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Real Estate Sustainability Performance (& Skydiving)

Skydiving can make you anxious. You may be reluctant to try it, you may not even entertain the thought of doing it. You’d certainly want to know that safety has been thoroughly planned, that you’re dealing with an experienced crew and a plane that actually works.

Once you do it though, you’ll probably love it, want to tell everyone about it and do it again, but next time from even higher! Fortunately, if you don’t want to do it, no one is going to force you out the plane. This is not the same, when it comes to setting real estate fund and asset sustainability performance targets.


Taking a few steps back though, I have seen many similarities in people’s thought process when considering performance targets, as you may see when skydiving for the first time. Like skydiving, that hesitation has a rational basis. Companies may not want to set a performance target due to barriers including:

  • Knowledge– where does one start
  • Uncertainty- how to drive forward improvements
  • Cost- a lack of budget
  • Responsibility- a lack of authority
  • Ultimately- a fear of failure

Planning, with the right expertise, can overcome all of the above barriers.


There are two common approaches to performance targets:

  • Top down– identifying where you want to be (often in the long term and often with far reaching improvement targets) and then setting about to accomplish the target through a series of strategic goals. This approach is commonly seen when setting Science Based Targets.
  • Bottom up– identifying improvement actions and setting a performance target based on the expected improvement to be gained from each action. Consolidating a range of asset level improvements can lead to the establishment of portfolio level performance targets.

EVORA is experienced in applying both approaches. Often, it is a combination of approaches that delivers most success for a simple reason that people find it harder to associate with (and then take accountability for) a long-term target and then recognise how it can be achieved. This is particularly true in commercial real estate where asset transactions in funds concerned can cause disruption.

There is plenty of literature available on setting top-down Science Based Targets and I draw your attention to our posts.

Less guidance is available on delivering successful bottom up strategies, and it is often these shorter-term targets that help companies on the road to longer-term more ambitious journeys. As such, we provide below, a staged approach, using insight from our experiences.

  • Stage 1: Prioritisation – Understand your portfolio and prioritise action at assets that have the greatest impact, greatest opportunity for improvement and/or where you have greater influence over performance.
  • Stage 2: Identification and analysis – Undertaking energy audits is a necessary step to identify performance improvement actions; EVORA has experience of more than 400 audits in the past eight years. Recommendations need to be technically and economically feasible, and importantly, aligned with the asset business plan to gain most chance of approval.
  • Stage 3: Asset level improvement plan – From our experience, this is a critical step. Property and Asset Management teams must work to agree and budget for implementation of specific actions within agreed and defined timescales with responsibilities and budgets clearly set out. Change does not happen without action and action does not happen without buy-in.
  • Stage 4: Portfolio level performance target – Portfolio level performance targets can be set through rolling up multi-year savings expected from asset level improvement plans. Establishing an accurate baseline and having clarity on reporting outputs and metrics is essential at this stage.
  • Stage 5: Implementation and tracking – Improvements can rely on operational and technology change. At EVORA, we have experience of both. Our SIERA Monitoring & Targeting software has led to operational energy savings up to 30%. While our engineering EDGE team has substantial experience on design, specification and project management of M&E installation. All performance data should be tracked in sustainability software such as SIERA to enable review.
  • Stage 6: Communication – Finally, and importantly, success must be shared with stakeholders including tenants and investors. Often the value of communicating responsible investment practices can be greater than the value of energy saved through such programmes

The above approach has proved successful for our clients and helped many get underway with performance targets. The process works as it delivers assurance to key stakeholders at all levels that the programme is practical, feasible and, importantly, adequately resourced to deliver success.

As for the obligatory targets, there is already certainty that these are coming for new and existing buildings.It may be driven by a combination of legislation and industry wide programmes but we can see these coming on the horizon. Planning now will help you keep pace with the industry.

If you want to go sky diving, please make sure your trip is planned, on a well-maintained plane and with an experienced crew (and don’t forget to share the news with us!). Happy flying!

