Biodiversity: enhancing the built environment

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EVORA support many of our real estate clients to develop sustainability strategies and management systems.  The overriding objective of approaches developed is to establish plans that help our clients understand their impacts, manage risks and, perhaps most importantly, drive performance improvement.  Often, and unsurprisingly we focus on energy, carbon, water and waste.

However, there are wider opportunities. Biodiversity can often be pushed down the agenda.  Real estate owners can develop programmes designed to positively contribute to biodiversity.  As you will see in the rest of my blog, I consider this to be very important.

So what is Biodiversity?

Biodiversity, in simple terms, means the variety of life, in all its forms and at all levels. This ranges from genes to species to ecosystems – everything that collectively forms the biological diversity on Earth.

In short, biodiversity is a good thing.  It is essential in maintaining a healthy environment and therefore, has an impact on our quality of life.

The decline of biodiversity has serious consequences and its protection and enhancement is essential if we are to achieve a sustainable future. We depend on biodiversity for food, health, natural resources and a range of ecosystem services such as air and water purification, soil fertility and plant pollination. Maintaining biodiversity is also crucial to the development and discovery of new medicines.

The variety of life, in all its forms and at all levels. This ranges from genes to species to ecosystems – everything that collectively forms the biological diversity on Earth.

Increasing urbanisation is contributing to the decline of biodiversity due to the loss and division of natural habitats. Providing opportunities for biodiversity in our built environment is one way that it can be protected and enhanced.

Development schemes can utilise a number of approaches including Biodiversity Net Gain (BNG) – a quantitative, stepwise methodology that aims to enhance biodiversity after development. However, we are increasingly being asked for advice on how Biodiversity can be implemented into strategies, by clients who manage standing investment funds.

Several BNG principles are valuable for application to existing real estate assets, notably: to achieve the best outcomes for biodiversity, to optimise sustainability and to be transparent.

Biodiversity in action

Implementation of approaches to support these aims will result in greener, more biodiverse assets that not only offer homes for wildlife but can also provide wider benefits for people, such as improved air quality and health and wellbeing. It also gives asset managers positive news stories to tell and helps to create great places for people to live and work.

[click_to_tweet tweet=”Biodiversity will result in greener assets that not only offer homes for wildlife but can also provide wider benefits for people, such as improved air quality and health and wellbeing.” quote=”Biodiversity will result in greener assets that not only offer homes for wildlife but can also provide wider benefits for people, such as improved air quality and health and wellbeing.”]

So, in simple terms, what can be done?

Real Estate Organisations can raise the profile of biodiversity within the workplace by:

  • Assessing the material risks and opportunities associated with biodiversity across portfolios;
  • Ensuring staff have understood these risks and opportunities;
  • Raise awareness amongst suppliers;
  • Implementing practical approaches – suitable for assets in question. If you are struggling to contextualise, think;
    – Green walls
    – Beehives
    – Indoor and outdoor planting regimes
    – Although many more opportunities exist
  • Report publicly on organisational performance with regards to biodiversity.

Organisations, wishing to progress further can:

  • Develop site-specific Biodiversity Strategies or Action Plans for managed assets, with the aim of achieving enhancements for selected species and/or habitats identified in the Local, Regional or National Biodiversity Action Plan;
  • Incorporate specific biodiversity objectives within asset management plans;
  • Collect biodiversity data e.g. number of plant types considered pollinators;
  • Where handing over the asset to new owners, work to “pass on” commitment to biodiversity at the asset, potentially through a handover manual;
  • Report to local authorities and, where necessary, other bodies, based on the data collected.

Finally, we positively encourage the reporting of progress, through new or existing routes – highlighting positive steps such as:

  • Measures taken to collect biodiversity information;
  • Key Performance Indicators, such as % of assets with Biodiversity Management Plan, % of direct employees with biodiversity awareness training;
  • Records of sightings of endangered/rare/protected species;
  • Reporting on habitats under threat;
  • An account of how and where operations have led to the achievement of targets in Biodiversity Action Plans;
  • Case studies to highlight what has been learnt from biodiversity mitigation and enhancement.

In short, Sustainability is not just about energy, water, waste – Biodiversity often presents an opportunity to progress significant improvements.

For more information, please don’t hesitate to get in touch.

