Sustainability Archives

Improving SECR Reporting

September 27, 2021/in News & Views, Sustainability /by Joanna Tomlinson

Unprecedented inflows into sustainable investment funds, the looming threat of climate change, and societal pressure for businesses to better align their activities to public interests are all driving an agenda towards better disclosure of non-financial information.

Ultimately, the “alphabet soup” of ESG reporting acronyms and frameworks exists today because different people want different things from ESG reporting and that leads to a lot of confusion.

What about SECR specifically?

The Streamlined Energy and Carbon Reporting (‘SECR’) rules set out certain required statutory disclosures about emissions and energy use. From 1 April 2019, the rules expanded the existing emissions disclosure requirements for quoted companies and required emissions reporting for the first time for large unquoted companies and limited liability partnerships (‘LLPs’).

The Financial Reporting Council (FRC) have released a Thematic Review on Streamlined Energy and Carbon Reporting this month considering how a sample of companies have complied with the new SECR requirements, highlighting where they saw examples of emerging good practice, and setting out expectations for reporting in future periods.

Whilst the FRC saw many examples of good disclosure in their sample review, they noted scope for improvement across many of the reports.

What does this mean for my company?

Below, we highlight some of the key takeaways that companies should be looking to incorporate in their SECR reporting process:

Present all the required information in a format which is clear, understandable, and easy for users to navigate.
Provide an adequate explanation of the methodologies used to calculate emissions and energy use and also the scope of the disclosure.
Describe the extent of any due diligence or assurance over emissions and energy use metrics, including explain the level of assurance given and scope of coverage. Avoid implying a higher level of assurance than has been given, for instance by using terms such as ‘audited’ or ‘verified’ inappropriately.
Provide an adequate description of energy efficiency initiatives in the current and comparative period.
Consider whether disclosure of additional information, such as scope 3 emissions, would be helpful to investors or other users.
Provide clear explanations which help users to understand and compare major commitments, such as ‘net zero emissions’ targets or ‘Paris-aligned’ strategies.

How we can help

The SECR was intended to not be overly cumbersome, however specialist advice can navigate your compliance effortlessly. Starting with your business fundamentals, your assets, your people and your culture, the team at EVORA helps to work through the strategic decisions needed to deliver a business-oriented ESG strategy, and to service all your reporting, investment, data and communications needs. Email contactus@evoraglobal.com to speak to a member of our team.

What did we learn from our first EVORA Insight’s lunch on the topic of how ESG is being integrated into investment decision-making?

September 21, 2021/in News & Views, Sustainability /by Sonny Masero

The gap in expectations between the leaders and the majority of investment managers is huge. Even the leaders don’t think they are doing anywhere near enough. To be honest, it’s a little disheartening.

Organisational change and capacity building is being hampered by structural changes, which cannot be solved by each firm on their own. For instance, the historically low price of gas as a common fossil fuel, compared to electricity which can be net zero carbon, presents an affordability challenge. Also, the lack of availability of standardised and simplified ESG data to inform investment decisions and to understand the underlying risks. To gather ESG data, particularly for a whole building, is still a time-intensive process requiring active engagement with tenants and other stakeholders, without regulatory support in many countries.

However, there are choices that companies can make to include ESG factors as standard practice. To include ESG representation in the IC and to decide on ESG “red lines”. More often than not, assets are being acquired with little or no considerations of ESG risks and opportunities pre-transition. For some funds, this is the only opportunity to incorporate these factors and budget accordingly, particularly when future income could be compromised. Notwithstanding the need for ESG data to be readily available at the time of the transaction, during a period in the market when there is an insufficient supply of properties to meet the demands of available capital allowing little time to consider non-financial considerations.

We ask our clients to think about ESG over the timeframe of two hold periods – to consider how ESG will be priced into the exit value. There is little room to do this effectively under present market conditions, in part due to the uncertainty of how to interpret financial impacts of climate projections, and because pricing in that risk may result in losing the deal. There is anecdotal evidence of buyers winning and losing deals with risk-adjusted pricing, which most often appears to be through the incorporation of the costs of decarbonisation/adaptation measures or an adjustment to the cap rate at exit as a proxy for perceived future risk. More observational data is needed to understand under what conditions these price adjustments are and are not resulting in winning deals.

