Property Firms Vulnerable to MEES Regulations

Only 57% of property firms have assessed the impacts of the upcoming Minimum Energy Efficiency Standards (MEES) on their portfolios, according to new research conducted by Bilfinger GVA.

The MEES regulations, due to come into force in April 2018, will make it unlawful to let or sublet properties in England & Wales with the two lowest Energy Performance Certificate (EPC) ratings of F and G, posing potential risks to landlords and occupiers alike.

The research also found that 98% of firms believe MEES will lead to increased capital expenditure, while 93% think that it will have an impact on pricing. With such a large proportion of firms who have yet to consider MEES at all, the report will likely act as an alarm bell to the sector, which is otherwise highly engaged with the wider sustainability agenda.

With just under two years to go until the regulations come into effect, fund managers can be well-prepared by assessing their portfolios and addressing risk now. When it comes to acquiring a new property, firms should take a more rigorous approach to the due diligence of the building’s existing EPC, checking its underlying accuracy and quality.

EVORA is perfectly positioned to help commercial real estate firms to understand the risks associated with MEES and to support them in the collation and analysis of their EPC data. Our environmental management software, SIERA, can hold EPCs for an entire portfolio and cleverly model the data to profile MEES risks against rentable income and lease expiry dates.

If you have any questions or concerns regarding MEES, please contact our experts today, who will be happy to advise you on the best course of action.


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Changes to the 2016 GRESB Survey- Part Two

This is the second part to our blog on notable changes to the 2016 GRESB survey.

Pilot Indicators

Six new Pilot Indicators have been included in the 2016 survey. These are indicators that are not scored this year, but will be included in 2017. This level of transparency is a great method of promoting action and allowing participants to respond to a range of environmental impacts not currently scored by GRESB. Pilot indicators include completion of assessments to measure and improve water efficiency, waste management and health and well-being. Tracking the impact and uptake of green clauses also features.

Health and Well-being

GRESB has released a new Health and Well-being module in recognition of the rapidly emerging and important area of opportunity for the real estate industry. The module seeks, firstly, to address efforts to promote health & well-being of the employees responsible for real estate entities and secondly, to address efforts to provide products and services that promote health & well-being of tenants and/or customers.

A 2014 report issued by the World Green Building Council identified that staff costs typically account for about 90% of business operating costs; rental costs 9% and utilities 1%. The report identifies the “overwhelming evidence which demonstrates that the design of an office impacts the health, wellbeing and productivity of its occupants” –productivity improvements of up to 11% are identified as achievable where good indoor air quality conditions are maintained at recommended standards.

This is clearly an area that needs greater focus and GRESB has taken steps to start addressing the topic. It is noteworthy that some organisations are demonstrating leadership on this issue, but the message (and actions to be taken) needs to reach the masses.

New Assessments

In addition to the health and well-being module, three new separate assessments have been released:

  • GRESB Developer Assessment – for organisations that develop projects or acquire properties exclusively for redevelopment and resale.
  • GRESB Infrastructure Assessment – for assessing infrastructure assets and funds, such as airports, railways, ports, waste/water and energy management facilities.
  • GRESB Real Estate Debt assessment – launched in 2015 to private real estate funds, the 2016 survey is open to banks, life companies, pension funds and mortgage REITs, in addition to real estate debt funds.

Asset Level Interface

Although not new to the 2016 survey, using the asset interface as a way of entering data is a tool that we recommend highly. The Asset Level Interface provides significant advantages over manual upload. For example, data outlier (validation) checks are made prior to upload. Automation reduces the risk of errors and the response speed to data queries is quicker and more specific. These are all important benefits as erroneous or unexplainable data will receive zero points. We are using our SIERA software platform to deliver this, which simplified the GRESB process enormously in 2015, delivering significant efficiencies.