Climate Resilience: Why we should care

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Climate Resilience has been the buzzword in the market for some time, but what does it mean and why should you care?

Climate Resilience is ‘the capacity of companies and funds to survive and thrive in the face of social and environmental shocks and stressors’ [GRESB]. By shocks, we mean short term acute events like fires and floods. Stressors are the longer-term chronic vulnerabilities such as increasing heat days and precipitation levels.

Why should we care?

The need to disclose climate resilience is not going to go away. Momentum is building globally for companies to identify, manage and disclose their climate risks and opportunities.

Investor demand

You only need to open a paper, watch the news or even look on the streets to see that climate action is gaining momentum. The public and society as a whole are becoming more literate and conscientious about the issue and this, in turn, is influencing the investment community.

As the effects of climate change on economic activity become more significant, there is increasing demand from investors, trustees and other fiduciaries for consistent, comparable, actionable information in company reports. Investors increasingly expect Boards and Executives to actively assess and respond to climate risks.

In May 2017, a shareholder resolution at Exxon Mobil called on management to produce a report detailing the implications of a 2 degree scenario and received 62% support[1]. This, along with similar results at other oil and gas companies’ AGMs, signals that the majority of investors in the world’s biggest fossil fuel producers see value in having this information. This is likely to extend to the real estate sector as the climate change agenda continues to gather momentum.

Physical risk

35% of REIT properties globally are geographically exposed to climate hazards, including inland flooding (17%), typhoons or hurricanes (12%), and coastal flooding and sea-level rise (6%)[2]. Investment managers and investors for directly held assets currently use insurance as their primary means of protection against extreme weather and climate events. However, insurance will cover damages from catastrophic events; it will not cover higher capital expenditure and operational costs and loss in value from a reduction in the asset’s liquidity.

[click_to_tweet tweet=”35% of REIT properties globally are geographically exposed to climate hazards, including inland flooding (17%), typhoons or hurricanes (12%), and coastal flooding and sea-level rise (6%)” quote=”35% of REIT properties globally are geographically exposed to climate hazards, including inland flooding (17%), typhoons or hurricanes (12%), and coastal flooding and sea-level rise (6%)”]

Litigation risk

A pattern is emerging of activist shareholders filing resolutions against corporations, particularly major energy companies, demanding increased transparency surround climate change risks and company policy [Norton Rose]. For example, in Australia in 2018, 23 year old Mark McVeigh filed legal action against Retail Employees Superannuation Pty Ltd (REST), seeking information regarding what the trustees know about the impact climate change will have on its investments and what they are doing in response to this knowledge.

Fiduciary responsibility

A fiduciary duty is a requirement that informs investment and management practice in a similar manner to aspects such as costs and investment returns. A failure to take account of ESG issues could be seen as a breach of their fiduciary duties. Fiduciaries, therefore, need to show they have identified and assessed the risks to companies and to their portfolios.

Increasing disclosure on climate resilience

The driving force behind more effective disclosure in climate resilience is the TCFD – the Taskforce on Climate-related Financial Disclosure. TCFD is a global voluntary disclosure framework launched in mid-June 2017 to allow organizations to identify the climate risks and opportunities they expect to face, and ultimately to disclose the financial impact of these in their annual reports. As of May 2019, 648 organizations have shown formal support for the TCFD, including 118 asset management organizations.

TCFD is a global voluntary disclosure framework launched in mid-June 2017 to allow organizations to identify the climate risks and opportunities they expect to face, and ultimately to disclose the financial impact of these in their annual reports

Stockland an Australian Securities Exchange (ASX) 50 organization and Australia’s largest diversified property group, has been an early adopter of disclosure in alignment with the TCFD framework. Stockland has been identifying risks and opportunities relating to the impact of climate change for over a decade. The business response to these is guided by a Climate Change Adaptation Plan which is regularly reviewed, and a detailed Climate Adaptation Strategy, as well as business unit sustainability strategies. Whilst Stockland did not disclose the actual or potential financial impact of their identified climate risk and opportunities (which is of specific interest to investors), in February 2018, the organization lodged “Stockland’s Climate-related Financial Disclosures” on the ASX as part of their half-year reporting suite. This made Stockland the first Australian property company to disclose its climate risks and opportunities to the ASX in accordance with the Task Force recommendations.

