How relevant will the Taskforce for Nature-related Financial Disclosures be to the Real Estate sector?

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There is a growing understanding that biodiversity loss and climate change are interlinked crises. Climate change degrades many ecosystems and makes the species within them more vulnerable; a decline in biodiversity reduces the ability of ecosystems to act as a carbon sink and to provide resilience for human populations through ecosystem services. The second part of COP15 Biodiversity Conference, being held in China this year from the 25th of April to the 8th of May, is expected to yield a Paris-style agreement to halt and reverse biodiversity loss and make commitments a part of binding national policies for the first time.

In the UK, the soon-to-be-introduced Biodiversity Net Gain policy (part of the Environment Act 2021) will require property developers to deliver a 10% net gain in biodiversity levels either on-site or off-site through biodiversity credits. Globally, and particularly in the UK, it appears that biodiversity loss is receiving a similar level of interest that climate change was seeing 5-10 years ago and is rapidly climbing the corporate agenda.

The key risk management and disclosure framework emerging to deal with nature and biodiversity is the Taskforce for Nature-related Financial Disclosures. It is being developed by a broad spectrum of stakeholders, including many of the world’s largest financial institutions. The TNFD will provide a framework to allow organizations to report on the risks and opportunities they face from biodiversity with the aim of shifting financial flows to create a nature-positive economy. The first beta version has just been released with the final version expected in 2023.

Like the TCFD, it will use the same pillars of Governance, Strategy, Risk Management and Metrics & Targets to structure disclosures. Unlike the TCFD, the TNFD is likely to directly incorporate the concept of double materiality within the framework and require users to report their impact on nature as well as nature’s impact on them. In light of recent criticism of ESG assessments which only focus on a company’s bottom line rather than their wider impact, this is a positive step.

So how significant is this likely to be for the Real Estate sector? A report published in 2020 from the World Economic Forum found that the construction sector was highly dependent on nature, with the real estate sector being moderately dependent. This is unsurprising given the huge material inputs that the construction and maintenance of buildings require, particularly if the sector intends on moving towards the use of structural timber at a large scale.

If nature is neglected, supply chains for natural fibres and timber could become more vulnerable due to issues around soil quality, pests and the decreased climate resilience brought about by a fall in biodiversity. Once buildings are in operation, nature plays a key role in maintaining their value by protecting against flooding, providing clean water, reducing temperatures during heatwaves and, for many buildings, creating a pleasant environment. As mentioned above, the real estate development sector in the UK must now meet rules around biodiversity such as Biodiversity Net Gain and the London Plan’s Urban Greening Factor. Nature is clearly a key factor in the construction of real estate and in the preservation of its value, as well as being the focus of increasing legal requirements.

Adopting the TNFD will be a difficult task for the industry given the complexity of nature and the challenge this causes for creating useful data. Helpfully, many of the steps that the real estate sector is already taking to reduce emissions and vulnerability to climate change will also limit the harm done to nature, such as reducing material use and incorporating nature-based solutions into developments. With the experience gained from the TCFD, the financial system is in a better position to rise to the challenge.

A Quick Introduction to Social Value

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Social value has been a theme for governments and businesses for the last decade. As something that started life as a means of trying to assure positive local outcomes for projects where public money was being spent, for example for a construction company commissioned to build a school, it has evolved into a broader concept designed to ensure that all organisations are thinking about people, places, and communities in their work.

The story started in public sector procurement. Public sector bodies including Central Government departments, local authorities, and councils spend billions a year on local public goods and services in the UK. In 2012, the Social Value Act was introduced with a key aim to transform the way in which this public money was spent in England and Wales. What the Act requires is that commissioners, who procure public sector revenue contracts or capital projects, ‘consider’ how they could secure wider social, economic, and environmental benefits, named social value from these contracts. [1]

Similar legislation has also been published by the Welsh and Scottish Governments, including The Procurement Reform (Scotland) Act in 2014 and The Well-being of Future Generations (Wales) Act in 2015.

