COMMENT As the impact of the last 12 months crystallises in year-end valuations and business performance numbers, one could be forgiven for expecting companies to step back from making environmental commitments. But, oh how the times have changed.
Far from stepping back, asset and fund managers, investors – both direct and indirect – are setting ambitious net zero carbon targets and they are expecting their real assets to contribute. There can be no environmental backsliding now. Discussions about stranding risk and net zero carbon transition pathways – for existing stock as well as developments – are increasingly common.
Defining net zero
This is excellent news, of course. The built environment both contributes to and is at risk from climate change. We have to get our existing real estate in order and no new building should be commissioned now which will not be net zero carbon. But what do we mean by net zero carbon? It trips off the tongue but has many definitions and no agreed industry standard nationally, let alone internationally.
To make the difference we need, net zero carbon has to include some basics: operational and embodied carbon emissions, for example, and emissions from the tenanted areas within our assets. Renewable electricity contracts are important but are already factored into the national grid figures so don’t contribute to achieving net zero carbon unless the electricity comes from a new installation you have helped bring on stream. Net zero carbon strategies also have to avoid offsets as anything other than a last resort. They can play an important role but net zero carbon claims based largely on offsets aren’t really tackling the problem; we are the built environment experts so we need to take responsibility for reducing built environment emissions. An internationally recognised certification system for net zero carbon buildings that everyone understands would help.
Achieving net zero carbon will also mean facing some challenges. It will require significant improvements in operational energy efficiency for landlord services and tenant operations. This means comprehensive whole-building monitoring and investment in efficient equipment. It also means no fossil fuels for heating, hot water or operations, placing more pressure on the electricity grid. Investment in renewables must accelerate to keep the lights on, batteries charged and carbon emissions going down.
Tenant emissions remain the real hurdle – without authority to gather occupier utility data and no jurisdiction over occupiers’ operational energy use this is a well-understood challenge for landlords
On the upside, kit will have to be replaced over the next 10-15 years anyway; replacing it with the most energy efficient alternative and finding non-fossil fuel based solutions needs to be planned for now, but is achievable. On the downside, there will be buildings where the investment will be difficult to justify.
Tenant emissions remain the real hurdle though. Without authority to gather occupier utility data and no jurisdiction over occupiers’ operational energy use this is a well-understood challenge for landlords, but one that net zero carbon targets are highlighting. Landlords can influence through fit-out standards for example, but if occupiers choose to leave the lights on all night (yes, they still do) there is nothing we can do but point it out to them. But, under a net zero carbon strategy, the responsibility for those emissions ultimately lies with the landlord. If the occupier has a net zero carbon strategy that allows it to leave the lights on and buy offsets, we are a little bit stuck.
Landlords need the power to act
As the building experts, landlords are arguably best placed to help reduce building emissions, but we have to be given the agency to act. Green lease clauses are not the solution. There needs to be a clear obligation for occupiers to work with landlords to monitor and improve the energy efficiency of the space they occupy.
Perhaps this will emerge from the latest government consultation on a rating system for the operational energy and carbon performance of commercial buildings. If this leads to the adoption of a system akin to NABERS UK, the Australian building energy rating system recently brought to the UK by the Better Buildings Partnership, we will see a more shared agenda between occupier and landlord for monitoring and reporting whole building performance-in-use. We are already moving towards much higher EPC ratings, which will place an obligation on property owners to provide space that can be operated efficiently; an obligation on occupiers to use it efficiently would be logical.
We could be in a sweet spot for seeing change in 2021. COP26 coming to Glasgow in December is focusing the government’s attention on climate change and it wants some good news stories about the built environment. Investors are pushing for net zero carbon buildings, the cost of carbon is rising, policy thinking is shifting. Attention is focusing on the role our sector can play in a climate resilient, clean recovery. I am hopeful. And I don’t often say that.
Louise Ellison is group head of sustainability at Hammerson and chair of the Better Buildings Partnership
