On 20 April 2021, the UK Government announced that it will set the world’s most ambitious climate change target into law and reduce its emissions by 78% by 2035 compared to 1990 levels.[1]
A very bold objective that poses many challenges to the country, most importantly how are the sectors of the UK economy going to mobilise to achieve the goals of this Climate Budget? We received a great snapshot on Thursday 21st October when were given an insight into the reaction of the real estate industry and its plans for the future, thanks to a discussion organised by CREW UK.
CREW UK is a business networking organisation dedicated to transforming the commercial real estate industry by advancing women globally.
CREW UK hosted a panel of top real estate professionals to debate how the industry can help tackle the key goals of COP26 through clean construction, policy change and green construction initiatives within community projects. The discussion was moderated by CREW UK Board Chair, Siobhan Godley, Real Estate Tax Partner, Deloitte, and featured panellists Jennifer Taranto, Director of Sustainability, Structure Tone who gave us a great perspective of the industry from across the pond, Philip Parnell, Partner, Deloitte, who focused on the financial mechanisms at play in the sector and our very own champion of Energy and Real Estate Chirag Rao.
Chirag spoke at length about the development of legislation within the real estate framework. With the audience particularly interested in his work with the Chancery Lane Project, a collaborative effort of lawyers from around the world whose vision is a world where every contract enables solutions to climate change.[2]
The key theme of the evening was collaboration. It is clear to see that any advances in the real estate sector that do not receive top to bottom support will not be sufficient or capable of achieving significant success. It will very much be a collaborative approach that is required to bring emissions down.
All the panellists agreed that the most important aspect of this is the supply chain. Structural changes are required to make sure real estate projects are approached in a collaborative manner. This begins at the outset, enshrining green legislation into lease documents and within the financing mechanisms of developments, it continues through the design phase, where architects are increasingly designing projects with the whole life cycle in mind, this includes use of brownfield sites or even starting from a stripped out building skeletons. It continues with the selection of materials and construction techniques, specifically designed to give the building a green and healthy life cycle and closes with integrated material re-use and large-scale recycling at the end of the building's life.
Philip discussed changes he has witnessed in the financing options available in the industry. He rubbished the suggestion of a green premium, highlighting the fact that long term investments are already beginning to look much safer when shrouded by the protective veil of green financing, partnerships and securities. With the pace of change evident in the last few years, the "brown" discount is a thing of the past.
Chirag developed this point when he discussed the Aatmay's Clauses that are being incorporated into real estate licences and leases, Aatmay's clauses enshrine sustainable and circular economy principles and enable landlords and tenants to reduce unnecessary waste and purchase of new products (and the associated greenhouse gas emissions) by prompting them to follow circular economy principles in repair and alterations, prioritising the use of re-used, reclaimed or recycled goods or materials before new, sustainable goods or materials. [3]
Jennifer brought this topic to a nice close by outlining the end of building life developments that are springing up in America. The reuse of building material, a claimed 48% of new non-residential construction projects are now being designed this way in the US[4], has really taken off in San Francisco. There are companies solely focused on reusing building materials from refits and gutting projects. Including one large office project Jennifer worked on where all the wooden doors were saved and used in the buildings refit, either redesigned and repurposed or used within other timber structures. She stated that the key hurdles are involving the architects design process and the warehousing of material that cannot be used immediately. Thankfully, steps are being taken to redevelop many brownfield sites in San Francisco for such a purpose but there is still a long way to go.
The discussion continued with a lot of input from a very engaged audience on a variety of topics, well steered by Siobhan. A major point of discussion was the looming COP26 conference. Philip was very concerned whether the attendees at COP would be able to "bring forward" the agreements and headlines from the conference and if governments will have the will power and the financial to bring lasting chance on the back of a much-discussed meeting. Additionally, the idea of human health and its relationship to the built environment was debated. Green buildings can have a number of health benefits, from creating an optimised indoor atmosphere free for pollutants and chemicals using only natural materials to improvements on a wider population scale, creating less pollution in densely populated areas and often being designed with cycling, walking and green spaces integrated into the design language the project.
Legislation, the focal point of Chirag's work within the industry, was the final point of discussion. One aspect that needs to be address urgently are the legal definitions. Phrases such as net zero, net neutral or carbon negative, regularly bandied about in discussions about the reduction of emissions, do not have legal definitions at present. However, there has been progress made by the UK Green Building Council, (which Howard Kennedy is a proud member of) they published a plethora of documents providing a framework for and a feasibility study on unlocking obstacles to net zero carbon buildings together with a guide on renewable energy procurement and carbon offsetting. They also recently published a commercial playbook to share policy recommendations for local authorities for new non-domestic buildings and effectively fill the gap left by national policy to meet the UK's environmental commitments.
London, and much of Britain, was hit by floods earlier this summer, which brought home the challenges climate change will pose to the population. For the real estate industry, it posed a significant questions, both to constructors and future investors, can your building handle extreme weather and is it a high-performance green project? Risk is the best way to incentivise and, thanks to the sharpening of our minds in the recent months, COP 26 appears to be happening at a significant time for the real estate industry. With new legislative backing and gradual progression toward green financing underway, thanks to the work of people like CREW UK and significant discussions like this one, the real estate industry appears to be fully behind the move to a green future.
[1] https://www.gov.uk/government/news/uk-enshrines-new-target-in-law-to-slash-emissions-by-78-by-2035
[2] https://chancerylaneproject.org/about/
[3] https://chancerylaneproject.org/climate-clauses/sustainable-and-circular-economy-principles-in-leasing-arrangements-for-repair-and-alterations/
[4] https://www.contracterp.com/green-building-materials-are-changing-the-construction-industry/
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