In 2018 GRESB launched the Resilience Module within which the Climate Resilience Indicators are aligned to the four pillars of the TCFD framework, namely Governance, Risk Management, Strategy and Performance Metrics and Targets. The Resilience Module was unscored in 2019 but is expected to be integrated into the wider GRESB framework in 2020.

What next?

It is now widely considered industry best practice that organizations should consider climate change in the context of their strategic and operational risk management. As a first step, organizations should conduct a gap analysis against the TCFD reporting framework with a view to identifying and addressing the gaps across the Governance, Risk Management, Strategy and Performance Metrics and Targets pillars.

If you’d like to learn more, please do contact one of our experts.

This article was originally published on GRESB Insights

[1] 2 degrees of separation: Transition risk for oil & gas in a low carbon world – Carbon Tracker; UN PRI [page 11]

[2] http://427mt.com/wp-content/uploads/2018/10/ClimateRiskRealEstateBottomLine_427GeoPhy_Oct2018-4.pdf

Social Value Part 2: Five Key Challenges for Social Value in Real Estate

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In 2015, the United Nations set as part of their Sustainable Development Goals (SDG) 11—[to] “Make cities inclusive, safe, resilient, and sustainable”[1].

When talking about resilient cities, most of us probably think of our physical environment, rising sea levels and thermal comfort. However, the built environment can be a great enabler of community growth and strengthening social resources.

UN Sustainable Development Goals logo  United Nations Sustainable Development Goals Goal 11

Source: United Nations Sustainable Development Goals, 2019
[SDG guidelines for use]

Social Value strategies are as important for the built environment as they are for businesses in achieving SDG 11. In this article, we discuss the five key challenges of implementing Social Value in real estate.

  1. Determining a strategy focus – A valid ‘one size fits all’ approach is non-existent in Social Value. Although there is a consensus on the wide range of factors contributing to Social Value, what may be in or out of scope at organisation or asset level should be subject to an intelligent and tailored vetting process. Focus can be determined by aligning the values of your organisation and the socio-economic needs of the area for the strategy in question.
  2. Temporality– The design phase of our built environment projects has so much scope for influencing Social Value outcomes, that this might cause clients focusing on Social Value in constructed assets to feel restricted. Whilst physical factors can be used to influence the way building users work, play and feel, there are many aspects of building management which can influence the same Social Value outcomes. Start by scoping in which outcomes you can and can’t influence, this will also help to focus on what means the most to your building’s users.
  3. Measuring outcomes – Measurement is the most commonly questioned aspect of Social Value. The response can vary largely depending on what your Social Value strategy prioritises. Whilst qualitative approaches to recording Social Value are useful in capturing full social impact, it is important to use Social Return on Investment (SROI) [ED1] to calculate numerical evidence to validate outcomes against[2]. There are a number of SROI calculation tools available to facilitate this. Research carefully which one is right for your organisation.
  4. Social Value Across Borders – Interest in Social Value is quickly becoming a concern of organisations and investors operating both inside and outside of the U.K. It’s encouraging to see businesses taking an interest in creating socio-economic benefit to society. Their interest is a testament that pursuing Social Value brings wider benefits on an organisational level. SROI requires each action to be allocated a value[3]. In the U.K, we benefit from a wealth of existing research and valuation banks. These values have been thoroughly researched, tried and tested based on regional and national socio-economic research. The next challenge is to look closer at making SROI calculation accessible through similar research outside of the U.K.
  5. Balancing commerciality with social impact – The built environment is a largely for-profit industry[4]; therefore the commercial aspect of Social Value will always be important. The key thing for clients to remember when communicating their Social Value to investors will be that the figure next to the £ sign represents value to society. Value to the investor is predominantly delivered through improvements to the assets commercial profile. The rapid development of resources to support Social Value in industries and nations further afield is active proof of its benefits.

EVORA is now supporting our clients to develop and deliver Social Value programmes.  You can read more about this topic in our blog in the article ‘What is Social Value?‘ Alternatively, please don’t hesitate to get in touch if you would like to discuss Social Value in more detail.

