Starting with the chief executive, property companies need the sustainability agenda to be built into every decision their business makes
“2030 is just around the corner. In real estate terms, that is not a long way off.”
The words of Sophie Carruth, head of sustainability for Europe at LaSalle Investment Management, were a reminder to the audience at EG’s Future of Real Estate conference that the future is nearer than they may think. And the sustainability agenda, under which many property companies are driving to make wholesale changes to the ways they do business over the coming few years, has arguably never felt so urgent as the climate crisis worsens.
However, the panel discussion on which Carruth spoke had an air of opportunity as well as urgency, of hope as well as hurry. Speakers showed an awareness that, as Marco Abdallah, head of engineering at consultancy Drees & Sommer, put it, addressing the environmental impact of the built environment gives property firms a chance to “distinguish yourself from others” and be “future oriented”. “This is an opportunity we all should take,” Abdallah added.
Carruth’s flash-forward to 2030 came as she highlighted a government consultation to raise the minimum required energy performance certificate for homes from E to C or B over the next 10 years. Given that a failure to meet that raised target would put income “massively at risk” for investors, she added, there is no longer an argument for a property company or investor not to have an environmental focus in every one of its business lines.
“It’s absolutely critical that the sustainability issue is integrated in everything that you do,” Carruth said. “It should be embedded in your day-to-day processes and decision-making, from setting your business strategy to your entire investment process – once you have those processes set up then actually it’s relatively easy [to maintain the focus], because so often with sustainability measures there’s a really great business case to be made where we’re creating financial value as well as environmental and social value.”
No longer just ‘nice to have’
Panellists spoke of the need to ensure that a focus on sustainability now permeates every level of personnel – from “the chief exec down”, in the words of Angus Evers, environmental partner at law firm Shoosmiths. “It’s got to cease being a ‘nice to have’ in good economic times and become a ‘must do’ regardless of economic conditions,” he added.
And for the professionals who have long been arguing that the topic deserves more attention, it provides a welcome opportunity to help lead the discussion.
“We’ve been at this for 10 years now, hiding away in dark corners of offices or basements,” said Jon Gibson, Avison Young’s head of sustainability, to some laughs from the audience. “We’ve finally got the limelight, and we’ve got this opportunity to set out on the right path in terms of how we talk about it.”
The message seems to be getting through. Recent half-year financial results announcements from London’s major listed real estate investment trusts suggest that the conversation has changed at the upper levels of the largest property companies, said Sarah Ratcliffe, chief executive of the Better Buildings Partnership, an organisation that brings property owners together to improve the environmental performance of existing buildings.
“Maybe five years ago sustainability was seen as a ‘nice to have’ when times were good in the industry,” she added. “This year, if you look at the announcements made by the chief executives of a number of major property owners, climate change is right up there alongside those financial results. That’s a big change.”
There will still be difficult conversations ahead about the financial value of prioritising environmental good, however, even if the moral drivers are all too clear.
“Value is a really tricky [issue],” Carruth said. “For a really long time the industry has been looking to prove that there was a ‘green premium’ for more sustainable buildings. That’s just really difficult to do. There’s not any really good-quality, solid evidence across markets that this exists. However, there’s plenty of evidence that there is a ‘brown discount’ for buildings that aren’t keeping up.”
Nonetheless, Hammerson’s head of sustainability, Louise Ellison, said that listed companies’ investors were also helping to drive a new focus on sustainability.
“We’ve had much more interest over the past 12 months from our shareholder investors about what we’re doing and what they need to do,” Ellison added. “That market has changed entirely – the awareness that there is massive risk in their portfolios.
“Real estate has a huge opportunity there. Managed properly, real estate can be part of the solution. There are other sectors that are really going to struggle over the next few years in terms of maintaining their viability.
Operating in a vacuum
If EG’s panellists are representative of the wider built environment industries, an acknowledgement of the importance of environmental sustainability to the future of real estate is already widespread. But industry leaders are still calling out for more in the way of support and a more detailed road map of how to reach crucial targets during the coming decades.
“We need some government action,” said Shoosmiths’ Evers. “They set the net zero carbon target for 2050, which is great – but how are we going to get there? We need government to set some regulation to drive action, to drive investments and innovation in technology that is going to help deliver zero carbon buildings. At the moment we’re operating in a bit of a vacuum.
But the debate is at least happening, and that is unquestionably something to be thankful for. Ratcliffe closed the panel on a note of hope about the ways in which the conversation about sustainability, and even the voice of this very publication, has changed.
“I’m a huge optimist, and I think there’s been a significant sea change,” Ratcliffe said. “If 20 years ago you’d have told me I’d be sitting listening to a 15-year old [youth MP for Bury Emma Greenwood] talk to us about climate change in a keynote speech at an Estates Gazette conference, I might have raised an eyebrow.”
The panel
- Marco Abdallah – head of engineering, Drees & Sommer
- Sophie Carruth – head of sustainability, Europe, LaSalle Investment Management
- Louise Ellison – head of sustainability, Hammerson
- Angus Evers – environmental partner, Shoosmiths
- Jon Gibson – head of sustainability, Avison Young
- Sarah Ratcliffe – chief executive, Better Buildings Partnership
- Chair: Samantha McClary – editor, EG
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