To find out how we have assisted clients to develop and then achieve UK and pan European performance targets please do get in touch.


This post was originally written and published for GRESB Insights

Net Zero and Science Based Targets – Connecting the Dots

This blog is part of our Net Zero series for World Green Building Week 2017 – read more here.


I was recently asked how Science Based Targets are connected to Zero Carbon Buildings – hmmm, I thought, interesting question.

Let’s start with the definitions.


Science Based Targets

In response to mounting environmental, social and political pressure, organisations have recently begun setting science-based GHG emissions reduction targets (‘science based targets’ or SBTs). In doing this, companies are committing to bringing their operational activities and resultant emissions in line with the level of decarbonisation required to keep global temperature increases below 2oC compared to pre-industrial temperatures. Optional third-party approval of alignment to approved methodologies is managed by www.sciencebasedtargets.org, which is supported by the WWF, CDP, UNGC and the WRI.

The SBT approach is being adopted by companies across multiple sectors as the basis for setting long-term goals for GHG emissions reductions. Importantly, in the long-term the SBT approach may be adjusted to reflect advances of climate science and economic modelling (e.g. to target a 1.5oC increase in global mean temperatures).

A SBT approach may be adjusted to reflect advances of climate science and economic modellingClick To Tweet

Net Zero Buildings

Net zero buildings are highly energy-efficient buildings which uses on or off-site renewable energy sources – to achieve net zero carbon emissions. This definition encompasses all asset classes:  homes, offices, shops, stadiums and theatres of the future.

WorldGBC support the ‘Advancing Net Zero’ project – its aims are to ensure that:

  • All new buildings and major renovations should be net zero starting in 2030, meaning no buildings should be built below net zero standards beyond 2030. All buildings should be net zero by 2050
  • 75,000 professionals are trained on net zero building design and operation by 2030, and 300,000 by 2050.

Laudable – and I can see the 2030 target working with a combination of innovation, creativity and targeted regulation (a carrot and stick approach).  However, the aspiration to ensure that all buildings are net zero by 2050 if a big one.  We are less than 33 years away from this deadline and buildings are designed with much longer life-spans.  The speed of conversion and renovation must therefore increase significantly.  In the UK, Minimum Energy Efficiency (MEES) legislation will ban the leasing of buildings with F and G ratings from 2018.  However, net zero buildings have EPCs of A+ not D.  So, in short, at least in the UK, there is a long way to go.


The Connection?

I believe in SBTs – they require that organisational carbon targets are set in line with the global context and can be all encompassing, covering operational, supply chain and even embodied carbon emissions. However, it should be noted that at least for commercial property, the SBT approach doesn’t actually require that all properties become zero carbon by 2050; rather, a minimal level of carbon emissions performance must be achieved (e.g. ~13kgCOe/m2 by 2050).

As such, a science based target is actually – relatively speaking – less stretching than a net zero building.

Furthermore, science based targets are set at the fund, portfolio or even company level, whereas the net zero buildings agenda is targeting all buildings. SBTS are therefore more flexible.  SBTs can be met based on the average performance of a portfolio, with some inefficient and other efficient assets, which on balance are in line with a 2oC world.

In my opinion though, net zero buildings are a very worthy aspiration and will support any organisation in its aim to achieve performance in line with internationally agreed emissions targets. Certainly for new builds, I think we should be targeting net zero carbon. For existing assets, the challenge is substantial; however, one that we as an industry should be grabbing with both hands.

Net zero buildings are a very worthy aspiration and will support any organisation in its aim to achieve performance in line with internationally agreed emissions targets.

We need a joined-up approach, supported and incentivised by Government, as refurbishing all existing assets is a massive job and should be considered as a national infrastructure project.  However, delivery will ultimately need to be managed by both Government and Business working in partnership.

For existing assets, the challenge is substantial; however, one that we as an industry should be grabbing with both hands.Click To Tweet

We need:

  • A strong approach from Government– balancing regulation with incentivisation
  • Visionaries – organisations prepared to lead, to continue to progress the sustainability agenda
  • Communication and voice – organisations like the WorldGBC,  UK-GBC and the Better Buildings Partnership to promote and
  • Adoption

Now, as they say, ‘that’s a big ask’.

