Piecing together the ESG development puzzle

The market agrees that net zero buildings are the future, so why are they so hard to achieve in the real world? Julia Cahill spoke to a London developer, an engineering consultant and an asset manager with a national focus to find out some of the key erosion points when it comes to delivering and operating net zero buildings.  John Davies, head of sustainability, Derwent London At developer Derwent London, head of sustainability John Davies likens the process of trying to deliver a net zero building to inflating a balloon and trying to stop the air from leaking out. At every stage, you must try to stop your good intent from seeping away as the building moves from design to delivery to operation. Filling the balloon up is underpinned at the start by a client setting out a good path for the design team. How you value and commercialise sustainability will shape the perspective you bring to that. For Derwent, it has long been fundamental to its business – further underlined four years ago when it committed to achieving net zero across its portfolio by 2030. So its work with the design team is informed by guidance from the UK Green Building Council, for example. But the risks of erosion soon come thick and fast. Will the latest safety standards necessitate a rethink of the design? Will the planning authority require a change that undermines the net zero ambition of the building? Will the contractor be able to source the products needed to make the net zero building a reality? And once construction is under way, are the lawyers and leasing agents aligned with the original ambitions for the building or will they say no to certain things? This last point matters hugely because realising something like a NABERS rating, which gives concrete measurements of how much energy a building is using, potentially means putting something into a lease, says Davies. “We’re going to have to come into the space in a management capacity,” he explains. That may mean the landlord having a level of control over the heating and cooling equipment which the tenant has not experienced before or which its lawyer would see as a risk. “The lawyer may see that as an intrusion. And so that intrusion should be stopped ‘because it’s not good for my client’. Yet the client would like the NABERS rating,” says Davies. It is just one example of how net zero requirements are pushing the landlord-tenant relationship into uncharted territory, Davies says. Derwent’s first building with a NABERS rating will be 25 Baker Street, W1, which is due to complete next year, It may also go for retrospective NABERS ratings on some of its existing buildings, such as the Featherstone Building, EC1, which completed in 2022. “It is a really interesting conversation that we are going through now, live, with buildings,” Davies adds. “It drives straight to the heart of the issue, because if you want efficient buildings that operate on a very lean basis then you need both of those parties fully aligned and working together to get it done.” Dealing with these challenges in a multi-tenanted building adds further complexity. You may have some occupiers happy with the level of intrusion needed and others not; and you may have one occupier who needs to use the building at night, when all the rest use it from 7am until 6pm. “We are really exploring the intricacies of dealing with this on a multi-tenanted basis, in particular where you have got occupiers with competing priorities,” says Davies. “It is a unique situation that we are trying to work out and the transactional services – the agents and the lawyers – are all very critical in helping decode that for an occupier and explaining that they do not need to be afraid of it. Likewise, it may be the occupier saying they are not afraid of it but the lawyer telling them that they should be,” he says. It is an ironic problem to have, given that the building’s net zero ambition has likely been part of the attraction to the tenant in the first place. How much of that ambition will be eroded will depend on how well the parties talk to one another and meet a collective priority. It begs the question as to whether Derwent might in future target a net zero building only at occupiers that want a NABERS 5* rating, or whether it would continue to accept the inflow and outflow of occupiers with different levels of commitment. For Davies, keeping the balloon as full as possible is more about trying to focus on the “magic 10%”: those organisations which at the very least share the ideal of net zero, even if they still have some way to go structurally to achieve it themselves. Duncan Price, sustainability/climate, global lead at Buro Happold Duncan Price has gained fresh insight into the tenant experience through Buro Happold’s recent London move, including working with legal and commercial colleagues keen to protect the business from all eventualities. Price leads Buro Happold’s sustainability and climate change consultancy services. He has also been heavily involved in the engineering and design consultancy’s recent London office move into Derwent’s