EDITOR’S COMMENT There are some statements that sound so obvious it feels like they don’t even really need to be said. A quote about the importance of environmental, social and governance issues from FHP founder John Proctor in our Dealmaker of the Month profile falls into that category.
“We have gone from thinking it’s that little bit of a coloured bar on the fridges that we’d take no notice of to actually realising ‘yeah, we need to take this seriously’,” Proctor says of the rise of sustainability. “And we all should take it seriously.”
I mean, yeah, sure. That doesn’t sound too controversial. Right? Take sustainability seriously. Good point, well made. Totally on board.
But is everyone?
At an Avison Young panel at last week’s MIPIM (I’m still recovering, thanks for asking), guests tackled what you might call an inconvenient truth about offices and the environment: as much as landlords, lenders and other corporate players prioritise ESG, many of the end-users of their buildings do not.
For a lot of smaller companies without the ambitious ESG goals of larger corporates, focusing on the environmental credentials of their office is nice in theory. But in practice, panellists said, more practical issues like location are often more important.
JP Morgan Asset Management’s Elliot Prosser knows that first-hand, based on the firm’s experiences on its 45 Pall Mall scheme. For smaller companies, sustainability “is just not really on the radar”, he said.
“It’s a priority for the investors, it’s a priority for the capital markets, and it’s absolutely paramount for anything that you’re looking to sell into the market today. But it’s just not there for the for the underlying occupiers, especially those smaller guys,” Prosser added. “Investors are putting an awful lot of money into buildings so that they can sell them, not so they can lease them.”
Proctor is still right, we all should take this seriously. Yes, ESG is just one factor jostling for an office occupier’s attention. But it needs to be higher up the agenda. For now it looks like it’s the bigger names in the occupier world that will have to lead the way. Ask the team at GPE. In this week’s EG Interview, sustainability and social impact director Janine Cole and director of projects Helen Hare take us through the developer’s approach to embedding sustainability in schemes across the capital – and the ways in which their occupiers are encouraging it. Clifford Chance, for example, made clear that ESG metrics were an important factor in GPE wooing the law firm away from Canary Wharf to take a prelet at its 2 Aldermanbury Square block in the City of London.
Change is happening, even if slowly. JP Morgan’s Prosser told the MIPIM audience that sustainability is bound to find its way higher up the priority list for all occupiers. This week, a study from JLL predicted a “green tipping point” within the next two years, arguing that occupiers will now have to ensure their next office lease aligns with their environmental goals. In fact, the agency said, the pressure will start to mount on the real estate industry to make sure buildings keep up.
Decarbonising property should be a “win-win pathway” for owners and occupiers, JLL said, adding that “owners should look to tenants as partners in decarbonising their buildings”. Or as GPE’s Cole puts it: “We’ve got to come together. We’ve got to give you the right building that runs efficiently, but we need you to run it efficiently as well once we finish.”
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