[1] United Nations. 2015. Sustainable development goals – United Nations. [online] United Nations Sustainable Development
[2] Watson, K. & Whitley. T, 2016. Applying Social Return on Investment (SROI) to the built environment, Building Research & Information, 45:8
[3] NEF. 2017
[4] Mulgan, G. 2010. Measuring social value. Stanford Social Innovation Review, 8(3), pp.38–43

*The content of this publication has not been approved by the United Nations and does not reflect the views of the United Nations or its officials or Member States.* Visit the website.

Soft Landings: Better Buildings, Better Real Estate

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One topic I am very passionate about is that of ensuring that the buildings we build and operate are fit for purpose. In my mind, this means providing users with an environment to deliver their work in sustainable, efficient buildings that do not impact their wellbeing. For building owners, it is about ‘getting what you paid for’ in terms of efficient design that leads to sustainable operation.

We often find that existing buildings do not operate as they should / could due to age, refurbishment changes, historical maintenance practices and/or BMS set up. This may be shown through high energy consumption, plant equipment impacting asset performance as well as substandard occupant wellbeing and comfort.

Reasons why this is happening need to be understood so that we can adapt and learn for future situations, and in particular, refurbishments. The existing building stock isn’t going anywhere and refurbishments within these properties is going to be important in delivering both sustainability performance (including those aligned with Paris targets) and occupier wellbeing.

Soft Landings – bridging the gap from design to operation

A tool that addresses these issues is Soft Landings. I hear many people refer to Soft Landings as commissioning and handover. This is a misconception. These are critical components of implementing Soft Landings, but it is much more than that. It’s a mindset and approach that should begin at project inception and embed through the whole building’s life cycle. Bridging the gap from design to operation is essential to ensure the building delivers as intended for the end user.

By thinking about the end use at the outset, measurable KPI’s can be established along with roles, responsibilities and ownership. These KPI’s can be championed throughout, with agreed reviews and meetings to understand changes, manage re-occurring problems and capturing the required information to ensure a smooth hand over and aftercare in those early stages of occupancy. Communication and engagement are critical and must play an integral part to ensure information is shared at the right time and interpretation for all level of users is provided where required.

The BSRIA Soft Landings stages and how they align with the RIBA Plan of Work are shown in the diagram below.

Source: BSRIA Soft Landings Framework 2018 (View full-size Soft Landings Map)

BSRIA Soft Landings Map

Adopting this approach, I believe is a firm step forward in addressing the challenges faced across the built environment. Having honest discussions around what works and why things have gone wrong helps us to build and manage better buildings. This, in turn, helps move towards a sustainable built environment to ensure the real estate industry mitigates its climate change impacts.

It’s not a perfect world and things can go wrong during any stage of a project. Soft Landings is not a silver bullet to solve this.  However, it does help identify why and how a problem occurred, providing context and understanding. This is then built into ‘lessons learned’ to improve future project delivery. This in itself is a success story and requires an open approach to project delivery and building operation.

A framework approach

Where possible, Soft Landings should be fully embedded and deployed throughout the project. Not applying the framework in its entirety increases the risk of operational problems, user issues and/or failure in sustainable operation further down the line.

EVORA & EVORA EDGE recognise that this is difficult across many situations. In order to establish the vision of ‘delivering better buildings’, we can support our clients in navigating through the six phases of Soft Landings through the following ways:

Phase 0 & 1:

  • Act as the nominated ‘Soft Landings Champion’ on behalf of the client.
  • Carry out surveys of existing building to help support key project decisions and KPI’s.
  • Define ESG / sustainability objectives, targets, KPIs and responsibilities

Phases 2 to 4:

  • Co-ordinating and managing the Soft Landings ‘Gateway’ meetings.
  • Providing concept and technical design input to support and advice with regards to building services.
  • Ensuring data capture infrastructure is in place e.g. meters and sensors.

Phase 5:

  • Facilitating engagement with Stakeholders to identify solutions to impacts on occupant satisfaction and sustainability performance.
  • Co-ordinating with the project and operational teams to establish building user guides.

Phase 6 & 7:

  • Develop aftercare programmes, including building analytics and utility performance to support ongoing KPIs and performance measurement.
  • Conduct Post Occupancy Evaluation surveys
  • Providing BREEAM In Use, RESET & Fitwel assessments and certification.
  • Providing technical reviews on building system issues to fine tune performance.