In January 2021, the Government launched the Social Value Model which requires departments to ‘explicitly evaluate’ social value in all central government contracts. [2] The Social Value Model followed from the detailed laid out in 2020’s PPN 06/20 which laid the groundwork for the Model and provided an overview of the Model’s focus. The Model sets out the Government’s goals for social value in the form of five strategic policy outcomes: COVID-19 recovery, economic inequality, climate change, equal opportunity, and wellbeing. The Government has been a key driving force for the social value movement changing the way social value is perceived within many sectors, including commercial real estate, trying to understand what social value means to them, and how the concept can be incorporated into their business activities.

A month later, UK Green Building Council (UKGBC) identified a need from the built environment to establish a definition of social value that focused on the impact that buildings, infrastructure and places have on people. The high-level definition states that “social value is created when buildings, places, and infrastructure support environmental, economic and social wellbeing, and in doing so improve the quality of life of people”. Exactly which environmental, economic and social outcomes create social value will depend on the best interests of the people most impacted by the project or built asset”. [3]

It is not surprising that, over the last few years, we have seen a rise in relevant and practical guidance documents not only from the UKGBC, but other organisations, such as Better Building Partnership (BBP), in an attempt to support businesses within the built environment with social value.

In 2018, UKGBC published an introductory guide to ‘Social value in new development’ designed to help development teams understand social value in relation to the built environment, and what they can do to improve societal outcomes from new developments [4]. The guide maps social value outcomes against several core themes, including jobs and economic growth, health, wellbeing, and the environment, and strength of community (See Table 1).

Jobs & Economic Growth Health, Wellbeing, & the Environment Strength of Community
Decent jobs for local people and hard to reach groupsGood accessibility and sustainable transportationStrong local ownership of the development
Local people with the right skills for long-term employmentResilient buildings and infrastructureExisting social fabric is protected from disruption
School leavers with aspirations of the industryHigh quality public and green spacesThe new community is well integrated into the surrounding area
The local supply chain is supported and grownGood mental healthThriving social networks
Residents have comfortable homes which are affordable to operateGood physical healthVibrant diversity of building uses and tenures
Thriving local businessesLimit resource use and wasteStrong local identity and distinctive character
Table 1: Summary of social value outcomes across new development

Questions about the incorporation of social value within property management activities has also become a popular topic of conversation amongst commercial real estate companies leading to the ‘Responsible Property Management Toolkit’ being produced by Better Buildings Partnership (BBP) in 2021.[5] The toolkit provides practical guidance for asset managers, property managers and facilities managers on embedding sustainability (incl. social value) within property management services. Guidance notes provide clarity on social value, including information on the following:

  • What is social value?
  • Social value opportunities
  • Incorporating social value within the supply chain

Many real estate companies have begun to lean on both pieces of guidance to stimulate ideas internally about how they incorporate social value within their day-to-day property management activities as well as new development projects. As ESG has leapt up the strategic agenda in the last five years, the organisations able to address each element comprehensively have positioned themselves as leaders within the ESG space. The value of building a comprehensive environmental, social and governance strategy has never been more obvious as boards and stakeholders alike demand more from those they do business with.

Typically, ESG strategies tend to focus more heavily on the ‘E’ but at EVORA our clients’ strategies contain a strong ‘S’ component which is wholly aligned to their business objectives, whilst being aligned to industry best practice, such as UKGBC and BBP amongst others. Our approach allows our clients to be confident with how they communicate social value to investors and other stakeholders allowing them to stay ahead of the curve when it comes to ESG.

Please do not hesitate to get in touch if you would like to start your social value journey with us today.

Sources

[1] Communities and Local Government. 2011. A plain English guide to the Localism Act. Department for Communities and Local Government. UK.

[2] Cabinet Office and Department for Digital, Culture, Media & Sport. 2020. Procurement Policy Note PPN 06/20 – taking account of social value in the award of central government contracts. Cabinet Office and Department for Digital, Culture, Media & Sport. UK.

[3] UKGBC. 2021. Framework for defining Social Value. UKGBC. London.

[4] UKGBC. 2018 Social Value in new development: An introductory guide for local authorities and development teams. UKGBC. London.

[5] Better Building Partnership. 2021. Responsible Property Management Toolkit. pp. 43-46.

Keeping It Transparent

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Sustainability reporting grows ever more mature, complex and demanding.