Some companies know that the reliance on GRESB ratings and EPC data, which don’t measure actual performance, is insufficient to understand the underlying risks and opportunities. Making the right investment decisions requires technical and operational insights, when there is a shortage of these skills and to get the right experience it requires support from multiple consultancies. However, it seems inevitable that certifications and ratings will continue to be used as a short cut.

With the background of the environmental sciences telling us that we are running out of time to tackle the global issues of climate change, destruction of biodiversity, and pollution of the land, water and air. Social inequalities are generating unrest in our communities. It has left us wondering how do we change the philosophical principles on which real asset investment has been grown on over the last 50-60 years. Is the only way forward a ratcheting up of regulations to force change, which would require proactive involvement from investment managers in policy discussions for finance, sustainability and buildings to be successful?

Over the last couple of years there have been reasons for optimism that real estate investment and finance is starting to change for the better, these include market indicators like:

Investor pressure to explain ESG and climate risk policies is increasing and tougher questions are being asked, although how this information is used in unclear
More individuals throughout real estate investment firms, and outside of the traditional sustainability team, are being required to take responsibility for ESG
ESG and climate risk are showing up on performance objectives for more staff
Valuers are starting to query for data on EPC ratings to incorporate into valuations, and market analysts are using this information to review income projections.

So, looking ahead to 2050. When people look back to this period of change happening today and see what an exciting time we have lived through, will you be one of those who can say that you joined us to push ESG integration forwards successfully or will the transition come too late given the scale of the changes we have to make?

Green Building Certification for Operational Buildings: which to choose?

August 12, 2021/in News & Views, Sustainability /by Chris Ward

Since the first green building certification standard, BREEAM, was launched in the UK in 1990, the number of sustainability related certification initiatives for the built environment has grown. There are now hundreds operating around the world. While the early certification standards focused on the design and construction of new buildings, there are now a plethora of standards that assess the operational performance of existing buildings. Indeed, the 2021 GRESB Real Estate Reference Guide lists over 70 “operational green building certification schemes”.

From an asset owner’s perspective, there are various drivers for targeting green building certification. One of the most significant aspects is the increasing body of evidence that demonstrates the business case for and value of green buildings, including reduced operational costs, improved occupant productivity and increased asset value. Results from a recent RICS Global Commercial Property Monitor survey showed that around 75% of global respondents believe that green certified buildings achieve a rent or price premium over comparable non-certified buildings, either through a green premium or a brown discount.

As the demand for green building certification continues to grow, asset owners and investors are now faced with an overwhelming choice of certification standards. The scope and applicability of certification can vary significantly between the different standards. Some can be applied internationally, while others are country or location specific; some provide a holistic consideration of sustainability issues, while others focus on a particular topic (e.g. energy or health and wellbeing); and some can assess a range of asset types, while others cover a single sector (e.g. housing).

To help the real estate sector navigate this diverse green building certification landscape, EVORA has recently published a new guide that provides an overview of four of the leading green building certification standards for operational buildings used in Europe:

While there are various similarities between the four certification standards, there are also considerable differences between the four approaches both in terms of the certification processes and the technical requirements. As such, it is very difficult to compare the merits and value of a specific certification rating for one standard against a rating from one of the other standards. Consequently, the selection of the most suitable certification standard will be project specific and should be informed by the project team’s sustainability aims and objectives for each asset. Location and local market factors may also steer the choice of certification.

Regardless of the differences between the standards, all set requirements that aim to reward performance above standard practice for existing buildings. Therefore, any rating achieved against any of the standards would demonstrate a level of sustainability performance beyond that of an average building of a similar type. Achieving any of the higher ratings would demonstrate projects as being high performing buildings with excellent sustainability credentials.

In a post-pandemic world and with the urgent need for the built environment to decarbonise to meet net zero carbon trajectories, there will be an increasing demand for asset owners and investors to demonstrate the value of their assets, with an asset’s sustainability performance a key factor in this. As such, third party assessed green building certification will continue to be regarded as good evidence that an asset’s sustainability impacts are being appropriately considered as part of its operations and management.

EVORA can advise clients on the most appropriate green building certification for their individual assets or wider portfolios and has in-house experts that are able to deliver BREEAM, DGNB and LEED certification for operational buildings across Europe. If you would like to know more, please contact our experts at contactus@evoraglobal.com.

Anticipating Actions and Metrics for the EU Social Impact Investment Taxonomy

July 23, 2021/in News & Views, Sustainability /by Gemma Graham

In partnership with the University of Leeds, EVORA have been conducting extensive research into how social impact can be measured, in anticipation of the EU Social Impact Investment Taxonomy due for release in September 2021.

