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Plant Power Month

We celebrated Plant Power Month in April, inspired by National Gardening Week (27th April to 5th May). We spent the month taking cuttings of plants, growing vegetables, making seed bombs, and taking pictures of our plants.

Plant Power Month was a great success. We loved seeing EVORians posting their green babies on the Wellbeing channel on Teams and sharing how their plant projects at home were doing.

As well as providing oxygen, plants can also lower stress and anxiety, reduce fatigue, and improve your mood. Plus it’s loads of fun watching them grow! No matter the space you have, there is always an opportunity to get green-fingered. From vegetable cuttings to windowsill plants, you can get your daily dose of vitamin green, which has a huge impact on your mental health, wellbeing and on your step counter.

See below for what we did in the office!

Eco-Grow Set

We kicked off the month by sending out eco-grow kits to ten volunteers. These included ‘a taste of Italy’, ‘vibrant vegetables’ and ‘herb a’licious’. The seeds take some time to get going, so we won’t know for a while yet who has grown the best vegetable or herbs from the kits. We loved that the kits were eco-friendly too.

Vegetables in the office

We decided to show everyone how easy it is to ‘recycle’ the vegetables and fruit stones that we would normally not think twice about composting. It was great seeing how these scraps could get a second lease of life and it felt amazing doing it.

Our office garden included spring onions, garlic, basil, mint, celery, chilli seeds, and avocado seeds. After 5 weeks, our garlic has shot up to 55cm and our chilli seeds a much smaller inch of growth.

We are super impressed by the growth of all the vegetables and herbs, and delighted with how far they’ve come in such a small amount of time.

After posting about our avocado seeds, we found out that one of our team has been growing avocado plants for over ten years, which look amazing and so big! Definitely worth the wait and the patience that goes into growing them.

Seed Bomb Workshop

A huge thank you to the ladies of Wilder for leading a Seed Bomb Workshop in our London office. We had 12 staff come along to learn how to make seed bombs and spend the hour creating and wrapping them.

Seed bombs, or ‘earth dumplings’ were used in guerrilla gardening in the 1970’s, but go back hundreds of years in Japanese agriculture. They are a great way of spreading seeds in a large area that are protected from birds by the clay outer shell. Once it rains, the clay dissolves and the seeds, which by this point has already germinated, are safe from birds and well on their way to growing up.

As well as helping with wellbeing, the seed bomb workshop felt like a great team bonding experience. Everyone was getting their hands dirty and talking shop. With the busy season ahead for a lot of us, it was great that everyone could come together and switch off.

Plant Cuttings

To end the month, we planted everything that we had grown or taken cuttings from. We felt like proud mamas when our little seeds and cuttings that we had tended to the whole month were big enough to be potted and sent home with new mamas and papas. We couldn’t believe how many pots we could fill with cuttings!

We’ve really enjoyed getting our hands dirty for Plant Power Month and would highly recommend others to get out in nature and see what they can grow at home. We’ve proved you don’t need a lot of space and that with enough patience you can surprise yourself with what you can grow.

Infrastructure investors are leading other real assets

In October, EVORA Global and GLIO hosted a lunch with a select and insightful group of investment managers who are leading on the integration of ESG. In a number of ways, these leaders were ahead of other real assets, particularly real estate. There are obvious differences between direct investment in infrastructure and equity investment in both listed and private infrastructure companies, but there are some shared challenges.

Their main challenge is that their investor clients have lots of diverse, individual views on ESG – ranging from taking a hard line on exclusion screening through to being anti-ESG. The result is a split mentality between “sector shifting” through full or partial divestment vs. transitioning assets.

As reported in GLIO Journal issue 9 [1], strict exclusion criteria can see companies with >5% revenues from coal generation, or even nuclear power exposure excluded. In the latter camp, the successful transition of Danish Oil & Natural Gas (DONG) to renewable energy giant, Ørsted, is a resounding success story. Effective stewardship and the use of voting rights could be the key to requiring a successful transition. For listed companies this could mean addressing investor demands on transition progress or on the private side majority and full ownership is preferred by these leaders to enact change.

Can all infrastructure assets transition to Net Zero Carbon? Our guests felt that it was easier for real estate and that the measures were clearer for those assets. The plethora of carbon accounting standards doesn’t help provide clarity. However, the Transition Pathway Initiative is an industry initiative which is trying to provide useful, sector-specific guidance. The lunch conversation focused on operational GHG emissions and there was no discussion of embodied carbon, which is a present preoccupation for real estate. Other ESG categories, including green and social infrastructure, were not mentioned.

Like many others, these investment managers are being bombarded with information requests. This is time consuming for them and for the infrastructure companies, where many of them do not have in-house ESG expertise nor resource. It is even harder for debt providers who are one-step removed. There is no standardisation, and guidance developed for corporates is being forced into the requirements for real assets even when the risks are different. This means that, in some cases, data is being shared which doesn’t represent the underlying operational ESG risks (and opportunities) for infrastructure.