Investors are demanding more transparency. Regulatory requirements are intensifying. The number and complexity of frameworks, standards, ratings and indices has increased – even with efforts to increase harmonisation. Formats and channels are diversifying, with digitalisation accelerated by the pandemic.

This is generally positive and certainly a testament to the efforts made to accelerate the prominence of sustainability in business. Sustainability reporting is becoming increasingly rigorous. At the same time, it is more accessible and mainstream than ever before, allowing it to provide valuable input to decisions made by your stakeholders. But this boom in reporting does not come without its challenges.

What are the main reporting challenges?

As the complexity of the reporting landscape intensifies, we’re seeing an increase in the quantity of information being communicated. However, whether the quality of reporting has followed suit is debatable.

An article produced earlier in the year from the Harvard Business Review highlighted a range of challenges, with its headline stating that while sustainability reporting has become widespread, environmental damage and social inequality is still growing. Reporting on its own does not ensure environmental and social improvement.

What’s the way forward?

  • Measure less, but better. There is no point expanding on further metrics if that most-crucial data – usually your carbon emissions – is unreliable. Ensure accurate meter setup, continually improving your monitoring processes and explore data automation solutions.
  • Mapping what is material. Materiality assessments enable companies to identify sustainability issues that are important to all stakeholders. Used to their full potential they can help shape company strategy, galvanise internal functions and gain senior buy-in, as well as uniting disparate teams and processes. Materiality assessments should be regularly reassessed to better integrate sustainability into business strategy and to inform meaningful sustainability communications. 
  • Report to your different audiences. It may be said that a report aimed at everyone will resonate with no one. This doesn’t mean ignoring secondary audiences, but rather making a conscious choice about which audience you’re prioritising across the different channels of the reporting ecosystem. If you’re prioritising a specific audience through your main sustainability report, think about how you could leverage and personalise your website and social media to communicate with your secondary audience(s).

EVORA designs reporting strategies for organisations, enabling them to apply frameworks, communicate meaningful sustainability outcomes and impacts to key stakeholders and use reporting as a tool to improve sustainability performance. Get in touch with the EVORA reporting team today.

Act on Climate Change

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COP26 is well underway and the world is keenly waiting to see what is discussed and then acted upon.  Whilst the seriousness of the event can not be understated we thought, as we approach the end of the first week, to take a slightly different and optimistic look at the issues we face by rereleasing a blog article we wrote a couple of years ago. Hopefully, this will serve to emphasise the importance of the issues but also remind us that some of the challenges we face can be a simple refocus on modern life and most of all keep the faith we can succeed!

For those of us old enough to remember the amazing and thought provoking Baz Luhrmann song of the late 1990’s ‘ Everyone’s free to wear Sunscreen’ you will be amazed to know that it is twenty years since this early viral internet phenonium grabbed our attention. You will also no doubt recall those amazing thought provoking and immortal words of the writer Mary Schmich, the original author of the words that were wrongly attributed to Kurt Vonnegut. For those of you too young to remember the song I recommend you hunt it down and listen. It was whilst listening to a recent BBC World Service programme of the history of the song it occurred to me, as somebody who has spent the past 30 plus years in the sustainability world, what advice would I most like to pass on to the younger generation about the climate change challenge and living sustainably. So in honour of Mary, Baz and the amazing voice of Lee Perry here goes my reinterpretation of their lessons in life…

Ladies and gentlemen, readers of EVORA Insights.

If I could offer you only one tip for the future,

Acting on climate change would be it.

The long term impacts of climate change have been shown by scientists whereas the rest of my advice has no basis more reliable than my own meandering experience.

I will offer my advice on how to address this challenge now.

Take seriously the power and passion of youth.

Dismiss this at your peril.

You may not understand the power and passion youth until you have children and grandchildren of your own.

But trust me, in 20 years from now you’ll back at this time in a way you can’t grasp now and wonder why you didn’t act when there was still possibilities to change our trajectory and how many opportunities acting now could open up before you.

The future is not as hopeless or as difficult as you imagine.

Don’t worry about the science, but know that worrying is not effective or going to change the outcome.

The real challenges in modern life are our relentless consumptive behaviour in pursuit of false happiness but know that it’s not about having what you want but wanting what you have, the simple things in life such as spending time with family and friends is free.

Do something every day that challenges the perceived wisdom.