The increased profile of the ‘S’ in ‘ESG’ is driving demand for a standardised and established set of key performance indicators (KPIs) and metrics, against which funds can evaluate the progress and success of their social impact policies.

The ‘S’ of ESG

Social sustainability is commonly thought of as an ambiguous topic. This has led to a considerable gap in understanding how social impact can be integrated into ESG strategy with the same clarity as its environmental and governance counterparts.

As a result of limited resources, such as a clear framework and material metrics, social impact in ESG programmes is often overlooked. The result of this, is limited engagement from organisations in how they plan for, deliver, measure and report social impact.

Since the implementation of the Public Services (Social Value) Act, 2012 in the UK, private-sector uptake of social sustainability in the built environment has been both rapid and largely voluntarily. The Act only required that local authorities consider social value in procurement. Simultaneously, UK real estate managers became leaders in the implementation and measurement of social impact programmes.

In September 2021, the EU Commission plans to publish their Social Impact Investment Taxonomy. It is fair to anticipate that uptake in social impact programmes will mirror that of the UK in 2012.

Europe, therefore, face a challenge due to a lack of practical European-focussed guidance on social sustainability.

EU Social Impact Taxonomy

The Social Impact Investment Taxonomy will provide an opportunity for European investment organisations to develop a commercial response to current socio-economic risks. By clearly considering their social impact, funds can build their sustainability profiles and attract potential further investment.

Social Impact Metrics

The EU Social Taxonomy does not currently provide a clear framework and metrics for implementing and measuring social impact. Therefore, in anticipation of the increased interest in social impact and the built environment across Europe, EVORA have worked with the University of Leeds to research how learnings from tried-and-tested social impact programmes and metrics in the UK can be applied in Europe. These may facilitate discussions within your ESG team on how to practically address interventions and reporting in areas such as:

Training and Education
Charitable Support
Health and Wellbeing
Community Safety and Security
Community Space
Tenant satisfaction
Sustainable Transport
Social Enterprise Partnering
Health and Wellbeing aspects such as indoor air quality

The most important aspect of these metrics is that they go beyond the use of quantifying inputs and aim to recognise people as the end users of social impact programmes themselves.

EVORA is grateful to Gemma Graham for her dedication to, and assistance with, this research.

It’s getting hot in here! Heat risk to buildings

July 14, 2021/in News & Views, Sustainability /by Jack Miller

The recent heatwave in Canada has brought into focus the real and present dangers of extreme weather conditions. Record temperatures in British Columbia, reaching as high as 49.6°C, resulted in hundreds of excess deaths and heat-related hospital visits. As early analysis shows the heatwave would have been ‘virtually impossible’ without human-caused climate change, we know to expect an increase in the frequency of such events, presenting a global challenge for the buildings in which we live and work.

In the UK, the Climate Change Committee (CCC) have recently released their third assessment of the UK’s readiness for the impacts of climate change. The Climate Change Risk Assessment (CCRA3) paints a stark picture of the widening gap between the risks posed by the UK’s changing climate and the government’s policy response. Among the highest priority areas identified by the CCC, they highlight ‘risks to human health, wellbeing and productivity from increased exposure to heat in homes and other buildings’ as requiring urgent action before the next round of national adaptation policies due in two year’s time.

What is the risk?

Average annual temperatures in the UK have already increased by 1.2°C since pre-industrial levels, and are expected to rise further. Summers as hot as 2018 (the joint hottest on record) could occur every other year by 2050, with an increasing likelihood of exceeding 40°C, according to the Met Office’s UK Climate Projections.

Without suitable adaptation measures, cities will become increasingly uncomfortable places to live – the dense concentration of buildings and paved surfaces in urban areas causes an increase in temperature relative to the surrounding countryside, known as the urban heat island effect. This will increase the number of ‘tropical nights’, hot and humid evenings that are a significant contributing factor to heat-related deaths during heatwaves.

More than 2,500 people died during heatwaves in 2020, the most of any year since records began. Continued warming, and current adaptation measures could see this figure triple in coming decades.

In the five years since the previous report (CCRA2), 570,000 homes have been constructed in the UK and under current government targets another 1.5 million will be built by the time CCRA4 is published. If buildings are not designed to cope with the increasing temperatures, there is a real risk that climate vulnerability is ‘locked in’ to our infrastructure.