Get in touch with our experts if you’d like to hear more about Soft Landings

Social Value Part 1: What is social value?

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Social Value is the quantification of positive public benefits and outcomes. It originates from a collection of principles aiming to improve health, wellbeing, quality of life, and communities[1].

Social Value is considered in a variety of industry sectors, but recent uptake in the built environment has been sharp, and the future is focused on developing implementable social value strategies for commercial real estate.

Key factors for Social Value in the Built Environment

Social Value has been brought to the forefront of planning requirements by The Public Services (Social Value) Act (2012).  The Act gives no official definition or guidance on what process could be followed to implement Social Value. However, research from the U.K. Green Building Council (UKGBC) into Social Value provides comprehensive guidance into the most relevant aspects for development projects.

EVORA Global Social Value blog table Source UKGBC

How do we measure Social Value?

The most asked question in Social Value is ‘how do we measure this?’ Answered simply, Social Value is typically measured by the following 3 methods.
·     Fiscal, including Social Return on Investment (SROI)
·     Numerical quantification e.g. = number of people affected x outcome of action
·     Qualitative (storytelling)[2].

Social Value: Nice to have or must-have?

The rising global population means that the 3.5 billion people currently living in the world’s urban centres is set to increase. By 2030, this number set to rise to 4.9 billion. As the population grows and our cities become ever closer together, the challenges of living and working comfortably alongside each other are increasing. Understandably, government, the public and investors now expect more from those shaping our built environment. Unforgotten though, is that the built environment is a for-profit industry. It is therefore important to many that sustainability actions can be quantified with financial returns[3]. Social Value reporting gives us an updated set of sustainability principles and a way of quantifying them.

EVORA is now supporting our clients to develop and deliver Social Value programmes. You can read more about this topic in our next blog post in the series ‘5 key challenges for Social Value in Real Estate’.

Alternatively, please don’t hesitate to get in touch if you would like to discuss Social Value in more detail.

[1]Baldwin, C. and King, R. 2018. Social Sustainability, Climate Resilience and Community-Based Urban Development. 1st ed. London: Routledge.
[2] Maas, K. and Liket, K. 2011. Social impact measurement: Classification of methods in Environmental management accounting and supply chain management (pp. 171–202). Dordrecht: Springer.
[3]Emerson, J. 2003. The blended value proposition: Integrating social and financial returns. California Management Review, 45(4), pp.35–51. doi:10.2307/41166187

GRESB 2019: Are you ready for the portal to open?

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With just two weeks until the GRESB portal opens for 2019, the EVORA consultancy team is gearing up for our eighth year supporting clients through their GRESB Real Estate Survey submissions. We are experts in GRESB and that is why at least 80 funds have put their faith in us to manage their submission.

GRESB is by no means a walk in the park, that said with sufficient preparation and ensuring the right stakeholders are engaged from the beginning there is no reason why the process should not be straightforward. EVORA provides clients with an end-to-end service to take the pain out of GRESB.

Top Tips for a smooth journey through GRESB 2019

  1. Start [and aim to finish] early.
  2. At the start of the process and if you responded last year, remind yourself what went well and less well during the 2018 submission – consider both the process and individual question responses.
  3. Review changes to the survey questions (available from mid-February) and the guidance/scoring document (available from 1st March), as soon as they are released. Review these changes in the context of your entity/entities and its/their ability to maintain/improve GRESB scores. These changes may also create possible logistical challenges in gathering the necessary evidence and data in time for survey completion – so the earlier the better!
  4. Engage and educate those that will support you in delivering GRESB. Keep in regular touch with them throughout the process to make sure everyone is on track and is aware of their responsibilities.
  5. Although the survey closes on the 1st July, 5% of all submissions are selected for a Validation Plus interview so there is still a chance you may be called upon. The interview is a detailed review of your responses and the supporting evidence provided. Validation takes place from 1st June – 31st July.
  6. Automate data collection – Our propriety software, SIERA, delivered 65 GRESB submissions in 2018, helping clients to seamlessly acquire and report asset-level sustainability data into the GRESB portal.
  7. Seek external support/advice – Our team of sustainability consultants are experts in sustainability, real estate and [most relevantly] GRESB.