More on SIERA

Overall, changes in the 2016 GRESB survey appear progressive in supporting the long term aim of improving Environmental, Social and Governance impacts within real estate. As stated in the first blog, the key to scoring well in GRESB remains the same:

  1. Plan your strategy based on current and future risks and opportunities.
  2. Prioritise delivery according to the value proposition.
  3. Measure and report the ongoing impact.
  4. Review new risks and opportunities and repeat from step 1.

GRESB Premier PartnerAs a GRESB Real Estate Premier Partner, we are perfectly positioned to provide GRESB support. View our official Premier Partner profile.

We can work with you to complete the submission and understand your scoring, as well as develop a sustainability plan that will improve your future GRESB performance and align with your organisation’s key environmental objectives.

Changes to the 2016 GRESB Survey- Part One

The GRESB 2016 Real Estate survey was released on 1st April and with it came the detailed (231 page) reference guide. GRESB has always been transparent about the categorisation and scoring of their indicators, which is useful if you have the time and inclination to go through those 231 pages. In this first blog of two, I have set out my thoughts on the more notable changes.

Increased focus on performance

GRESB’s goal is to “provide investors with the ESG information they need to make more informed investment decisions“. You can’t knock this goal, but there are questions as to how GRESB portfolio level assessments can provide investors  with sufficient information at the asset level. That said, GRESB scores clearly indicate how sustainability has been incorporated into participant business strategies.

GRESB results can be analysed and broken down in a number of ways.  However, fundamentally GRESB assesses sustainability across two broad levels (or dimensions as GRESB calls them):

  1. Management and Policy – a measure of the intent of your ESG programme
  2. Implementation and Measurement – a measure of the impact and performance the intent is delivering.

The GRESB quadrant is shown in the Figure 1 below.

GRESB graph

Figure 1: GRESB Quadrant Scoring Model and Global Average Scores 2011 – 2015

Participants scoring more than 50% in both dimensions are placed within the Green Star quadrant. Lower than 50% in both dimensions places you within the Green Starter quadrant. A strong Management and Policy score but weak Implementation and Measurement score results in a Green Talk score (i.e. you have good intent but it is not backed up by performance). Conversely, a strong Implementation and Measurement score but weak Management and Policy score results in a Green Walk score (i.e. you have good performance but seemingly no co-ordinated management structure behind it).

In general, participants score better in Management and Policy (2015 global average 63%) compared to Implementation and Measurement (2015 global average 52%). This is to be expected – it is relatively easy to develop plans and policies, the biggest challenge lies in achieving the results.

The global average result in 2015 for all participates was Green Star (the best rating).  To put it another way, more than half of participants achieved this GRESB rating. This has led to criticism of the GRESB scoring mechanism, as it was seen as too easy to achieve a Green Star, without performance being sufficiently scrutinised. In the 2016 survey, the overall weighting for Implementation and Management (or performance) has increased by 2 percentage points from 70% to 72%. The goal posts have shifted.

The increased focus on performance may well be significant, particularly noting the 2015 global average Implementation and Measurement score was 52% in 2015. The 2% weighted increase for Implementation and Measurement could see a large group of borderline participants shift from the Green Star quadrant to the Green Talk quadrant,

Participants should expect a greater scoring emphasis on Implementation and Measurement to continue in the future. Current participants will need to maintain forward thinking ESG strategies that deliver results to keep pace. New participants may find themselves significantly behind the curve on first submission (fortunately a grace period provides anonymity in the first year’s submission). Wherever you are in your sustainability journey, it is clear that neither complacency nor inactivity is an option.

In the second part of this blog, I will highlight the key changes to the Real Estate assessment and also introduce new GRESB assessments and modules.

Regardless of the changes introduced by GRESB, our message to achieving an impact driven Environmental, Social and Governance strategy remains the same:

  1. Plan your strategy based on current and future risks and opportunities.
  2. Prioritise delivery according to the value proposition.
  3. Measure and report the ongoing impact.
  4. Review new risks and opportunities and repeat from step 1.

 

To read Part 2 of this blog, click here.