What are the implications?

Of the many risks discussed in the report, the CCC singled out the risk of heat in buildings as being particularly notable for the absence of adaptation policy.

There are two years until the next round of national adaptation policies must be submitted; two years that are vital for closing the adaptation deficit. With consultations taking place in England and Wales, it is likely that policy will follow. It is therefore essential that this risk must be considered now, for both standing and development assets.

At EVORA, we can work across the entire life cycle of a project, to help deliver on better building design and operation. As well as helping to reduce the embodied carbon in the materials used in construction, improving resilience to high temperatures can be worked into the building at the design stage to reduce climate vulnerability. This could include measures such as:

Passive cooling measures – better shading, more reflective surfaces, and improved ventilation are often the most cost effective ways of reducing the pressures of high heat;
Choice of materials – through well informed decisions around the choice of materials, it is possible to create a more comfortable internal environment, whilst also reducing the embodied carbon in construction;
Green roofs and rooftop gardens – as well as the obvious boosts to biodiversity, green roofs reduce heat by providing shade, and through the cooling effect of evapotranspiration.

Further to this, through our partnership with Moody’s 427, we are able to incorporate physical climate risks, including those posed by increasing temperatures, into our SIERA platform. This enables our consultants to analyse physical risks on an asset-level basis. This detailed information can then form the basis of best-practice climate resilience measures across a real estate portfolio.

If you would like to know more, speak to our experts today: info@evoraglobal.com

Nature: the next challenge for sustainable finance?

June 8, 2021/in News & Views, Sustainability /by Alice Green

If there is one thing we’ve learnt from spending more time inside our homes over the last year, courtesy of these ‘unprecedented circumstances’, it is the importance of spending time outside.

The natural environment is a key part of our built environment. Access to green space has never been so desirable. And in our cities, where space is a premium and populations are growing, there are innovative ways to maximise our access to nature.

Encouraged by sustainable building certifications and a growing trend for biophilic design (the concept of increasing occupant connectivity to the natural environment), many buildings now incorporate additional greenery, with everything from your standard pot plant, to indoor trees and living walls and roofs.

The health and wellbeing benefits of increasing access to nature are well documented.

Improved air quality, increased productivity, and decreased stress are just a few of the most widely accepted. So it’s not surprising that research has also shown that increasing nature increases property values. We all know the rooms with the view attract a premium, and according to a report commissioned by the Natural Resources Defence Council, improved landscaping can add around 22% to the rental rates for retail buildings. And that’s before we account for the climate resilience impacts of incorporating green infrastructure – sustainable urban drainage systems help manage surface water flooding, living roofs can mitigate overheating and trees prevent soil erosion.

But we are realising the importance of nature at a critical time. Biodiversity is decreasing at an alarming rate. Between the combined pressures of climate change and humancentric land use, space for nature is dwindling and with it the enormous diversity of species on our planet. Indeed, scientists estimate that vertebrates have declined by an average of 70% in the last half-century.

Policy changes are moving in on the issue. The new London Plan brings with it the Urban Greening Factor, a measurement that will ensure London gets greener as it grows. On a larger scale, in the UK, the (much delayed and eagerly anticipated) Environment Bill will enshrine Net Biodiversity Gain into law, meaning that all new development must demonstrate an increase in nature compared to what was on site before.

In the investment space, we are seeing major changes too. Earlier this year France introduced a new disclosure regulation, Article 29, requiring French financial institutions to disclose biodiversity as well as climate-related risks. France’s Article 29 is a sign of what is to come in sustainable finance. Also established this year is the Taskforce on Nature-related Financial Disclosure. TNFD is a market-led initiative focused on standardising nature-related financial disclosures and mitigating biodiversity impacts. With TCFD we have seen a shift in climate-related financial disclosures, and TNFD is set to do the same for nature.

All this points to one thing: the next frontier in sustainable finance is nature.

If you would like to find out more, please get in touch with one of our ESG experts by contacting contactus@evoraglobal.com

Human-Centric Metrics in Sustainability: What can EVORA do for our people and communities?

April 22, 2021/in News & Views, Sustainability /by EVORA

By Lucy Curtis and Emily Day

Over a year has passed since the pandemic hit the UK and our workplaces changed dramatically. Increased homeworking has led to a heightened consciousness of the social impact that EVORA, as a company, can have on its people.

