“It is the risk of not taking action that is really driving the market now,” he says.
Gabbitas says the action is coming from the youth movement, led by Greta Thunberg and Extinction Rebellion and evidenced by the number of children and young people who took to the streets on 20 September, and from the top down through climate commitments such as those launched by the Better Buildings Partnership last week and initiatives such as the UN’s Principles for Responsible Investment and GRESB.
“This has raised the profile and it has raised the rate at which people are taking on board ESG strategies,” he says.
But what happens if a recession does hit and those ESG principles are pushed down the list of priorities?
For Hammerson’s Ellison, it seems that inaction on sustainability would have as big an impact on the business as an economic downturn. She says that if due attention is not given to the impact of climate change on our physical environment, over time assets just won’t produce the income that owners expect.
“You’ll start to see assets struggling to provide the kind of environments we want,” says Ellison. “It will become increasingly difficult and increasingly expensive to keep them as spaces where people are able to spend significant amounts of time. If you lose productivity, assets become less popular and you start to see that drag on your NRI [net rental income] as it becomes more difficult to run them.”
For Sarah Ratcliffe, chief executive of the Better Buildings Partnership, the discussions about the financial implications of not taking climate change seriously and not taking action are being talked about more openly today, which fills her with hope that a recession won’t see green principles slip away.
“One of the trends that we’re seeing at the moment is a huge movement towards much clearer disclosure on climate risks and that’s driven by things in the investment world like the Task Force on Climate-related Financial Disclosure. That’s bringing those risks out into the open. And what happens when that happens is that the conversation starts to happen in public – whether that’s with investors or with communities or with visitors and occupiers of the assets – so we’re entering into a different phase now,” she says.
The task force, however, like so many climate commitments, is voluntary, not mandatory – from a legal perspective at least, so how do investing in carbon-saving and planet-protecting measures become part of business as usual?
Legislation is one way and the UK has committed to net zero by 2050, but for real change, total buy-in to the cause is needed.
“All parts of society need to make a contribution to this,” says Ratcliffe. “We’ve seen the government step up recently and essentially declare that it would like Britain to be a zero-carbon economy by 2050. We’ve seen businesses, like our members, step up to take action. We’re seeing investors taking action. And what’s really interesting at the moment is that climate change has a sustained presence in the media and that public concern and movements like Extinction Rebellion, and Greta Thunberg are capturing the hearts and minds of people. That drive is really important because it’s those people who work in the offices and visit the shopping centres.”
“But, if we’re going to get to that net zero by 2050 we need to significantly ramp things up in order to meet that target,” she adds. “So yes the systems and the process and the way we work definitely should be part of business as usual but the target we’re aiming for needs to come closer and we need to work more quickly towards it.”
To send feedback, e-mail samantha.mcclary@egi.co.uk or tweet @samanthamcclary or @estatesgazette
For more on sustainability in real estate: EG Sustainability hub
