Responding to the climate emergency
COP 27 in Sharm el-Sheikh succeeded in establishing new global accords on climate change risk mitigation, notably including funding support for those countries most at threat by factors such as rising sea levels, as well as reinforcing the commitment to the Paris Agreement requirement of limiting global warming to 1.5C.
The climate agenda continues to gather pace, increasingly influencing consumer and business decision making. Markets are responding, with UK Climate Tech businesses attracting more than $7.5 billion of funding in 2022, second only to the US.
The built environment clearly must do its part to affect change, with the sector responsible for approximately 40% of global carbon emissions
Last year, the vast majority of our survey participants (75%) acknowledged that the industry is not yet doing enough on climate change. This year we therefore decided to ask just what level of commitment the industry was already making.
Net zero ambitions
While only a small proportion (of those who responded to this question) were already or had committed to becoming net zero within a set timeline, taken together, almost three quarters (73%) in total had some form of climate commitment in place or on the agenda for implementation before 2030.
Net Zero commitments of the real estate industry
There is a similar positive story regarding current integration of ESG criteria into existing projects, with 72% of respondents reporting that they will either sometimes or always be incorporating ESG performance strategically into real estate investment, development and other planned projects.
This is a broadly similar level to 2022, though when broken down more respondents told us that they would always be using such criteria this year (45% in 2023 vs 38% in 2022).
Integration of ESG into projects
Integration of ESG into projects
Never
Not Often
N/A
Sometimes
Always
When we asked last year what the barriers were to effective action on ESG and climate change, cost of implementing changes and the impact on profitability was cited as the most significant challenge.
This was echoed by respondents this year, the overwhelming majority of whom told us that climate change was currently negatively impacting their business financially, or would do in the future.
WIll climate change have a negative financial impact on your business now or in the future?
Yes
No
Unsure
Climate regulations rising
But the meeting the climate challenge is more complex than that. Not acting also comes with a cost.
Figures analysed by BNP Paribas Real Estate have shown that around 50% of existing commercial stock in London could be unlettable by 2027 under proposed energy efficiency regulations, as confirmed by the government's 2020 Energy White Paper.
1st April 2023
Unlawful to continue to let a commercial property with an F or G EPC rating
1st April 2027
Proposed raising of the minimum EPC rating to C
1st April 2030
Proposed raising of the minimum EPC rating to B
As the industry races to decarbonise, the British Property Federation has launched a new Net Zero Pledge, committing signatories to be net zero carbon by 2050 at the very latest. Accompanying the pledge, the BPF alongside JLL, published new research in February 2023 outlining a range of factors and issues which will help or impede the real estate industry’s journey to net zero.
This includes notable tax proposals such as calling for a zero VAT rate on residential repairs and maintenance, and reforms to existing capital allowances to incentivise decarbonisation investments – potentially along the lines of the Netherlands’ Energy Investment Allowance which provides 45.5% relief on qualifying investments in renewable energy.
The government has already introduced a zero VAT rate for installation of certain Energy Saving Materials in residential accommodation (albeit this is a complex relief to secure), so these proposals are not without precedent.
The BPF’s report has also called for greater data sharing between landlords and occupiers, a core theme from our 2022 Sentiment Index report. Over the longer term this will result in a new relationship paradigm between landlords and tenants emerging, as each seeks to ensure more productive and efficient use of space as well as alignment with ESG criteria.
Occupiers, after all, are increasingly demanding higher quality, energy efficient spaces in line with their own net zero commitments and the expectations of their stakeholders – including employees, shareholders and wider supply chain. This flight to quality will see tools such as CRREM rise in importance as investors seek to assess the risk of stranded assets.
A similar push to ‘green’ real estate is happening in the residential sector too. In January 2023 the Scottish government confirmed plans to mandate all new homes to meet Passivhaus standards or a Scottish equivalent. In England and Wales, under the Future Homes Standard all new homes delivered from 2025 will produce 75-80% less carbon emissions than homes built under the current Building Regulations.
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