The past year has given us countless reasons for our health and wellbeing scales to tip off-balance. We have lost the regular exercise during our daily commute, have been torn away from our emotional support circles and are at a greater risk of anxiety, stress and depression than ever before. Before the pandemic, we would typically spend 90% of our time indoors and staggering 9.5 hours a day sat down. You can only imagine how these figures have increased since Lockdown #1. It’s become ever more important to stay on top of our fitness, our diets and our mindfulness during these tough times to ensure our physical health, mental health and emotional wellbeing endures the long journey back to normality.

That’s why EVORA staff chose to tackle the Feeling Fab in February Challenges. Over the course of 28 days, our staff pushed themselves to do heart-pumping exercise, get the nutritional benefit from switching to plant-based diets and practicing mindfulness.

Assigning metrics to social impact

Measuring and monitoring impact is key to implementing meaningful programmes. Demonstrating additionality – that you have meaningfully added to the lives of individuals – is arguably the most important aspect of human-centric sustainability reporting. EVORA have used some of our own activities to model reporting examples below.

Wellbeing Uplift

Through a month of activity (and nothing less than a bit of healthy competition), Feeling Fab in February encouraged our team to take part in a month of fitness, carbon-conscious eating and mindfulness. Together, and in only one month, we managed to achieve:

+148 additional mindfulness or meditation sessions
+88 additional workouts than we would have done
+84 additional days without meat or dairy than usual

‘’Fab February made me reflect on my current habits and encouraged me to make healthy changes to my daily routines!’’
EVORA employee

Our team felt the mental and physical benefits, as well as the benefits to social cohesion at a time when it’s easy to feel disconnected from colleagues. We are now looking for the next challenge to promote healthy habits in our home-working and beyond as we look to return to the ‘new normal’.

Social Value

We are very proud to announce that EVORA has achieved Planet Mark certification for the 7^th year running. The Planet Mark is an internationally recognised certification based on sustainability standards and its mission is to help us all contribute to a thriving planet as a collective force. The certification represents an organisation’s commitment to sustainability programmes to actively reduce environmental and social harm.

For the past two years, we have also measured our social value contribution. Social value, by definition, is the net social and environmental benefit generated to society by an organisation, expressed in ‘£’. In 2019, EVORA generated £454,644 in social value. This includes over £400,000 through actions relating to the people in our organisation and supply chain, as well as money and time donated to charitable organisations, and reducing our carbon footprint through commutes.

In 2020, EVORA generated £61,197 in social value. This has been through actions relating to the people in our organisation and supply chain, as well as money and time donated to charitable organisations, and reducing our carbon footprint through commutes.

Visit our Health & Wellbeing webpage to see the healthy building services we offer at EVORA.

Disentangling ‘Community Engagement’, ‘Social Value’ and ‘Impact Investing’

February 24, 2021/in News & Views, Sustainability /by Alice Buckby

Community engagement in real estate is where landlords, property/building managers and occupiers seek to better engage with the local municipality, landlords, occupiers and general public. Community engagement can span a variety of topics from investments in public realm improvements to engaging with schools, prioritising local employment and suppliers, recruiting apprentices, charitable donations, and environment, social and governance (ESG) education programmes.

Since the adoption of the Social Value Act in 2012, ‘social value’ has also emerged as a well-used term within the industry. Based on principles that aim to improve health, wellbeing, quality of life and communities ^[1], social value is the expression of a positive social change in terms of money – pounds and pence. Assessing outcomes through a financial proxy is useful as it further legitimises initiatives in our capitalistic society and provides a relatable and comparable metric for business and policy makers.

So, how does community engagement dovetail with social value? In its simplest form, community engagement is a programme/activity aimed at generating positive social outcomes. Social value is the process for measuring its impact on society, where possible expressed in market prices.

Why bother with any of this?

From a landlord’s perspective, community engagement is a valuable exercise to undertake as it can increase the value of assets and make areas more safe, attractive and vibrant for communities and occupiers, as well as improve the visibility and understanding of ESG issues. This in turn helps to make communities and occupiers healthier, happier and more productive.

It is important to note that not all community engagement activities can be quantified in terms of market prices. For example, the £ payback of building knowledge of sustainability within communities cannot be as easily quantified as creating local jobs, or apprenticeships, or giving charitable donations, which can feed substantial sums of money back into the local economy. Efforts to quantify social value in terms of market prices should focus on those initiatives where it is feasible and where it can be done robustly.