However, so much [read everything] is at stake

Come on Property Industry – let’s take the lead!

Three Signs Real Estate Must Move to a More Sustainable Model

1. Governments are putting sustainability into law and regulations continue to tighten.


The response of the international community to Donald Trump’s decision to withdraw from the 2015 Paris agreement demonstrates that we (most of the rest of the world) have long since reached our ‘tobacco’ moment and acknowledged that climate change is real and we must respond with changes in our current models and behaviour. Examples of this include India’s and China’s current outperformance of the Paris goals, California’s and China’s agreement to continue working on climate change, and the UK Minimum Energy Efficiency Standards (MEES).

Commercial Real Estate can account for up to 50% of C02 emissions globally, and 88% of potable water consumption in the US. An industry that has such significant impacts on C02 emissions and energy consumption will continue to get scrutinized more and more as governments implement further environmental legislation.

Commercial Real Estate can account for up to 50% of C02 emissions globally. An industry that has such significant impacts will continue to get scrutinised as governments implement further environmental legislation.Click To Tweet

An example of this is the UK’s Minimum Energy Efficiency Standard (MEES) which comes into effect in 2018, whereby properties with an F or G rating are unable to be let. Amazingly one third of landlords surveyed by Property Week earlier this year were unaware of these new requirements.

Our EDGE team can develop a strategy for you to ensure you are prepared for MEES and de-risk your property portfolio.

Businesses have also responded in ways that exceeded my expectations (call me a pessimist) such as Apple’s commitment to the Paris agreement and ‘green bond’ environmental push, US auto industry’s commitment to Paris, and an impressive range of real estate investors have reaffirmed their commitments to match or exceed the Paris agreement’s goals. The NHS and several UK companies will no longer occupy properties with an EPC rating of a C or less, further emphasising the focus businesses and government are putting on their environmental responsibilities.

Further evidence of the increasing importance of sustainability within Real Estate can be seen through the exceptional growth of real estate sustainability benchmarks over the last decade such as GRESB, BREEAM, LEED and WELL.

Take away: Governments are committing to a sustainable future and are tightening regulations on energy efficiency and sustainability. A paradigm shift has happened where leading businesses are moving to ‘conscious capitalism’ where their contribution to society is considered and profitability is no longer the only goal, regardless of the consequences. The evidence to demonstrate that consumers will shirk environmentally friendly properties may be anecdotal for now, but I believe that soon we will have enough evidence to establish this as a growing trend within the real estate industry.

Real Estate investors and asset managers must recognise these shifts and make changes in the management of their portfolios. Those who stand still in sustainability will be moving backwards, and will see the value or their properties decrease and their economic/environmental risks increase.

EVORA can advise you on the best strategy to future proof your portfolio and minimise risks. Use our SIERA software to get in-depth insights into the environmental performance of your properties.

 

2. Space as a Service is the new way of working


The millennial generation has come of age and has joined the work force, and it isn’t working like the generations before it. This is the generation of Uber, Airbnb, and BorrowMyDoggy, and it will be sharing office space as well.

There is research that estimates that around half the UK workforce can work remotely, and around 40% of the UK workforce will soon be freelancers. Leases of 20-25 years are now the exception instead of the norm, with tenants putting a greater emphasis on flexibility. This has coincided with a boom in flexible office providers who are taking advantage of technologies which enable this new way of working. That this workstyle has caught on is demonstrated by the fact that WeWork was the largest new occupier of space in the USA in 2016, and British Land has also ventured into the flexible workspace section with its new Storey co-working offering in London.

Research by Knight Frank and the Instant Group shows that this market has grown by 16% in 2015-2016 and 18% in 2016/2017 in the UK. This combined with WeWork’s estimated valuation of $16bn demonstrates that Space as a Service is an evolution within real estate opposed to a fad.