Publish your commitment to act on climate change.

Don’t be reckless with our resources and don’t be reckless with other counties resources.

Don’t accept the suggestion the World has endless capacity.

Recycle.

Don’t waste do more with less. The World has evolved over millions of years and everything in the universe is recycled. Time is endless and our future uncertain but our place in history is not guaranteed.

Be respectful.

Remember your successes and learn from any mistakes but don’t let them restrict you, the journey in tackling climate change is challenging and we are all on it together.

Display any awards for best practice it will keep you motivated, don’t throw away your utility bills, it’s valuable data that can help you improve management of your assets

Innovate.

Don’t feel guilty you don’t know how yet, embrace the possibilities and engage with technology. Some of the best businesses I’ve known didn’t know how to innovate at the start of their sustainability journey, some of them have been able to secure Government grant funding to help them.

Embrace the power of the Sun.

Preserve the rainforest, biodiversity and ecosystem services you’ll miss then when they are gone.

Maybe you’ll strive to solve the challenge on your own.

Maybe you’ll partner with others to work together.

Maybe you’ll offset your carbon.

Maybe you’ll just go veggie and reduce meat consumption.

Whatever you do don’t congratulate yourself too much or be defeatist the future of humankind is in our hands today, so is the rest of life on Earth.

Get plenty of exercise, walk cycle run, don’t over eat or poison your body with unhealthy substances it’s the only one you’ll own.

Pause….. take time to look around you and marvel at the wonders of life.

Read and keep abreast of climate science it’s moving fast.

BEWARE the fashion industry it contributes more to global warming than aviation and shipping combined.

Celebrate and respect your culture and heritage we can learn lots about good lives from our ancestors that can guide our future.

Work together with your peer group. They understand your challenges and together you can find mutual respect and encouragement in the future.

Understand that friends come and go, but for the precious few you should hold on.

Spend time with family and friends, enjoy preparing and eating local seasonal food together, avoid cheap fast foods.

Work to bridge the gaps in geography, although the challenges can differ slightly between countries the essential issues are the same, think global act local.

Only travel sustainably.

Accept certain inalienable truths carbon taxes will come.

Politicians will eventually legislate.

You too will get older, and when you do you’ll fantasize that taxes were reasonable politicians were noble and will recall it was our children that made us aware of the threats of climate change to life on earth.

Respect mother Earth.

Maybe you need financial support, maybe you can reinvest some profits but be under no illusion time is running out.

Don’t rush ahead without considering proper science based targets or by the time we hit 2050, you’ll realise you’ve been chasing the wrong goals.

Be careful with those who sell existing stuff carefully repackaged with a green claim. Get proof of their credentials with an appropriate assurance or verification certificate. Engage a good independent consultant to help you.

But trust me on the seriousness of climate change.

EVORA will be live streaming our panel discussion at COP26 via Zoom, register here and find out more about COP26.

Cities, Regions, and the Built Environment at COP26

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Collaboration between real assets owners and the cities in which they operate is key to advancing on climate action

As the world gears up for COP26, attention is turning to the built environment’s responsibility to reduce GHG emissions and urgent need to adapt to the physical impacts of climate change such as flooding and heat stress. While buildings have unfortunately contributed to the problem of climate change over time through their use of fossil fuel-based energy, those of us who work in the sector now have a tremendous opportunity to help redirect capital to drive positive change.

The IPCC Sixth Assessment Report (AR6) confirms that human activity is undeniably causing changes to our climate systems and that the world must transition to Net Zero Carbon by 2050 to prevent the worst outcomes. Transforming the urban built environment is key to fighting the climate crisis.

Cities are responsible for 60% to 70% of global carbon emissions, although per capita energy consumption of urban residents tends to be lower than that of rural residents.[1] Real estate is often the main culprit. In New York City, for example, buildings generate nearly 70% of the city’s carbon emissions.[2] Urban infrastructure and services are also increasingly vulnerable to extreme weather events and chronic climate changes. The IPCC AR6 report notes that cities actually intensify human-induced warming locally (i.e. the Urban Heat Island effect) and can increase local precipitation, worsening stormwater runoff intensity.