EU regulations, like SFDR and the Taxonomy, is expected to drive data collection and use. The UK, Singapore and Japan are all following suit. Even the US SEC could require mandatory climate risk disclosure in line with TCFD. If this is accompanied with better guidance on how to interpret and use data this would be welcomed, as guidance for real assets is presently inadequate.

The lack of ESG capacity within infrastructure companies is a barrier for the successful delivery of transition plans. Given the war for ESG talent and the shortage of supply in technical skills, this could be a systemic risk for real assets, both infrastructure and real estate. Proxy data will have to be used.

At the moment, the best quality disclosures are coming from a variety of companies who are open, transparent and prepared to engage with GLIO and GRESB. Many of these companies own and operate legacy assets which have a more material impact on the environment. This is reflected in the recent GRESB scoring, which values the availability of data and information transparency more highly than progress on material performance. GRESB is the best available option at present and there was a recognition that this doesn’t make all of the ESG risks transparent for investors. This is clearly an area for development in the short to medium term.

Given the variety of investor information requests, there is an expectation that tailored metrics may be required, which adds to the confusion and makes standardisation of metrics more difficult.

Where ESG is being integrated into investment decisions, screening is a popular approach. ESG knowledge is appearing in Investment Committees and whilst there may not yet be ESG ‘red lines’ there are some amber ones. Reducing over time a fund’s exposure to fossil-fuel intensive sectors. There was a clear consensus that some sectors, like coal, will be fully excluded within this decade, if they’re not already. Oil & Gas infrastructure is being given more leeway, but the clock is ticking. However, utilities companies also own our electricity infrastructure – essential transmission and distribution lines, which needs to grow and be renewed, so starving them of capital through screening could slow our shift to electrification of transport, buildings and industry.

Another approach to ESG integration is in valuations, with the discount factor being tweaked to represent both downsides and upsides. Alignment with SDG objectives is also happening, but mainly focused around clean energy and climate change.

Both of these approaches require forward-looking, as well as historical, data. Some managers are looking for this from third parties, with some difficulty, but others are insistent that these models will only be created in-house. For the long-term hold periods of infrastructure assets, this forward-looking perspective has to be refined in the short to medium term. Clarity over climate action and a clear policy framework will be a determining factor for both mitigation and adaptation infrastructure. Important decisions have to be made at inception to avoid making transitions impossible.

If you would like to discuss improving the sustainability of your infrastructure assets or funds, please get in touch with our dedicated infrastructure team.


[1] https://en.calameo.com/read/005185466d83293b468ac?page=44

Act on Climate Change

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

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.

CRC Annual Report Publication: Key Results for Phase 2

The CRC Energy Efficiency Scheme Annual Report Publication (ARP) covering the first 2 compliance years of Phase 2 has been published today.

CRC Annual Report: key results

Key results for Phase 2 to the end of the 2015/16 compliance year show:

  • Total revenue through carbon allowance purchases in 2015/16 increased 18.2% to £902,957,350 compared to 2014/15
  • Total energy use reported for 2015/16 was 3.2% lower than 2014/15: equivalent to 3,558,208MWh
  • Total reported emissions for 2015/16 were 9.7% lower than 2014/15: equivalent to 4,415,594tCO2
  • 1,858 participants registered for Phase 2; this is a small reduction in the number of participants when compared with the final year of Phase 1

The key results present some very serious numbers, including a near £1bn revenue stream for the government and some notable improvements in energy usage and carbon impact.

3.2% reduction in annual energy usage

The CRC is due to be scrapped following completion of the 2019 compliance year (in July 2019). The Scheme has been widely criticised by Participants as overly burdensome and costly to administer.  Others will argue that the benefit of identifying and reporting annual emissions has brought attention to energy efficiency improvements, as demonstrated through the 3.2% reduction in reported energy use.

Irrespective of what happens going forwards, monitoring will continue to be essential to ensure understanding of energy performance and to help track energy efficiency. Our proprietary software, SIERA, is a market leading, innovative and easy-to-use environmental management software system. SIERA is already managing billions of pounds worth of real estate, and is being rapidly adopted by large organisations across the globe.


Find out how SIERA can transform your data capture and reporting by calling our experts today.


 

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

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

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

Science-Based Targets: Categorising Emissions

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

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

[clickToTweet tweet=”The problem for #CRE firms is who is accountable for #emissions – the landlord, the tenant or both?” quote=”The problem for commercial real estate firms is who is made accountable for the emissions– the landlord, the tenant or both?”]

Different Approaches

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

[clickToTweet tweet=”How do #sciencebasedtargets actually work in practice? This blog explores the answer…” quote=”How do Science-Based Targets actually work in practice?”]