And lastly, GRESB 2020 will come around quickly. The results are released in early September and it is worthwhile putting some time aside to digest them. However, if you can’t wait that long, we provide clients with indicative scoring ahead of submission. This helps with future planning and managing expectations on current scoring.

We work with our clients to put in place a roadmap that aligns with their ESG strategy and which will enable them to continue to improve their GRESB score in the following and future years. If you’d like to speak to a member of the team, please contact us.

Download our GRESB eBook here.

Indoor Air Quality: Every Breath We Take

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At EVORA, health and wellbeing consulting is a key component of our Environmental, Social and Governance (ESG) Strategy and Risk Management service line.

We are increasingly advising our clients on indoor air quality and the emerging third-party standard in this area: RESET Air certification.

First – Why should we care about indoor air quality?

The short answer is because indoor air quality has a direct impact on health and wellbeing.

For example, PM-2.5 is one pollutant of concern in indoor environments. PM-2.5 is particulate matter or solid particles that are smaller than 2.5 microns in diameter – far smaller than the width of a human hair. These particles are so small that our bodies have no natural defences against them. As a result, PM-2.5 can penetrate deep within our lungs – even enter our bloodstream! – and can cause emphysema or lung cancer.

Even seemingly benign compounds from a human health perspective, like carbon dioxide (CO2), can negatively impact our mental performance. CO2 is a gas produced when we respirate and is in every breath we exhale. Yet, recent research shows that when CO2 accumulates in a space, such as when there is inadequate ventilation in an airtight indoor environment, it can significantly impact our cognitive functioning and make it difficult to concentrate.

High indoor air quality thus provides many benefits to worker health and wellbeing; it reduces sickness, decreases absenteeism, and helps raise productivity.

As employees are typically quoted as one of the most expensive costs of running a business, it follows that there is a strong return-on-investment in preserving high indoor air quality.

Second – How can EVORA help?

One way we assist our clients in this space at the asset-level is supporting the application of third-party health and wellbeing accreditation/certification schemes. Certification schemes offer a robust framework for discourse surrounding health and wellbeing in the built environment.

RESET Air (where RESET is short for Regenerative Ecological Social & Economic Targets) is one such certification scheme borne out of Shanghai, China in 2009. RESET Air certification has a focus on protecting human health by specifically targeting indoor air quality.

RESET Air is a sensor-based and performance-driven indoor air quality certification. RESET Air provides a standard for continuous monitoring of pollutants of concern, which must be below acceptable limits during hours of occupancy for a period of three months prior to certification. This level of performance must then be maintained forever more; projects are recertified annually to ensure indoor air quality continues to be within acceptable thresholds. Indoor air quality performance data must also be made publicly available to occupants of the building, continuously and in real time.

The pollutants of concerns include PM-2.5, volatile organic compounds (VOCs), CO2 and carbon monoxide (CO).

There are two different RESET Air project types:

  • RESET Air for Commercial Interiors: The intent is to monitor the quality of air for occupants at the breathing level.
  • RESET Air for Core & Shell: The intent is to monitor the quality of air being delivered by the building’s HVAC system post-filtration.

For certification with either project type, the emphasis is on obtaining three months of data by deploying accredited monitors and providing the data in an acceptable format.

RESET Air is seeing considerable attention internationally and relatively rapid adoption, particularly in certain geographies. Additionally, RESET Air has recently been coordinating and harmonizing with other health and wellbeing certification programs, including WELL and Fitwel. This harmonization helps streamline project documentation for those projects looking to achieve multiple health and wellbeing certifications.

Exploring the nuances of certification schemes, including RESET Air, can get complicated and quickly!

EVORA has multiple RESET Air Accredited Professionals ready to help you understand the standard and – if appropriate – apply it to your project. Get in touch to find out how we can help your project achieve improved – and easier to communicate – health and wellbeing outcomes!

Trends and expectations for sustainable real assets in 2019: Taking Climate Resilience Mainstream

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Climate resilience has emerged as a key field of practice; however, a concern is that thinking and knowledge of this topic, and most importantly actions are not progressing quickly or purposefully enough for real estate managers to adequately prepare their assets for the potentially perilous shocks and stresses caused by climate change.