The increased demand for flexibility from tenants represents a challenge for landlords as short-let properties generally underperform against long term lets. As explained in a recent Property Week article:

“While rental values have grown faster on shorter-let properties in the central London office market, where the demand for flexibility has increased significantly, shorter-let assets had delivered a cumulative return of 91% over the past nine years compared with 113% for longer-let properties.”

Take away: The ‘Uberisation’ of space means traditional landlords must move with the times and technology. There is a shift where they need to move from their existing model to becoming service providers of space. As an all-inclusive provider (rents, rates & services) the landlord will no longer be constrained by the ‘landlord-tenant dilemma’ of improvements and any energy efficiencies will help the profitability of their properties. Their self-interest will drive them to make their properties as energy efficient as possible.

Our EVORA EDGE technical engineering team can help ensure you improve the energy efficiency of your properties and maximise the lifetime returns of your assets.

 

3. The rise of Science Based and Carbon Neutral Targets


Real estate developers and companies with large property portfolios are committing to Science Based Targets (SBT) and recognising that sustainability is no longer just a Marketing and PR exercise, and that their environmental impact must be measured.

For those that don’t know, a SBT is a carbon emission target that is defined as ‘science-based’ because it is in alignment with the 2oC target set by the 2016 Paris Agreement. It involves companies assigning themselves a target in line with their proportional contribution to global emissions. This requires short and long-term planning when considering expansion plans in the context of carbon reduction commitments.

A range of business have made commitments from manufacturing, energy, industrial, telecommunications, to retail. Examples include Coco-Cola, Eneco, Sony, and Wal-Mart. In the UK real estate sector, companies setting themselves SBTs include Land Securities and British Land. So far it’s a small number, but I am convinced that this number significantly increase over the next 12-24 months.

Real estate developers and companies with large property portfolios are committing to Science Based Targets (SBT) and recognising that their environmental impact must be measured.Click To Tweet

Take away: Real estate does not live in a bubble. Leading blue-chip companies are setting themselves SBTs and most of them will have significant property portfolios. As mentioned earlier, if commercial real estate is estimated to account for up to 50% of global carbon emissions you can be assured that these companies are looking at the performance of their property portfolio and how they can improve the performance. For landlords that want to continue to have competitive properties that attract blue chip business (which often draw in more businesses) then they need to consider the environmental performance of their assets.

Contact EVORA to see how we can help you set Science Based Targets for your property portfolio and become an industry leader in sustainability


These are just three signs that real estate must move to a more sustainable model, to discuss this more in-depth, contact a member of the team.


 

Science-Based Targets: Considerations for the Commercial Real Estate Sector

Interest in Science-Based Targets (SBTs) has grown significantly following last year’s Conference of the Parties (COP21) in Paris (which led to a climate change agreement signed by 195 member states) and more recently at COP22 in Marrakech. For a general overview, take a look at Part 1 for a short introduction to Science-Based Targets.

The importance of greenhouse gas emission reductions is expected to have varying implications across different industries. For the commercial real estate sector, there are several issues to consider.

Science-Based Targets: Categorising Emissions

SBT platforms require the input of emissions data, which is then analysed to generate emission reduction targets over time. Greenhouse gas emissions are caused by multiple organisational activities. One way to describe greenhouse gas emissions is through Scopes 1, 2 and 3 according to the GHG Protocol as shown in Figure 1.

Science-Based Targets: Discussions for Commercial Real Estate: Blog Image 1

Figure 1. Scopes and Emission Breakdown (Source: GHG Protocol, 2011)

Science-Based Targets: Discussions for Commercial Real Estate: Blog Image 2

Data on emissions from sources is collected, entered into a model, and then targets for each emission scope are set based on the business’ contribution to the overall 2°C reduction plan (agreed at COP21). This relies on the ability to measure and monitor accurately the different categories of greenhouse gas emissions for an organisation’s activities (Figure 1 – GHG Protocol, 2011). The Better Buildings Partnership (2016) recently made this observation, but specifically mentioned the landlord-tenant split and allocation of emissions as the key challenges. The problem for commercial real estate firms is who is made accountable for the emissions– the landlord, the tenant or both?