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

How does SDA work?

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

The step-by-step approach for setting emissions targets

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

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

Modelling Methodologies – Some Considerations

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

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

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

Data Accuracies: Measurement and Monitoring

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

[clickToTweet tweet=”It is wrong to believe that #sciencebasedtargets can act as a silver-bullet approach…” quote=”It is wrong to believe that SBTs can act as the silver-bullet approach to achieve cost-savings and greenhouse gas emission reductions directly.”]

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

Concluding Remarks

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

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

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


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



Further reading:

Why MEES is Changing Behaviour Two Years Ahead of the Compliance Date

The Minimum Energy Efficiency Standards (MEES) regulations will make it unlawful from April 2018 to let buildings in England and Wales which do not achieve a minimum Energy Performance Certificate (EPC) rating of E. This will initially apply to new lettings and renewals only, but from 2023 will apply to all existing leases as well.

John Alker, Director of Policy and Communications at the UKGBC stated that MEES is “The single most significant piece of legislation to affect our existing building stock in a generation”. I would certainly agree with this on a number of levels.

But doesn’t MEES have its flaws?

YES!

Firstly, the minimum standard is based on an EPC rating but as we know, EPCs are renowned for their lack of correlation to actual energy performance and that, as a commoditised service, quality diminished significantly putting into question the accuracy and usefulness of many EPCs.  Note that the Government is aware of this issue and has entered into a consultation process designed to improve quality assurance of EPC assessments.

Secondly, EPC calculations are linked to building regulations, so as regulations get tougher, so does the ability to achieve a decent rating making MEES a moving target. Many have suggested that EPCs produced pre 2011, if re-modelled now, could be up to two ratings lower. If correct, this could potentially see in excess of 30% of building stock, at risk to 2018 regulations.

However, this is not what we are experiencing, primarily due to the poor quality of many existing EPCs. As an example, EVORA recently re-evaluated shopping centre units with an EPC ratings E – G, where the rental value of these units exceeded 75% of the total ERV of the scheme. The original EPCs were of poor quality, as shown through the use of defaults. By completing accurate EPCs, EVORA was able to secure at least a D rating and therefore mitigating MEES risks for the next 10 years.

It is also not yet clear what the future trajectory will be for the minimum standard, although it is possible that this will be raised come 2023. This makes refurbishment planning challenging for landlords, who generally work on ten year cycles.

Finally, there are a number of exemptions, not least the requirement to have the consent all of tenants, which is surely a get out of jail free card for any landlord.

MEES and Behavioural Change

Despite these flaws and challenges we are seeing a significant change in behaviour well in advance of the 2018 compliance date. This shouldn’t be a surprise. MEES has the real potential to adversely impact many key value drivers including occupancy, rental growth, liquidity, cost of finance and yield on sale.

Greater Rigour Required

As such, it is focusing minds to ensure EPCs are carried out professionally and with rigour, whilst taking steps to understand portfolio risk supported by an appropriate strategy to mitigate.

As an example, more sophisticated energy modelling is being undertaken using Dynamic Simulation software packages to ensure the accuracy of EPCs and to better understand the opportunities to improve both energy performance and the EPC rating. We are currently supporting Hines on a major refurbishment in Canary Wharf, providing energy simulation modelling to ensure the design intent improves both the energy efficiency of the building as well as the EPC rating.

Understanding your MEES Risk

In addition, we are regularly using sophisticated sustainability management software such as SIERA on behalf of our clients, to analyse EPC ratings, lease events and ERVs together to understand and profile MEES risk.

Collaboration is going to be Essential

Ironically, rather than being a get out of jail free card, lack of consent by the occupiers, possibly due to business interruption issues, could impact on asset management plans to improve the overall EPC rating to ensure future marketability and to prevent possible price chipping on sale. This is also an issue for FRI assets where there is no legal right to gain access, but improvements may be necessary to achieve a minimum rating, prior to lease expiry to enable the property to be marketed to minimise the risk of void periods. These issues will drive the need for greater collaboration between landlord and tenant.

Improvement vs repairing obligations and what about dilapidations…?

Collaboration will also be key if the landlord intends to replace M&E equipment with more energy efficient kit, ahead of the end of its useful life, and is seeking the tenants to share in the costs or to recover fully through the service charge. The cost benefits to the tenants will need to be clearly articulated to get their engagement.

Staying on the theme of replacing kit, this is likely to have an impact on dilapidations where the landlord may require more energy efficient equipment to meet MEES regulations but the issue of improvement vs repairing obligations will arise. Again, collaboration and forward discussions will be key.

New lease terms?