However, community engagement is a small part of the wider social value agenda. An array of other topics should be considered including, but not limited to, energy and water efficiency, tenant engagement, placemaking, accessibility and occupier health and wellbeing. In respect of energy and water efficiency measures for instance, if you are implementing energy performance and water saving initiatives at an asset level you are effectively driving affordability for your tenants.

Social value and community engagement also tie into impact investing, which is “investing with the intention to generate positive, measurable social and environmental impact alongside a financial return”^[2]. Where it generates social and environment impact, community engagement can be a key tool in impact investing. Social value can provide a useful means of measuring and evidencing ‘impact’, particularly where it is used to quantify the socioeconomic benefit of your investment activities.

EVORA is supporting our clients to develop and deliver community engagement, social value and impact investing programmes and training workshops both in the UK and Europe. If you are interested in finding out more, please contact our ESG consulting team today at contactus@evoraglobal.com.

[1] Baldwin, C. and King, R. 2018. Social Sustainability, Climate Resilience and Community-Based Urban Development. 1st ed. London: Routledge.

[2] https://www.impactinvest.org.uk/

Building Back Better the Potential of Infrastructure

February 4, 2021/in News & Views, Sustainability /by EVORA

By Matthew Brundle and Natalie Sinha.

Can Infrastructure Shape a New Sustainable Future and what should investors know?

As global populations increase, the UN estimates that there will be 9.8 billion people on the planet by 2050. Estimates predict that 68% of the global population will be in urban areas by this time. [1] With an increasingly urbanised global population, the number of megacities is also expected to increase rapidly to 43 Megacities by 2030, with more than 10 million inhabitants in each. There is evidently a pressing challenge to ensure that infrastructure embeds sustainability into cities by encouraging low emissions lifestyles and promoting equitable living. With the passing of 2020 under the cloud of the global pandemic of COVID-19, we are moving into a new decade. This decade has been billed as ‘the decade of action’ on sustainability. What role should infrastructure play in meeting the challenges of sustainability and climate change whilst rebuilding economies?

Firstly, we need to consider the existing environmental, social and economic impacts from infrastructure to understand how it can be used in building a more sustainable world. Not all infrastructure is equal today or will be in the future in terms of environmental impact and as a force for positive social change. Traditionally, public and private sector investors have viewed infrastructure as a safe, long term and stable investment class, which makes infrastructure investments ideal for pension fund investors and Government bonds. However, the picture is complex and nuanced: there are signs investors are seeking to acquire specific types of infrastructure classes, whilst moving away from others. Furthermore, the COVID-19 pandemic has exposed the vulnerability of some infrastructure assets in a changing world, a prime example being that of transport infrastructure.

In the recent annual investor survey by IPE Real Assets two questions revealed this changing attitude [2], demonstrating that infrastructure remains an attractive investment class overall, but renewable energy and telecommunications/digital infrastructure are providing the most interest from investors compared to other types of investments.

Infrastructure in a changing world

The COVID-19 pandemic has also highlighted the need to re-think what the future of infrastructure might look like, taking into account future patterns of work, recreation, and travel. Whilst it is apparent that people will want to travel again once restrictions have been lifted, the way we travel in the future is still a point of speculation: the mode of transport, frequency of travel and destinations are likely to be reshaped. These factors will profoundly impact future infrastructure considerations determining city growth and regeneration plans.

It is self-evident now that our reliance on telecommunications and digital infrastructure has never been greater, for keeping in contact with friends and family, working from home, and shopping online. In our reshaped world, digital communications will continue to become an even more essential part of keeping global markets open. They also provide an opportunity to do business more efficiently and with a lower carbon impact by avoiding unnecessary global travel. A key challenge for this asset however it to ensure that society as a whole has equal access to the new digital word.

The recent speeches by UK Prime Minister Boris Johnson and US President Joe Biden highlight the pivotal role digital technologies play in re-invigorating society and unlocking regenerative growth from struggling old industrial cities with the new digital technologies of the future.

The most pressing challenge of our time however is the transformation of energy infrastructure: moving from existing fossil fuel intensive sources to low and zero emissions energy. There is no doubt there is a need for continued but more rapid energy transformation both in terms of technology adaption and grid decentralisation. The current challenge for major power generation plants is centred on a delicate balancing act, requiring careful downscaling of existing fossil fuel intensive assets, whilst continuing to manage them well. This will potentially enable some fossil fuel assets to minimise emissions today and potentially be converted to run on lower emissions fuels in the near future, such as switching from natural gas fired power stations to lower emissions gases like hydrogen.