The problem for commercial real estate firms is who is made accountable for the emissions– the landlord, the tenant or both?Click To Tweet

Different Approaches

We have been asked by clients to explain how Science-Based Targets actually work in practice. This is a good question. At present, there are many approaches available. Examples include: the Sectoral Decarbonisation Approach (SDA); The Absolute Emissions Compression; The 3% Solution; Climate Stabilisation Intensity Targets (CSI); Corporate Finance Approach to Climate-Stabilising Targets (C-FACT); GHG Emissions per Value Added (GEVA) and Context-based Carbon Metrics (CSO). All have different approaches.

How do Science-Based Targets actually work in practice?Click To Tweet

The Sectoral Decarbonisation Approach (SDA) is currently being considered alongside other approaches within commercial real estate. It was originally developed by the Carbon Disclosure Project, World Resources Institute and WWF. Here, we focus on this approach, but in the future, we will consider other methodologies.

How does SDA work?

In short, this method splits up the carbon reduction pathway to different kinds of sectors and activities and is based on the establishment of business-level emission trajectories that support the 2°C global warming threshold, developed by the International Energy Agency, which limits the total remaining cumulative energy-related CO2 emissions between 2015 and 2100 to 1,000 GtCO2 (IEA, 2014).

The step-by-step approach for setting emissions targets

The steps below provide a summary of how SDA targets are set (this is intended to be an overview, please contact us for more information).

  1. Identify emissions by converting energy use into CO2e
  2. Categorize by Activity Type or Scope
  3. Produce a forecast of business-as-usual for each activity type – what will emissions look like if the business continues without intervention?
  4. Produce a forecast for each activity type based on the emission reduction required to align with the global 2°C carbon reduction target. This becomes your SBT
  5. Compare Business-as-Usual vs. Science-Based Target for the different activities
  6. Combine activity-level analysis to identify an overall target
  7. Track progress over time, engage and review
Science-Based Targets: Discussions for Commercial Real Estate: Blog Image 3

Figure 2. Sectoral Decarbonisation Approach Schematic. Source: Science-Based Targets http://sciencebasedtargets.org/

 

Modelling Methodologies – Some Considerations

Emissions data is not the only input that goes into the model – especially with regard to real estate. There are other things to consider:

  • Scale: What do the emissions cover and what is the timescale – building level or portfolio level?
  • Geography and Location: Where does it apply?
  • Activities: What kinds of activities occur in the building? What activity levels are we expecting to see in the building? What are the occupancy levels like? What does the electricity-use look like?
  • Trends and Changes Over Time: What are the consumption trends and how do we see this changing in the future i.e. rates of change?
  • The Grid and Energy Procurement: Should carbon emissions from the grid be factored into the model? How are regional variations in the make-up of the grid and type of energy procurement taken into account in the emission scenarios?

On the whole, there is the question of what to include or exclude from the model. There is a risk of data over-refinements and normalisation, which could lead to an erroneous not-so-Science-Based result, which could be meaningless as a strategy!

Data Accuracies: Measurement and Monitoring

Target-Setting begins with data. If the data was poor at the outset, it cannot be considered to be a true reflection of what is happening in reality and as a result, any target would be inaccurate. SBTs are only scientific in their alignment to decarbonisation pathways which lead to a limit of 2°C global surface temperature increase, but it is wrong to believe that SBTs can act as the silver-bullet approach to achieve cost-savings and greenhouse gas emission reductions directly.

It is wrong to believe that SBTs can act as the silver-bullet approach to achieve cost-savings and greenhouse gas emission reductions directly.Click To Tweet

Another issue is how to set the baseline for SBTs. Of course, the scale and extent of data matters in this case, especially with the issues of measurement, monitoring and completeness of greenhouse gas emissions data at the building and portfolio level.

