The eyes of the world fall on Glasgow next week as world leaders come together for COP26 to discuss ways to tackle the pressing issue of climate change. All hope rests on each and every country finding a way to settle their differences and commit to a realistic plan of action.
The built environment is a significant contributor to the UK’s carbon footprint, emitting 454.8 Mt of greenhouse gases in 2019.[i],[ii] The business sector alone generates around 18% of all carbon dioxide emissions although this has dropped by 40% since 1990 and reflects the rising importance placed on lowering emissions. In a study published online in June, members of the REPAIR Team document the shifting sustainability agenda in the investor market[iii].
Dr Cath Jackson and I found that over the last decade, climate change and the need to create more environmentally sustainable properties have increasingly been embraced by property investors, helped along by the changing regulatory environment and expectations of their clients and tenants. Yet, there is still some way to go before the necessary reduction in carbon emissions can be achieved. The lack of transparency being one of the primary barriers that needs to be broken down in the UK to provide a data rich environment that can help property investors and users make better informed decisions.
As with many aspects of the property investment market, better data and more data sharing are needed, particularly in relation to the financial benefits yielded by specific carbon reducing features. In investment appraisals asset managers tend to accurately account for the costs associated with carbon-saving improvements, but the less certainty they have regarding how much rent or market value an adapted building can then command makes it difficult for them to present a convincing financial case to justify the capital expenditure.
Decision-making underpinning the purchase of a standing property can also be improved if the industry establishes a reporting framework of environmental performance metrics that vendors are required to produce as part of the transaction process. As things stand, investors when acquiring new investments do not fully appreciate the environmental performance of that building and valuers struggle to systematically build sustainability features into their valuations and appraisals.
Hence, I seem to have come full cycle and back to the same problem I was discussing in my last blog on turnover-linked rents. That is the need for greater transparency and data sharing. If world leaders can find a way to compromise and collaborate then surely tenants and landlords can find a way to set aside their differences. Only with such a shift in culture can the market work together to tackle the pressing problems we face.
– Allison Orr
[I] Emissions in 2020 are estimated at 414.1Mt but this figure is biased by the effects of Covid-19 pandemic lockdowns on the carbon footprint generated by the economy and movement people.
[iii] Jackson, C and Orr, A (2021), The embeddedness of sustainability in real estate investment decision-making, Journal of European Real Estate Research, 14(3), 362-380. https://doi.org/10.1108/JERER-09-2020-0050