GRESB Premier PartnerAs a GRESB Real Estate Premier Partner, we are perfectly positioned to provide GRESB support. View our official Premier Partner profile.

We can work with you to complete the submission and understand your scoring, as well as develop a sustainability plan that will improve your future GRESB performance and align with your organisation’s key environmental objectives.

Budget 2016: Changes to the UK Government Energy Efficiency Strategy

Significant changes to the Government’s energy efficiency strategy were announced in today’s budget (16 March 2016).  Key points are summarised below:

  • The Carbon Reduction Commitment (CRC) energy efficiency scheme will be scrapped at the end of the 2018-19 compliance year (the end of Phase 2). Obligated businesses will be required to surrender allowances for the final time in October 2019.
  • Lost revenue will be recovered through an increase in the Climate Change Levy (CCL).  This will come into effect from 1 April 2019.  This is designed to cover the cost of CRC abolition (although 2019 appears to be a bumper year for the Government – with increased CCL rates and a final CRC payment).
  • CCL rates and CRC allowance prices will increase in line with RPI annually until 2018-19.
  • The CCL discount for sectors with Climate Change Agreements will be increased to cover increases in CCL main rates.
  • The Government will retain existing eligibility criteria for Climate Change Agreement schemes until at least 2023.
  • The main rates of CCL for different fuel types will be rebalanced to reflect recent data on the fuel mix used in electricity generation. In the longer term, the Government intends to rebalance rates to deliver greater energy efficiency savings and reach a 1:1 ratio of gas and electricity rates by 2025.
  • Finally, the Government will consult later in 2016 on creation of a simplified energy and carbon reporting framework planned for introduction by April 2019.

Please contact Paul Sutcliffe at EVORA for more information (psutcliffe@evoraglobal.com)

Pre-Budget: Rethinking the Energy Efficiency Taxation Landscape

With the energy efficiency taxation review just around the corner, it is expected that the CRC Energy Efficiency Scheme will be scrapped or at least changed significantly.  Below, we make three key predictions:

What are the key predictions for the upcoming budget review?

  1. A simpler energy efficiency taxation landscape: A single new tax based on the climate change levy and a single reporting framework
  2. Scrapping of the CRC Scheme
  3. Further developments based on ESOS supported by an incentivisation scheme to drive the implementation of improvement measures.

Moving away from the older policy environment, the translation of theory to practice will present new opportunities to utilise ESOS to spur the uptake of energy efficiency measures. Following on from our reflections on ESOS, it makes sense for businesses to develop strategies to address energy regulations in a coordinated fashion and to reap the benefits of a combined approach. A good example of this is having a combined approach to ESOS and MEES, where meeting minimum energy efficiency requirement aligns with the broader achievement of reducing energy costs in the building.

Please stay in tune for the budget announcement on the 16th of March 2016 and our post-budget review.

Links:

Reforming the business energy efficiency tax landscape

http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2015/11/Consultation_reforming_the_business_energy_efficiency_tax_landscape1.pdf

http://uk.practicallaw.com/3-623-4911?source=rss#

 

 

Reflecting on ESOS: The Next Steps

Going forward, what are the prospects for ESOS? EVORA highlights the next steps for the scheme.

A Coordinated compliance and improvement approach?

EVORA recommend that clients should consider the establishment of a collective approach to address all regulatory risks and opportunities. It makes sense for example, for real estate businesses to develop a strategy addressing both ESOS and the Minimum Energy Efficiency Standards (MEES).

ESOS: a burden or an opportunity for businesses?

On the whole, we believe that businesses have found the compliance process more challenging than regulators anticipated. ESOS is new and businesses will certainly feel that they had a short period of time in which to prepare. Nevertheless, EVORA is already seeing evidence that assessment results are being incorporated into energy action plans. Overtime, ESOS has the ability to deliver the energy savings the UK industry needs. However, ESOS needs to form part of a structured and stable energy policy framework.