Concluding Remarks

Setting SBTs has the potential to convey a message and a common goal; but there is a need to link to the bigger picture.

Other factors should be considered alongside SBTs for maximizing the performance of portfolios through achieving energy and cost-saving opportunities. The setting of SBTs as outlined above does not consider opportunity for improvement. SBTs should be used as the initial framework and its design should be informed by data and sustainability management strategies, as well as the climate science. Performance must also be tracked over time to assess alignment to the target.

In the future, SBTs are expected to be a popular area for development, but for now, take-up is still slow in the commercial real estate industry.


What next? It is clear that there is no one-size-fits-all approach, if you identify any issues on sustainability and data management strategies that you would like to talk to us more about, please get in touch.



Further reading:

Science-Based Targets: A Quick Introduction

This is an introductory post. To find out what Science-Based Targets mean for commercial real estate firms, look out for Part 2. You can join our exclusive mailing list here.


What does it all mean?

Interest in Science-Based Targets (SBTs) has grown significantly following last year’s Conference of the Parties (COP21) in Paris (which led to a climate change agreement signed by 195 member states) and more recently at COP22 in Marrakech.

Climate modelling studies point to the influence of human-driven climate change on increasing overall global surface temperatures. SBTs have been established to support achievement of the agreed target which aims to keep global warming below 2°C compared to pre-industrial temperatures (IPCC, 2013). Thus, it is important to situate CO2 emissions within the framework of the past, present and future (IPCC, 2013) and this represents a long-term commitment in tackling climate change.

Science-Based Targets: The Potential?

There is a lot of potential for SBTs, as their use could bolster corporate action on making long-term greenhouse gas emission reductions, as carbon emissions have been proven to enhance the earth’s greenhouse effect, leading to increasing global surface temperatures.

However, SBTs will only be effective because they align to the Paris Agreement’s 2°C target which is a simple, clear goal that not only conveys the urgency of the need for action, but also allows policy-makers to make decisions which have global significance (Rahmstorf, 2014).

How Scientific is a Science-Based Target?

SBTs are scientific in the sense that they align to the 2°C global warming target, but the process that goes into designing a SBT is complex and resource-intensive and may not be transparent to the user. As with climate modelling techniques, tools used to inform SBTs are still undergoing refinements, and to this end, there are still some issues to consider in terms of their practical applications.

To the user, SBTs appear as a ‘black box’ solution. Information on user activities are inputted into the systems and this is used to generate outputs.  However, to the regular user, little known about how the calculations are made. Understanding on how SBTs work will need to develop before we see widespread use.

Science-Based Targets: A 5-Minute Discussion Blog Image 1

Figure 1. A Black Box. Source: https://en.wikipedia.org/wiki/Black_box

Even without a SBT, it makes sense to seek energy-saving measures, apply sustainability strategies to prevent loss of financial value and improve organizational reputation. If used correctly, a SBT can support development of improvement goals and plans. However, such targets can vary according to the context of use, importantly, the data used to inform the target-setting process at the outset. Moving forward, it will be important to assess the applicability of each SBT approach and how it works in practice.

Final Thoughts

There are multiple SBT methodologies out there and results will differ dependent on the approach taken. At a user level the analogy of cake baking using different ovens can be used.  All ingredients are prepared in the same way, however, different ovens lead to differing results. One questions whether multiple different approaches will help to achieve the common goal or will the complexity cause confusion and possibly even slow progress.

SBTs are still in their infancy.  Profile is increasing but understanding is still low. The initiative is certainly thought-provoking and something to look out for in the future. At the present time, SBTs do not have the same weight in the commercial real estate sector than it does in other sectors and take-up has been slow.


Look out for Part 2 in this series: Science-Based Targets: Discussions for Commercial Real Estate


To talk to us about Science-Based Targets and what they mean for your organisation, please get in touch.


Interesting Links:

Science-Based Targets Initiative

COP22 Marrakech

IPCC: Climate Change 2013: The Physical Science Basis