BREEAM Outstanding Featherstone Building in Old Street, EC1, where  Buro Happold occupies four floors and an exclusive rooftop terrace of the 10-storey building. A multidisciplinary team from within the business led the fitout design, seizing on it as an opportunity to push the boundaries of sustainability, wellbeing and inclusive design. Features include a cross-laminated timber staircase, intended to showcase low-carbon opportunities for timber construction. The fitout itself is targeting BREEAM Outstanding and the new NABERS fitout certification. It is aiming for a NABERS 4.5-star or 5-star rating. “We are still going through the seasonal commissioning,” says Price. “It is an approach which sort of divides the targets between landlord and tenant and that can help give a little bit of clarity around control.” But at the same time, one supports the other. “Notwithstanding that you can draw these boundaries around certification processes or calculation methods, ultimately the building supports or hinders your achievement of that as well,” Price explains. “So ultimately, if landlord and tenant can work together, you are more likely to both succeed.” The wider building achieved net zero carbon construction, which on completion has an EPC A rating. Without that, Buro Happold’s own net zero ambitions – it is committed to occupying only net zero buildings by 2030 – would be eroded. Its ability to reach for BREEAM Outstanding and a NABERS 4.5-star or 5-star rating for its fitout is inherently supported by the base build in terms of levels of glazing, the insulation of facades and the fact that generous floor-to-ceiling heights and exposed concrete help to reduce cooling demands. The investment in this space is interwoven with Buro Happold’s commitment to sustainability and enables it to demonstrate leadership in the field, which is core to its business. Ultimately, it is only measuring the kilowatt hours per square metre for its own space and not for the landlord services, but it hopes to show the art of the possible for what tenants can achieve. Kathryn Barber, head of ESG, Orchard Street Investment Management Orchard Street has more than £2bn of assets under management and has a £400m impact fund focused on decarbonisation, community investment and wellness. That fund reached its first close in late 2022 with £90m committed, counting Brunel Pension Partnership – one of the UK’s Local Government Pension Scheme pools – as its cornerstone investor. Orchard has also just been appointed to manage the impact real estate strategy of Access Pool, comprising 11 Local Government Pension Scheme Administering Authorities. Access Pool has made an initial £100m commitment. For Barber, it is clearer than ever that the main driver for net zero buildings is not coming from occupiers but from pension investors operating within stringent reporting regulations. The impact fund has so far bought multi-let industrial estates in Aylesford and Charlton. Both assets will be transformed in line with objectives targeting an accelerated route to net zero carbon alongside location specific social and environmental needs. That means carrying out low embodied carbon refurbishments, installing solar PV panels and EV charging hubs, electrifying all units and improving EPCs to A and A+ ratings from the current B to E ratings. “It is all about going above and beyond what would have happened anyway,” she says. The “scariest part” she adds is that the fund is setting a Carbon Risk Real Estate Monitor target for these assets and that its pathway to meeting this must be maintained. That can only be done by putting the right “enablers” in place upfront so the building can be managed and monitored effectively. “That just isn’t market practice,” says Barber. This is why the BBP’s Design for Performance and Managing for Performance initiatives are so needed, she says. “We need to ensure we are installing the right metering infrastructure, that we have the right energy contracts and leases,” Barber says. When it comes to leases, it is vital to work with the solicitor to make sure they have understood the CRREM scorecard the fund must maintain and then work out what that looks like in terms of requirements on the lease and incoming occupier. Barber, who works across long-income funds too, says another challenge is delivering net zero assets around existing occupiers. This applies to solar PV and, more broadly, to the insulation of offices in industrial units or window replacements. “This is an erosion point and while the approach is to find the right intervention points through lease events, this is particularly challenging for long income funds and your typical multi-let industrial estates and retail parks, where more than 50% of the leases can be protected, and units with near 24/7 operation 365 days a year,” Barber explains. The reality is the bulk of the market is not new office buildings. Some 80% of the buildings that will exist in the UK by 2050 already exist now, and taking the urgent action needed to bring lower performing stock towards net zero is going to require a holistic approach. Main image © iStock