Amid an era of extreme weather events and mounting proof that the world is heating up, the climate emergency is officially the biggest worry for the globe’s top executives.
The assessment, made early this year by the World Economic Forum in its annual risks report put the environment in all of the top five concerns likely to have a major impact over the next decade.
For some time, however, many in the real estate investment sector have still appeared to have their heads in the sand. As recently as early last year, 46% of industry professionals viewed climate risk factors as irrelevant when it came to making investment decisions, according to a RICS survey.
But Claudine Blamey, head of sustainability and digital strategy at Argent Related, believes that things are starting to change.
Gone are the days of what Blamey calls the “vicious circle of blame”. That is a process in which investors, customers and developers alike did not feel there was enough in it for them to embark on sustainable projects.
“I think all of this has really shifted,” she says, as part of EG’s Future of UK Cities event. “The occupiers are really interested in being in sustainable buildings – and that is not all about just climate change. It is about being in buildings that [are] a healthy place for their employees to be.”
In short, the market is recognising that sustainability is “synonymous with quality”, she says. “Who wants to be in an unsustainable, non-smart, dumb building anymore?
“There is a brown discount for buildings that are not sustainable. That in turn says in itself that sustainable buildings do and will carry more value going forward.”
Industry steams ahead of regulators
The shift has resulted in some industry players forging ahead of existing financial regulation by setting their own internal rules on climate-related matters.
Sarah Ratcliffe, chief executive of the Better Buildings Partnership, says a number of the organisation’s members have set their own shadow carbon prices “to drive investment decisions where perhaps the correct incentives and financial levers aren’t yet in place”.
“At some point they expect them to be [in place], so they are using that internal carbon price to help inform their decision-making now, in order that they can be better positioned to take advantage of any finance that emerges in the future,” she says.
Nevertheless, there is broad consensus that policy and regulation must follow to bring about meaningful change. Hero Bennett, sustainability leader at Max Fordham, says that even among the firms most committed to making improvements, there remains a “reticence to choose one solution and run with that”.
“Greater clarity in the landscape over established approaches will really help,” she says.
On carbon pricing, for example, shadow prices vary between companies. Therefore, it remains difficult for those further down the supply chain to adapt in kind until there is some consistency in the sector, says Blamey.
“As a sector, we need to come together and set one carbon price so that it helps the whole of our supply chain to really back us up with trying to reduce particularly embodied carbon in the way we use materials,” she says.
“That is the hardest nut to crack. We are starting to crack the operational use of energy and the carbon within, but I think it is the embodied carbon locked in those materials that is much more difficult.”
Real estate more exposed than most
The issue is particularly pertinent to the real estate sector, whose physical assets will be exposed to the changing climates of the coming decades more than most other markets.
As a result, it is incumbent on everybody involved to pull their weight in making the industry greener, says Blamey. “There is no one part of the real estate process that should be exempt from essentially integrating sustainability into their core purpose.
“It has to be driven by investors and occupiers; it has to be delivered by property owners, whether they are developing or managing existing assets; and it has to be delivered also by the supply chain. It is everyone’s responsibility.”
David Willock, head of sustainability and structuring at Lloyds Banking Group, agrees. “Clearly the financial markets and financial lenders have a part to play as well – and an important one,” he says.
“We could spend a lot of energy looking around at others, but I think the important message is that there is a shared responsibility to focus that energy around collaboration.”
Nonetheless, Blamey continues that companies should see the changing times as an opportunity, not a hindrance.
“We are about to enter a very unstable market. Coming out of Covid, none of us know what the real impacts are going to be on the sector and our industry,” she says.
“When there is turmoil like this in the market, there is always lots of opportunity… to really think about how we integrate sustainability into this new world and how we take that forward.”
