One of the more heated debates across the property market in Germany is about the need to increase the refurbishment of existing building stock from 1% of the total to a target of 3%, if “Energiewende” is to succeed.
Energiewende is the transition to an energy portfolio dominated by renewable energy, energy efficiency and sustainable development. The final goal is the abolition of coal and other non-renewable energy sources.
Those in the property industry have lobbied for a political lead, and the German government has been quick to act, issuing its energy efficiency strategy, demonstrating the effectiveness of industry and the government coming together to deploy a sustainable energy policy.
Contained within this strategy was the recognition that, through tax rebates and other financial initiatives, sustainable regeneration could be accelerated. It has not escaped the German government’s notice that supporting sustainability in this way also develops new industries for the country. Could this be a lesson for the UK where only 2% of building stock is less than five years old?
The built environment has a crucial role to play, particularly the existing building stock, in helping to meet European targets to reduce greenhouse gas emissions by 40% by 2030 compared with 1990 levels. The British government would say it is doing its bit. The 2013 Energy Act outlaws the letting of properties with an Energy Performance Certificate (EPC) rating of “F” or below from 2018, but recent consultation led by the Department for Communities and Local Government called for the legal requirement to display energy certificates to be removed, quickly followed by a pledge signed by the three party leaders in February demonstrating a very strong commitment to sustainability. Where does that leave the UK in relation to more advanced-thinking markets such as Germany? Probably in need of fewer mixed messages on the subject.
Property leaders from both countries have shared some interesting ideas:
- The property industry should be embracing the Environmental, Social and Governance (ESG) policy beyond merely energy, because investors are thinking that way (one of the largest pension funds in the Netherlands is considering the integration of an ESG veto for all asset classes).
- Joined-up reporting so that the same data gathered for an ESG report can be used at a building level or by GRESB (the benchmarking of portfolios for investors). Investors are keen to establish a central platform into which they put their data only once, incorporating ESG principles as well as property sustainability metrics.
- If labels such as EPCs are to be effective, much more needs to be done to identify the value advantages and yield improvements. Consistency across Europe on EPC implementation is essential; currently EU member states have separate EPC schemes, making it hard to compare one building or investment with another.
Why the sluggish traction for the ESG agenda? The largest developer, investment and asset management companies in Europe take sustainability very seriously, producing annual reports to highlight their progress, benchmarking performance and certifying their buildings. An investor’s horizon is often set at five years, so payback within this period is crucial to environmental policies. Unlike the specification of a marble reception, upgrading existing building stock to meet carbon emission targets will always need a separate business case. There is a clear opportunity for occupiers, investors and asset managers to come together to make that case.
John Pike is founder of 40 Percent Symposium and senior adviser to Bellrock