Insights

We sat down with Reuters, plus leading figures from the finance world, to talk sustainability, risks and returns.

Last month we designed a workshop, facilitated by global news network Reuters, to explore the new risks and opportunities arising for investors, asset owners and developers as ESG considerations gain increasing importance across the built environment.

With Head of ESG Diana Sanchez, our Sustainability Directors Ashley Bateson and James Ford welcomed senior representatives from GRESB, Stanhope, Derwent London, MN, PGGM Investments, Unibail Rodamco Westfield, World Green Business Council, DWS, UNEP FI, Sixth Street and Landsec.

Key takeaways included:

• Some sectors, such as offices, have a clearer green value distinction than other sectors, such as residential, where the differentiators in the product are harder to identify.
• There needs to be a recognition that the same actions can have very different carbon impacts across different geographic markets; down to the fact that baseline carbon emissions are very different in Sweden versus Poland, for instance.
• The direction of travel is moving quickly to conversations and appraisals focused on the whole lifecycle of buildings. Resource use, waste, circularity, intended use are all key considerations being factored in from the start on both acquisitions and new developments.
• New buildings have a better pre-defined process for setting carbon and sustainability targets, compared to old building stock acquisitions. For example, building certificates such as EPCs, BREEAM and LEED ratings allow developers to set targets for new developments.
• Data is becoming increasingly important. But in order to verify and assess data, that data must exist. Smart design and management approaches incorporating leading-edge technologies for this purpose are gaining traction across new builds.
• Cities and governments setting zero carbon targets and climate declarations help demonstrate the direction of travel for public policy. This helps to show public priorities to investors and developers and accelerates market evolution.
• Some leading developers now understand and require that success should be measured during operation, and that building certificates, which are awarded at construction completion, no longer provide enough demonstration that the building will be sustainable in practice. Other sustainable performance metrics are also gaining interest in the ESG funding community, including health and wellbeing of the building occupants and climate resilience of the asset.
• There can also be social evaluation criteria so that investments in, say, housing for key workers such as teachers and nurses, is seen as a positive thing to invest in. However, there is awareness that key workers can’t afford high rents to provide a good return on investment so developers will have to look at other parts of the development, such as the private rental accommodation, to contribute to the return on investment.
• Historically, the challenge of retrofitting existing buildings means that, often, developers see knocking down and building again as the most cost-effective option. This is changing. The default isn’t new-build anymore. Awareness and pressure from stakeholders around sustained carbon reduction and net zero targets are driving this. The default position across a lot of development now  is ‘have all opportunities for refurbishment been exhausted?’
• The Architect’s Journal ‘RetroFirst’ campaign supports this approach. From a carbon reduction perspective, reposition/refurb versus redevelopment is not necessarily as binary as this. Sometimes, due to structural restrictions or proposed changes in use, retrofit interactions may not easily be able to meet future expectations for the building. So a case-by-case appraisal is required.
• Hybrid approaches are becoming more common in appraisals to evolve existing stock. It doesn’t have to be complete refurb/refit or knock down  and start again. There is a lot of middle-ground opportunity. There’s a strategic imperative now for development organisations to look at retrofit first, as this is arguably the single most impactful action that can be taken to support science-based targets (SBTs). It was suggested that those investors and developers who focus primarily/exclusively on new build are in denial of the task ahead of us. Given the existing stock inventory, at least in the developed world, there are very few spatial needs that really require a complete new build.
• Embodied carbon is starting to get more attention. Increasingly, developers are seeking whole-life carbon assessments to be undertaken to inform  their decision-making. It would be useful to determine clear definitions of what sustainable investment really means to provide clarity across the marketplace. We are likely to see consensus emerge as asset appraisals become more standardised, more data becomes available and ESG funding criteria become more sophisticated.

The full overview of the Reuters roundtable discussion can be found here.