It has been a very good week for the environment. US president-elect Joe Biden is readying one of the world’s leading economies to re-join the Paris Accord, while the UK government is to make it mandatory for companies to outline their efforts to arrest climate change – a world first.
Further encouraging news came from Chris Stark, chief executive of the Climate Change Committee, the UK’s independent statutory adviser, who announced that the cost of becoming net-zero-carbon is far lower than previously thought, although he stresses that action must start now.
On the downside, the UK economy is in a severe downturn and the last time this happened, in 2008, the environment was put to the back of the queue in favour of recapitalising the banks and re-booting economic activity. This time round, the need for swift action to achieve net-zero-carbon targets is at the top of the renewal and recovery agenda. These positive events and initiatives are symptomatic of the groundswell of activity and interest in this topic. Most boards (well beyond the real estate sector) are now paying more attention to ESG than ever before.
But how do we ensure that this isn’t just ’greenwash’? A whole roster of metrics and KPIs by which to judge ourselves are emerging, most of which are incredibly important in their own right in measuring the specific environmental and social targets that they are aimed at.
The key question we must all address in order to ensure that these issues become embedded into how every organisation does business is: how can we point to the absolute value that ESG creates – especially in real estate?
The negative, defensive argument is that no one can afford not to address ESG issues, as we risk losing the implicit licence to operate that we are granted by society. In time, the banks, regulators and government bodies we regularly interact with may either stop doing business with us or start charging a ‘dirty’ premium. Can we afford to risk being left behind?
The more positive approach is to measure and prove the increased value our businesses can generate by embracing and getting ahead of the environmental and social agenda. As property becomes a platform for services as well as bricks-and-mortar, and customers become more insistent, businesses that embrace all the initiatives described in this week’s issue will arguably attract a more valuable risk-adjusted premium.
Savills’ research proves office tenants will pay premium rents for buildings with the best environmental standards. For example, more than 76% of offices in Manchester let for above £30/sq ft had a BREEAM rating of at least ‘Very Good’, rising to 100% of buildings let above £35/sq ft.
We shouldn’t just measure ESG targets and KPIs for the sake of them but because we believe and can prove that they are a critical tool for creating resilient and sustainable assets from an economic point of view as well, and then for managing them over time. Only then will we achieve the holy grail of integrating ESG into everyday business.
David Partridge is senior partner of Argent and chairman of Argent Related