Resilience is becoming a major consideration for businesses, with impacts on insurance, valuation and rents already starting to show in many countries.

The impact of climate change has vast implications across societal, economic and environmental realms. Building managers and owners have unique responsibilities as stewards of essential economic and social assets. The well-being of communities and economies significantly depends on access to reliable working assets. Consequently, we believe that planning for and adapting to climate change is not only prudent but essential.

Below, we identify five key reasons for integrating climate resilience into asset management and investment planning decision-making.

  1. Increasing performance reliability – Assets capable of operating during climate crises will exhibit greater long-term return predictability.
  2. Sustaining and increasing asset value – Value will be protected for assets that are not significantly affected operationally by climate-related events, or that do not need significant capital expenditure after such events (when other assets may be experiencing downtime). There may also be opportunities for operational cost reductions through efficiency and resiliency gains.
  3. Identification of future opportunities – Demand for resilient assets is likely to increase. Investors are exhibiting increasing interest and understanding in climate resilient assets, particularly in sensitive areas. Investors are mindful of the economic consequences of disruptions and emphasising reliability and resilience is central to their requirements.
  4. Growing trust – Assets are designed to provide effective services throughout times of peak demand/need. Assets that operate most effectively during times of climate disruption are therefore likely to generate increased trust from tenants and other key stakeholders and thus retain financial, economic and societal value over the long term.
  5. Increasing influence – Investors who lead the evaluation and adaptation of assets and demonstrate the thoughtful performance of fiduciary duties are likely to have a more respected voice within policy discussions.

Progress

As mentioned above, resilience has emerged as an important topic. Whilst there is a long way to go, progress has been made. Some communities and assets around the world are embracing plans to be resilient to what the future will bring — and what the present is already delivering.

We identify five key marks of progress in the practice of resilience:

  1. The knowledge base on resilience is expanding
  2. Tools supporting resilience are increasingly available, yet remain difficult to select and use
  3. Science and practice are increasingly working together, but more collaboration is needed
  4. Resilience mandates are emerging in some countries and cities
  5. Funding from philanthropy and government has been crucial in field growth.

So, what should real estate companies do?

Consistent with our belief that investors need to deal with the risks of climate change as a practical issue now, rather than put it off into the distant future, we encourage a systematic assessment of the vulnerability of assets to climate risk, ideally by utilising an analytical modelling framework. This will enable the identification of risks, assessment of materiality and provide guidance to investing, considering the need for climate resilience in assets, new investment opportunities and the broader business plan.

Given the relatively short timeframes during which an investor might own a particular asset, a common attitude is that climate risk is of low priority for evaluation. However, by evaluating whether assets are vulnerable to business disruption due to the impacts of climate change, investors may be able to implement resilience measures that positively increase an asset’s valuation.

Modelling future climate and risk scenarios can assist climate due diligence by enabling consideration of how the asset may fair against risks posed by tomorrow’s climate and not just todays.

We advise a process for evaluating climate risks:

  1. At portfolio level to:
    – Identify relevant geographic climate risks
    – Score and map assets in the portfolio based on criticality and vulnerability
    – Prioritise climate risk mitigations in accordance with ratings
  2. At asset level to:
    – Evaluate key climate risks and their relative impacts on a physical assets condition, operational capacity, and for regulatory implications (fines, penalties)
    – This can then support development of a mitigation strategy which develops action plans based on highest value risk mitigation options per vulnerability reductions

Our conclusions

The cost difference between being pro-active now compared to being reactive in the future will be significant. Early actions have the potential to reduce losses in the short term as well as create significant value by enhancing the resilience of assets in the long term. Forward thinking investors alert to the implications of climate change can integrate adaptive strategies. This will avoid being caught off guard by climate shocks and incurring large remedial costs that could severely disrupt investment returns.

The real estate industry will adapt further as the resilience discipline itself evolves. Best practice is not universal across the sector, and the science and our ability to devise innovative solutions is constantly evolving. As we move through 2019, we recommend that all real estate firms consider resilience by asking the following questions; What does resilience mean? What risks are faced and how can they be mitigated? Progress towards development of a Resilience Strategy is a true win/win – good for business and good for the planet.

This post was originally posted on GRESB Insights

Real Estate Sustainability Performance (& Skydiving)

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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