For most industries, environmental, social and governance (ESG) practices are now undoubtedly an imperative – but for property, getting it right represents a clear business opportunity.
Unlike in other high-emitting sectors like aviation, which is faced with huge challenges in decarbonising and cannot hope to recoup costs through higher fares, we know our customers are willing to pay higher rents for the best, most sustainable buildings. Those buildings also let quicker and will be more valuable and liquid in the investment market.
Another advantage over other industries is that property has plans to decarbonise, the sector knows what it needs to deliver that plan and much of it relies on supply chain engagement and leveraging technologies and solutions that already exist.
A great example of this is at 1 Triton Square where instead of demolition and rebuild, we took a circular economy approach. We retained as much of the glazing and superstructure as possible, added three floors and doubled the net office area – all without increasing the amount of plant space.
Research from Knight Frank and the Building Research Establishment has shown that there is a 3% to 13% rental premium for prime central London buildings with excellent BREEAM or NABERS ratings, and an 8% to 18% premium on the sales valuation of those properties.
Net zero requires strong collaboration not only with supply chain but with customers too. Developers can work alongside business to help support their sustainability goals and achieve reductions in carbon emissions by 2030.
The same is true for other businesses where people are their biggest asset and their office is therefore their biggest emitter of carbon. Landlords can help them solve that problem by providing them with environmentally sustainable buildings.
So decarbonisation of the property industry is only possible in collaboration with customers, and the same goes for generating social value. Some industries, like tobacco or gambling, have a tough task in persuading people they are working for the good of society.
Places thrive when the communities around them do the same, so that is something to focus on, at a very local level and with a particular focus on education, employment and the power of affordable space.
Retail properties in particular struggle when the surrounding neighbourhood hits hard times – retailers begin to leave, footfall drops and more retailers depart. It can quickly become a vicious circle.
So, through a place-based approach retail teams can integrate themselves and places into their local communities and support job creation and local charities to help create vibrant neighbourhoods.
This engagement with communities, customers and the supply chain can also drive governance, which is often overlooked when ESG is discussed, but is essential to the sector’s success, whether that be in obtaining planning, driving up employee engagement, improving diversity across the sector or working effectively with suppliers.
The gambling industry is working to encourage responsible play and self-regulation. The airline industry is seeking to go net zero by 2050 by abating an incredible 21.2 gigatons of carbon between now and then.
These are laudable efforts, but they are essentially headwinds. Real estate’s embrace of ESG initiatives clearly also involves cost, innovation and collaboration, but has the benefit of being warmly received by customers and wider stakeholders who will reward us in return. It makes business sense to get it right.
David Walker is chief operating officer at British Land