Cities are also grappling with other major shifts, including urbanization and population growth. By the year 2050, over two-thirds (68%) of the global population are projected to be living in urban environments.1 While greater density is usually a positive thing for reducing carbon emissions, growth can also put stress on land availability and natural resources. Urban centers are also currently battling housing crises and inequality in many parts of the world and working to recover from the COVID-19 pandemic. These all involve crucial planning and policy decisions that require funding.

The COP26 Presidency Programme is made up of a series of key themes, the last of which is “Cities, Regions and The Built Environment” on November 11th. An initiative related to this theme is the #BuildingToCOP26 Coalition, a group of business and government organisations that are focused on achieving zero emissions and resilience in the built environment and cities.  The Coalition is working to support an interim target of halving the built environment’s emissions by 2030 and an ultimate target of net zero emissions by 2050.

The Coalition is urging both cities and businesses to join the “Race to Zero,” which focuses on achieving zero emissions buildings and infrastructure. The Cities Race to Zero program is in partnership with the C40 Cities initiative, a group of 97 cities around the world pursuing climate action and sustainable urban environments. 

EVORA Global are attending COP26 and will be hosting an expert panel discussion on the 11th of November titled “Real Estate Investment and Finance: Climate Risk and Opportunities.” We hope you will join us if you are attending the conference!

What are cities doing to reduce emissions and adapt to the effects of climate change, and how will owners and managers of real assets play a role?

At EVORA Global, we help managers of real assets – including real estate and infrastructure – understand their climate risks, reduce their greenhouse gas emissions, and make their portfolios more resilient. Real assets managers can play a crucial role in the cities and communities in which they operate by mitigating climate change and providing safer, healthier, and more resilient buildings for occupiers.

Of course, buildings don’t exist in a vacuum. Urban properties interact with and rely on the services and infrastructure of the city around them. A highly resilient office building in a coastal city might be back up and running the day after a hurricane, but it will still face risks to rental demand and asset value if residents in the area are dealing with frequent evacuations and homes are losing insurance coverage.

It’s becoming increasingly important for real estate investors to scrutinize cities’ adaptive capacity, just as they have traditionally examined economic and demographic data in their target investment markets. Credit rating agencies have begun incorporating climate-related factors into their government bond rating systems, which may provide insightful metrics and research. A city’s political will and financial backing may determine whether it will remain habitable over the course of the century. Tokyo, for example, faced significant physical risks long before human-induced climate change. Although it’s well-adapted today (check out the incredible underground tunnel system that protects the city from flooding), massive investments will need to be made to improve those protections as climate risks worsen over time.

Cities are also establishing their own regulations and incentives to drive the built environment toward Net Zero Carbon, particularly in the United States where there is still a lack of strong national climate policy. New York City’s Local Law 97 sets energy efficiency and greenhouse gas emission limits for buildings starting in 2024 and intensifying in 2030. Just this month, the City of Boston signed into law the Building Emissions Reduction and Disclosure Ordinance (BERDO), which sets gradually decreasing carbon targets for existing buildings. Other local policies target specific technologies, such as energy efficient lighting, sub-metering, and electric heat pumps. Real estate managers, particularly those with geographically diverse portfolios, face a big challenge in staying on top of these emerging regulations and ensuring their assets comply.

There are many elements of urban planning and management that are critical to reducing emissions, including the provision of electricity and heating, urban water systems, urban waste management, transportation systems, and protection of green spaces and biodiversity. Each element may also be vulnerable to the physical impacts of climate change, so adaptation must be a part of all urban planning decisions. Climate mitigation and adaptation are therefore two sides of the same coin.

The urban built environment can either help or hinder the journey toward climate resilience, depending on the choices we make. COP26 serves as (yet another) urgent call to action for both governments and the private sector to work together to transition to a net zero carbon world. How will you respond?

[1] Rosenzweig, C., Solecki, W., Romero-Lankao, P., Mehrotra, S., Dhakal, S., & Ali Ibrahim, S. (Eds.). (2018). Climate Change and Cities: Second Assessment Report of the Urban Climate Change Research Network. Cambridge University Press.

[2] The City of New York (2016). New York City’s Roadmap to 80 x 50. The City of New York Mayor Bill de Blasio.

Improving SECR Reporting

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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?

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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?

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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

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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

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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