COMMENT Large-scale urban decarbonisation projects have no shortage of legal and regulatory requirements for public and private bodies. But as the need to limit the rise in global temperatures to 1.5°C above pre-industrial levels becomes more urgent, legal precedent and regulatory frameworks are being left behind by social and political expectations.
Meanwhile, an ecosystem of industry players and pioneering cities looking to enact meaningful change is fast emerging, meaning protocols and operating models are rapidly developing with them. The result is a hazy landscape, a bewildering mix of soft expectations, hard regulations and stakeholders with disparate objectives and risk profiles.
It means that advice is no longer just about helping clients understand what the law requires; it is also about helping them to achieve goals in the context of the wider political agenda, and the need for progress on sustainability to be demonstrable.
Old answers, new questions
Untangling the legal and regulatory knots governing urban projects from a sustainability perspective is complex. There are clear requirements applying to urban developments which involve demonstrating a scheme’s green credentials, but typically these are enforced through planning policy and municipal laws. Then there are rules governing specific decarbonisation projects, aimed at addressing city-specific emissions problems with a bespoke solution. A broad set of tax, investment regulation and contractual requirements are activated when stakeholders join forces, often in novel ways.
The distribution of risks can raise red flags. For example, an investor may say their involvement is on a public-private partnership basis where the risk is shared, but this cannot always be achieved in practice. Remediation of land, for example, will operate instead on a contractual basis. The message is that you have to be careful about the use of terminology.
No structure is problematic in itself; what matters from a legal and contractual perspective is how it is used. Hydrogen, for example, is akin to a renewable energy project yet also similar to a gas project, with the result that novel projects are being combined. With old structures applied to new problems, the question is how to tailor them to these new environments.
A problem shared…
Lack of standardisation is another hurdle. Cities view themselves as unique, neglecting the important underlying truth of urban centres facing many common environmental challenges. Simultaneously, investors are more receptive to scalable and coherent models, rather than pockets of disjointed proposals. Scale unlocks capital, and capital unlocks results.
One remedy would be a more standardised approach with customisable but templated legal structures for raising finance. This could involve pilot projects funded by municipal bonds which create a set of joined-up documentation, not just for a single city, but for multiple urban centres.
There is also value in drawing on corporate or fund structures with clear governance, credible balancing of objectives and robust escalation procedures to promote trust between public and private bodies. The scale of climate change means neither state funding nor private investments alone will be enough to achieve urban decarbonisation on the scale demanded – as such, blended finance instruments and structures to bring both sides together are crucial.
Beyond law – reading the mood
Received wisdom is that today’s softer political and social expectations foreshadow tomorrow’s hard regulation. This refrain is playing out in conventional urban development schemes, which have become subject to increased public scrutiny on environmental grounds, particularly when trying to secure funding.
The political dynamics are still in flux. While cities will set their own standards through municipal law, there are no nationwide statutory requirements to measure or reduce UK buildings’ carbon emissions. However, growing concern has, in effect, made dealing with embodied carbon an increasingly key issue in development.
The Greater London Authority’s 2021 London Plan illustrates this shift. It requires development proposals to submit a circular economy statement explaining how materials will be disassembled, reused or recycled. This policy aims to move towards more sustainable and adaptable buildings while promoting the deconstruction and reprocessing of useful materials at the end of a building’s life. There is also the looming UK Green Taxonomy, which looks likely to follow the model of the EU Taxonomy in defining a sustainable building as part of a wider categorisation system for sustainability of economic activities.
While law and regulation lag behind expectations set by communities and politicians, the smart money is increasingly on a compliance-plus approach that anticipates the likely advance of diktat to de-risk projects commercially, reputationally and ultimately in hard liabilities. In a similar vein, legal experts warn of rising reputational risks and exposures from campaign groups or greenwashing litigation when corporations tout the sustainability of their projects.
As a result, lawyers are increasingly being pressed to embrace broader industry roles, building in a stronger commercial and risk mindset to guide industry players as to where clean urban projects are likely to be moving. Successful lawyers have always had a match-making element to their brief, bringing like-minded parties together, but the challenge of building post-carbon cities will press the profession to fully embrace this role.
The challenge has been set, and the future of urban living depends on new alliances of sometimes unlikely partners being aware of shifting social and political moods while not being afraid to build new and packageable responses to common problems. Making good on such demands will require considerable legal innovation, matched with a creative mindset and commercial grit that the profession has not always excelled in demonstrating.
Matthew White is partner and head of planning at Herbert Smith Freehills