New lease terms (notice my omission of ‘green’ which generally makes tenants and letting agents run a mile) could become the norm, specifically to bar alterations that adversely affect an EPC rating. But policing such terms will be a challenge.  Does this, for example, mean that every planned tenant fit-out or even minor alteration, has to be fully modelled to assess the impact on the EPC rating – possibly.

There are many other issues and challenges associated with the impending MEES legislation and whilst it is far from perfect it offers an opportunity to improve the energy efficiency and resilience of your assets and engage in long term communication and collaboration with your tenants. Surely that can’t be a bad thing!

How can EVORA support you?

EVORA can support you in understanding the upcoming MEES regulations, help you profile your MEES risk using our sustainability management software, SIERA and provide professional support in delivering and improving the EPC ratings for your assets.

EVORA is participating in a select group to provide industry guidance to DECC on the future of MEES regulations.

For further information or guidance on MEES please contact Ed Gabbitas: egabbitas@evoraglobal.com or 07557 529 106


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EU Referendum and the Environment: The Final Few Days

On Thursday the 23rd of June, the UK will decide on its membership of the European Union. Thus far, it has been a closely fought debate with arguments presented by the Brexit and Remain campaigns. One key discussion point is the future of the legislative landscape for the environmental sector. This touches on the built environment and wildlife, as well as climate change targets. On the whole, there is consensus that voters lacked information throughout the period leading up to the referendum to take sustainability and the environmental issues into account.

Drawing on a survey of key professionals within the industry, the latest webinar held by the Institute of Environmental Management and Assessment (IEMA) suggested that:

  • Sustainability professionals thought the EU provides greater stability for environmental policy;
  • The UK is a leader on environmental and climate change policy;
  • The EU presents opportunities for the circular economy and fosters collaboration

In a similar way, the Institute of European Environmental Policy (IEEP) concluded in its latest report, “Potential Policy and Environmental Implications for the UK of a departure from the EU” that the UK’s environmental policy has been partly influenced by its EU membership. The IEEP argued that Brexit would trigger uncertainty unless the UK had alternatives in place. Going forward, the UK will need to review its environmental policy and significant transformations are set to take place.

The legislative landscape will be crucial to spur investment within the industry. In relation to real estate, links between property value and sustainability performance have already been established and this realisation will be further supported through environmental legislation. The UK Green Building Council (UK-GBC) has recently commented on the possible impacts of the outcome of the EU referendum, with those requirements linked to the EU Energy Performance of Buildings Directive (EPBD) expected to be affected the most. This includes the Display Energy Certificates (DECs) and the Energy Savings Opportunity Scheme, which are linked to the Energy Efficiency Directive (EED).

What is most certain are the unknown consequences of the EU referendum. Environmental and climate change consequences for the built environment and relevant legislation will be key areas of change.

Burns et al (2016) presents a summary of the scenarios and uncertainty levels. It is clear that the leave scenario presents the greatest uncertainty, with the potential of key transformations in the UK’s environmental policy. It seems that sustainability professionals must await on the side-lines as the debate draws to a close.

Table 1 The EU Referendum and the UK Environment (Burns et al, 2016)

Whatever the outcome, specific legislation within the UK, such as the Minimum Energy Efficiency Standard (MEES) coupled with the potential of a reformed legislative landscape means that all businesses operating within the built environment must be prepared for all eventualities. Sustainability and productivity within the built environment are valued globally not least in the business sense, but on a social level as well.

As for EVORA, regardless of the outcome, we are well positioned to navigate our clients through the post-EU referendum environment. With offices in the UK and Europe and a depth of knowledge within the industry, we will continue to help our clients manage their risks and realise the business case for sustainability.

If you have any questions or would like to discuss any sustainability issues, please contact our experts today, who will be happy to advise you on the best course of action.

Links:

http://www.iema.net/event-reports/2016/06/16/the-environment-and-the-eu-referendum/

http://www.ieep.eu/assets/2000/IEEP_Brexit_2016.pdf

http://ukandeu.ac.uk/wp-content/uploads/2016/04/Executive-summary-EU-referendum-UK-environment.pdf

Burns, C., A. Jordan, V. Gravey, N. Berny, S. Bulmer, N. Carter, R. Cowell, J. Dutton, B. Moore S. Oberthür, S. Owens, T. Rayner, J. Scott and B. Stewart (2016) The EU Referendum and the UK Environment: An Expert Review. How has EU membership affected the UK and what might change in the event of a vote to Remain or Leave? Executive Summary

http://www.ukgbc.org/news/uk-gbc-comment-eu-referendum

(Photo: Rock Cohen, Flickr Creative Commons)


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Budget 2016: Changes to the UK Government Energy Efficiency Strategy

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

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

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

Pre-Budget: Rethinking the Energy Efficiency Taxation Landscape

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

What are the key predictions for the upcoming budget review?

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

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

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

Links:

Reforming the business energy efficiency tax landscape

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

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