ESOS and ISO 50001

In the latest round of ESOS, only 0.9% of businesses chose ISO 50001 as a route to compliance. EVORA believes that, over time, an energy management system approach will help deliver the best results. However, the ISO 50001 approach is also the most time and resource intensive. Nevertheless we believe that, ISO 50001 will grow in popularity over time. The low level of initial uptake will have been restricted by the long time it takes to gain certification and the lack of available certification assessors.

For more information, Paul Sutcliffe will be speaking at the UK Green Building Council (UK-GBC) ESOS Showcase Event in London on the 15th of March. The link to the event can be found on the website: http://www.ukgbc.org/event/esos-showcase

Stay in tune for further updates on the energy efficiency taxation review budget to be announced soon!

Reflecting on ESOS: The EVORA Experience

Over the last six months, EVORA has supported a broad range of clients to meet ESOS requirements. Through our support programmes we have engaged with 27 companies from Real Estate to a Big Six energy provider.

Energy spend assessed equated to £55m and saving opportunities of £2.8m (5.2%)  where identified (this equated to 27,000 MWh per annum).

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ESOS routes to compliance

It was also interesting to explore the ESOS routes to compliance. From an analysis of all ESOS participants and responses to the notification questions (excluding personal data) across the UK and a selection of industry sectors, 65% of the notifications were made during or after December 2015.

The breakdown by compliance routes was as follows:

  • ISO 50001 – 0.9%
  • DECs – 5.3%
  • Green Deal – 0.2%
  • Audits -90%
  • De Minimus – 3.6%

Audits formed the main route to compliance; although ISO 50001 could become a popular option in the future.

EVORA predicts an increase in the take-up of ISO 50001, although significant time investment is required. This reflects the opportunities that energy management system frameworks present for target-setting and monitoring for continual improvement in the long-term.

How about transport?

This is often neglected since traditionally businesses have focused on health & safety when considering travel. Many opportunities exist including training, installation of tracking-systems, promotion of alternatives to travel including video conferencing and introduction of site-specific green travel plans. Focusing on transport could present new ways to achieve significant energy and cost reductions.

Please check out our Reflecting on ESOS: The Next Steps article for more on our reflections on ESOS and the next steps going forward.

For more information, Paul Sutcliffe will be speaking at the UK Green Building Council (UK-GBC) ESOS Showcase Event in London on the 15th of March. The link to the event can be found on the website: http://www.ukgbc.org/event/esos-showcase

Stay tuned for further updates on the energy efficiency taxation review budget on the 16th of March.

 

 

Health impacts of climate change on indoor environments

A report recently published in the journal Environment International highlights health risks associated with climate-induced change to indoor environments. The report explored four key consequences on indoor environments: overheating, reduced ventilation, indoor air quality (which may lead to the growth of pathogens) and biological contamination such as pest infestations or airborne infectious diseases. Climate change is expected to amplify existing health risks already associated with these categories. This is not very surprising and will only stretch the public health purse further if climate change is not tackled.

More information via Science Direct and the European Commission.

Global green building sector to double by 2018

A major new survey reveals the proportion of building companies planning to secure green certification for over 60% of their projects will increase from 18% to 37% by 2018.

Over 1000 professionals and 69 countries were surveyed for the report, carried out by Dodge Data & Analytics and United Technologies Corporation.

“The survey shows that global green building activity continues to double every three years,” said John Mandyck, chief sustainability officer at United Technologies Corporation, in a statement. “More people recognise the economic and productivity value that it bring to property owners and tenants, along with the energy and water benefits to the environment, which is driving the green building industry’s growth. It’s a win-win for people, planet and the economy.”

Full article via Business Green.

70% of organisations on the road to ESOS compliance

Latest figures from the Environment Agency show 6000 organisations have ESOS compliance.

In the two days before 29 January deadline, the agency received a further 1,015 notifications of compliance. This last-minute action reflected earlier fears of a slow start to compliance by organisations covered by the scheme.

More information via The Environmentalist