In business, money talks. So when Bank of England governor Mark Carney warns companies and investors to raise their game in tackling climate change or risk seeing their corporate assets become obsolete, it’s time to sit up and pay attention.
“A question for every company, every financial institution, every asset manager, pension fund or insurer: what’s your plan?” said Carney during a BBC Radio 4 interview at the end of last year.
For the property industry, the question has become impossible to ignore. According to United Nations’ estimates, real estate accounts for 40% of the world’s energy consumption and a third of all carbon emissions. In the UK, the operation of buildings accounts for around 30% of the country’s emissions.
This makes the industry – from landlord to investor – a critical player in helping tackle the climate crisis. And at the turn of a new decade, companies are under pressure to respond.
In January, property and construction firm Wates Group announced its plans to become a completely clean company, producing zero waste and carbon by 2025. That came hot on the heels of Peel L&P confirming that 11 of its buildings have been certified as net-zero carbon (making the company the first to achieve this status, according to the developer).
Prime minister Boris Johnson placed climate change targets at the top of the Conservative Party’s agenda in last year’s Queen’s Speech, reiterating the government’s goal for the country to reach net-zero carbon emissions by 2050. And with the UK hosting the United Nations climate change summit in Glasgow later this year, it is expected the government will attempt to position itself as a global green leader.
But as ambitious net-zero carbon visions are unveiled in both the private and public sector, how easy will it be for the industry to hit its own – and the government’s – targets over the next decade?
Monitoring and measuring
A clear definition of net-zero carbon in relation to building assets was established last April, when the UK Green Buildings Council (UKGBC) published its net-zero carbon framework.
The definition is two-pronged. Firstly, during the construction process of an asset, the amount of carbon emissions produced should be zero, or negative through the use of offsets or the export of on-site renewable energy. Secondly, during the use of the building, the amount of carbon emissions produced from the building’s operational energy should also be zero or negative.
Peel L&P has laid claim to be the first developer to achieve net-zero carbon status on a building through using UK GBC’s framework. In fact, it has achieved this status on 11 of its assets across Manchester and Liverpool.
According to Peel L&P sustainability director Jo Holden, the developer started work on its green agenda in 2014, initially due to a desire to cut costs on the company’s energy bills.
“We started to really monitor our energy use in our wider portfolio and started to target the opportunities to start saving carbon,” Holden says. She explains that automated half-hour meter readings were made in buildings in the company’s portfolio in order to gather in-depth data on energy use.
“We thought: ‘Hang on, we haven’t got anyone in the building at night, why is our energy going through the roof?” she says. “You can start to really drill down into why you are using your energy at different times of the day.”
The business set itself a target to reduce energy use by 3% every year. To do this, energy management systems were installed to help Peel L&P monitor and implement targets on energy use.
So far, the business has undertaken 625 energy saving projects across all of its schemes, including installing energy efficient technology as well as putting in place behavioural change policies.
Holden says the business has reduced energy use and carbon emissions by around 16% since 2014, which equates to roughly 10,400 tonnes of carbon dioxide saved across the company. It cost the company £1.2m to make those 11 buildings zero carbon.
Need for transparency
Achieving this status has not been easy, Holden says, given that there was no definition developers could use to understand what net zero carbon means for building assets specifically until UK GBC published its net zero carbon framework.
According to UK GBC senior policy adviser Richard Twinn, this is one of the key reasons the framework was established – to resolve confusion around exactly how to make buildings net zero carbon and, most importantly, to determine whether buildings are achieving this or not.
“Lots of people claim net zero, and they’re all talking about completely different things and not necessarily explaining it,” Twinn says. “Developers will put something up, say its net zero and won’t bother measuring it and caring about how it performs in practice.”
He adds: “The framework sets out reporting requirements that [show how developers] achieved net zero.”
Better Buildings Partnership chief executive Sarah Ratcliffe agrees that there needs to be a greater focus on holding developers to account on their net zero claims. “Net zero is incredibly difficult to achieve if done with integrity and there is still a huge amount that the industry needs to do in order to make progress towards reducing emissions,” she says, adding: “The devil is in detail – the definition of how net zero carbon is achieved is critical in determining whether or not the buildings are reducing their impacts.”
Being open about exactly how a company has achieved net zero carbon could be the difference between a deal or no deal when it comes to financing schemes, according to Ratcliffe. “There is a drive for greater transparency more generally on carbon emissions coming largely from investors […] effectively, climate change is seen as an investment risk. It’s that straightforward.”
Scale of the challenge
The business case for building net-zero carbon buildings is certainly there, and pressure to deliver such schemes is increasing. In terms of net-zero building programmes like that of Peel L&P’s becoming more common, JLL UK head of sustainability Sophie Walker says they are likely to hit the market with increasing frequency in 2026/2027.
“If all of this guidance and documents don’t start to affect the industry years from now there is something wrong,” Walker says.
“We have the trajectories and timelines for zero or close to zero new commercial and housing stock… It will be in the latter half of the decade where we see this become mainstream.”
Twinn says hitting net-zero targets will be a “very big challenge”, with most of the difficulties surrounding how to retrofit existing building stock to transform them into net-zero carbon assets.
There is limited data available on how much it will cost, Twinn adds, but he offers an indication on the scale of change needed to transform existing assets.
“It is largely assumed we are going to have to retrofit more than half of the existing building stock [both commercial and domestic] and that is a very conservative assumption,” he says.
“There are variables in terms of cost, but improving homes up to EPC Band C would cost more than £100bn, and that is not necessarily getting residential stock up to where it’s supposed to be.”
Twinn says the UK is facing a “massive” infrastructure challenge in revamping existing buildings in light of net-zero carbon targets, but the government is yet to mandate in-depth policies.
“Unfortunately, regulations to ensure all new-builds are zero carbon and do not need to be retrofitted are not quite there yet, for various reasons,” he says. “They have been watered down by central government over the past 10 years and we are behind where we should be.”
Nevertheless, local authorities are working on hitting their own green targets, some of which are particularly ambitious, such as Greater Manchester Combined Authority’s aim to become carbon neutral by 2038.
But with these targets in place, will it be down to real estate to foot the bill for realising local authority – and Whitehall’s – green visions? JLL’s Walker says that in the residential sector, the government is going to have to find financing mechanisms to refurbish existing assets.
“There is an army needed… to refurbish existing housing stock, whether it is owner-occupied or local authority-owned, or owned in other demises,” she says. “Existing housing is definitely the one [area] where the government needs to be forking out and moving with rapidity, or at least putting the right incentives in place to help home owners do it.”
In the commercial sector, the pressure should be on developers and investors to meet targets, Walker adds. “This is what the new good looks like, and the onus is on the developer or investor to deliver net-zero carbon buildings, including existing stock.
“Effectively, it is a duty of responsibility on investors, pension funds in particular, to make sure buildings are not made obsolete because they are not net-zero carbon.”
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