There are also challenges in how the energy sector dovetails with the built environment and real estate sector. For example, enabling the increased use of renewable energy sources, incorporating energy storage into the grid, as well as integrating power management systems to increase energy network resilience. The energy infrastructure system therefore needs to undergo significant change as it plays a key role in supporting the delivery of net zero carbon for real estate.

Governments committing to building back better

It is both encouraging and timely that the new US Biden administration and the UK Government have been raising the profile of infrastructure during recent speeches and have committed to “build back better”. They have stated the intention to invest in infrastructure to provide multiple benefits: tackle the climate crisis; redress social inequities highlighted by the pandemic; and use infrastructure investing as part of their ‘levelling up’ agendas.

In addition, Alok Sharma MP, the President of the UN Climate Change Conference of the Parties, which is scheduled for November 2021 in Glasgow, has also referred to the need for infrastructure to be central to building back better. In fact, the theme is becoming so central to the UK Government policy for 2021 and beyond it has established a dedicated Build Back Better Business Council with the inaugural meeting being held on 18^th January 2021. [3]

The Prime Minister outlined the need to seize opportunities of Brexit, support job creation, cement the UK’s position as a science superpower, deliver an upgrade to infrastructure and launch a green industrial revolution – ensuring that we build back better, fairer, greener, and faster.
The Chancellor laid out the three key pillars of the government’s plan to drive growth beyond the pandemic: investing in infrastructure, skills and innovation. He set out that improved infrastructure leads to improved productivity, [and] skills are the single best way to drive human productivity and key in addressing regional disparity, and investment in innovation is critical to deliver new growth, ideas and services.

So why is investing in infrastructure the right thing to do at a time when the global economy seems on its knees? The truth is Governments around the world have always favoured investing in infrastructure as a fundamental element of growing an economy. Not only does it demonstrably invest in your own nation and its future generations, but it also stimulates economic inward investment throughout the economy, enabling it to grow or regrow from within. A 2009 report entitled ‘Construction in the UK Economy: The Benefits of Investment’ showed that every £1 spent on UK construction led to GDP growth of £2.84 [4]. The report also showed that, of the money invested in the construction sector, over 70% remained in the local and national economies. This is due to stimulation elsewhere in the construction value chain, benefits of employment opportunities and wider social and economic benefits such as better education services delivering a higher-skilled workforce.

More recently, a 2018 report by CECA entitled ‘The social benefits of infrastructure investment’ [5] illustrated the social value of investing in infrastructure. The report uses case studies to show how infrastructure shapes our everyday lives in many ways we take for granted, ranging from how we work, travel, spend leisure time, respond to climate change and tackle poor quality in urban environments. It also reminds us that past major public health crises have sparked ground-breaking innovation in infrastructure: after four major cholera outbreaks in London between 1832 and 1866, Joseph Bazalgette revolutionised the sewer network for central London which was instrumental in relieving the city from cholera epidemics, while beginning to clean the polluted River Thames. The pandemic crisis of 2020 has the potential to spark similar transformational changes in our infrastructure networks and systems.

The future of infrastructure?

We have sought to highlight some of the key global patterns in infrastructure investing, as well as governmental commitment to ‘building back better’. It is clear that the landscape of infrastructure is continually evolving and can play a central role in economic rebuilding and growth.

Humankind is unquestionably at crossroads in how we shape our society and the future. EVORA firmly believes that through drive, creativity, and passion there is much to be gained from tackling the challenges set out in this article. Whilst some investors may see the challenges discussed in this paper as a significant risk to your investments, we urge you to also consider them as significant opportunities and to do more for your investors and for the next generation by embracing sustainability and ESG and using this to drive forward innovation.

On a final point and note and inspiration, in a recent article published in IPE in January 2021, it is noteworthy that the United Nations Principles for Responsible Investment (UN PRI) and some significant pension fund investors have called for dialogue with the UK Government on practical ways to access the ‘unrealised reservoir of support from the investor community for stronger climate action’ [6] and to help the delver UK’s 10 Point Plan for a Green Revolution [7]. Although the discussions have not been undertaken at this stage, it is evident there is a strong appetite for ESG financing for the benefits of investors and society. What a great way to start a new decade.

If you would like to discuss improving the sustainability of your infrastructure assets or funds, please contact us at infrastructure@evoraglobal.com

Sources:

How can ESG help deliver better infrastructure?

December 10, 2020/in News & Views, Sustainability /by Natalie Sinha

Infrastructure is vital for living comfortable, convenient modern lives. Every day, infrastructure systems are working beneath the ground, on the land, and above our heads. Each morning, when you turn on the tap, power up your computer, or step outside to travel to work, you are interacting with infrastructure. Infrastructure has a life of its own and without it our modern lives would be very different.

Infrastructure is a huge area of investment globally which attracts both government and private sector funding. Due to its size and complexity, it often requires a complex mix of investment strategies including debt, equity and bonds. Infrastructure assets, alongside real estate, are categorised as real asset investments and therefore they share similar Environmental, Social and Governance (ESG) risks and opportunities. However, the scale and complexity of infrastructure assets can create some unique challenges.

The United Nations predicts that population growth will continue, reaching 9.7billion people on the planet by 2050. Much of this population growth will be in urban areas, and infrastructure provisions will need to grow alongside the population. As a result of the continued and growing demand for infrastructure provisions, infrastructure assets have significant potential to positively affect the environment and society. These assets will also play a role in creating a successful and resilient response to the challenges of a changing climate, as well as being affected by climate change themselves.

Due to the pivotal role infrastructure assets hold in meeting current and future demand, and their centrality in addressing climate change, they have varied and wide ranging stakeholder interest groups with high levels of expectation when it comes to ESG delivery. For this reason, EVORA are seeing many investors coalesce and gravitate toward the United Nations Sustainable Development Goals (UN SDGs) as a suitable framework that addresses stakeholders concerns and which they know and understand. Increasingly, there is a growing expectation that implementing effective ESG strategies aligned to the UN SDG’S which address the associated risks and opportunities and link actions to outcomes is becoming the minimum requirement.

This year, the Covid-19 pandemic has profoundly impacted the global economy, causing many to take stock, reflect and consider the future of society. We face dual crises: responding to the pandemic and addressing and responding to environmental and social challenges, including climate change. In a post-Covid world, infrastructure can be central to addressing these multiple challenges. This has been solidified by both the UK Government and the new US administration pledging to place investment in infrastructure at the heart of their ‘build back better’ programs.

So why look at infrastructure now? Firstly, investment in infrastructure development is urgently needed to replace aging and poorly performing assets with assets fit for the 21^st century that positively address the climate crisis. Secondly, infrastructure assets are fundamentally about investing in future generations but also, crucially, provide much needed jobs today, thereby providing an excellent way to rebuild and diversify regional and national economies. With these factors in mind, having robust ESG management becomes essential in managing outcomes as well as demonstrating effective use of funding vehicles.

In the recent Aviva Real Assets Study 2020 [1], in which global institutions were asked about their views on ESG post-COVID, the overwhelming response showed ESG as front and centre for investors’ concerns. 81% of respondents stated that ESG objectives and delivering on sustainability is a primary duty of their organisations. Furthermore, 91% of global insurance and pension fund investors are now committed to delivering Net Zero. As a result, infrastructure assets in all its various classes and forms are the foundation for how the Net Zero commitment will be realised. The Aviva survey also indicates that ESG has evolved in its sophistication and needs to be considered as a balanced a score card between the ‘E’ and ‘S’ and not simply about environmental risk management that has been the focus in the past.

So how can the ESG and sustainability agenda be delivered in practice? There are a variety of excellent reporting frameworks, such as GRESB and the UN Principles for Responsible Investment (PRI), for investors to work within which provide globally recognised frameworks which set a baseline for benchmarking performance. Launched in 2016, GRESB Infrastructure continues to grow in popularity, with over 426 assets totalling $579billion assets under management participating in 2020. As the scheme evolves, greater focus is given to performance outcomes rather than just good intentions. Now more than ever, it is imperative for investors to analyse, understand and seek ways to optimise ESG performance in their investments. Reporting is a great place to start.

We have been working with closely with investors over the past decade to deliver best-in-class ESG practices, helping them strive to constantly do better by setting ever more ambitious targets to improve ESG performance. EVORA can help you understand and optimise your infrastructure ESG approach. If you are interested in finding out more, contact the team at infrastructure@evoraglobal.com.

[1] https://www.avivainvestors.com/en-gb/capabilities/real-assets/real-assets-studies/real-assets-study-2020/