Uncertainty reins but sustainability in real estate remains paramount

To provide the latest thinking from Labour, Sam Alvis the IPPR’s Associate Fellow in Green Industrial Policy and former political adviser to the party took questions on Labour’s proposals for ‘getting Britain building again’ and how that might be squared with anticipated tightening of ESG requirements.

We learned that Labour views real estate and energy infrastructure as a driver for economic growth, with ambitious plans to decarbonise the electricity grid by 2030 as a critical component. Many existing policies are likely to be maintained or elevated. For example, we can expect stricter energy efficiency ratings for commercial buildings – EPC or a variation – after this current period of delay. Whilst lacking detail at this stage, it was confirmed that the restoration of nature remains a key priority, with work being emphasised by Shadow Secretary of State of Climate Change and Net Zero, Ed Miliband and other shadow ministers.

This led nicely on to a discussion around how the industry is adjusting to the recent legislative requirement for all new development to achieve an additional 10% net gain to biodiversity or habitat (BNG) standards, either onsite or offsite. The audience heard from Jamie Evans-Freke, Partner in the rural consultancy at Knight Frank and one of the leading specialists in the space, who explained that the system is working well so far. An area that is developing fast is partnerships between developers and farmers, who at these uncertain times, are seeing the opportunity to generate a stable income from their land, particularly marginally unproductive fields.

However, Evans-Freke argued that further Government intervention is needed for BNG to develop from a developmental tick boxing exercise into an economic opportunity for the UK.  He argues that tax breaks would help unlock financial returns and enabling BNG credit providers to attract overseas interest. He argues that accreditation schemes, which are free for the Government to implement, could deliver an edge. For example, an official Government approved Soil Standard so that companies can measure improvements in soil quality and carbon sequestration by the soil.

Finding commercial opportunities whilst delivering on sustainability is now a well-entrenched practice, according to Simon Chinn, Vice President, Research & Advisory Services at the Urban Land Institute (ULI). Whilst today’s challenging macro-economic factors might be dominating now, Simon shared that feedback from leading real estate firms is that longer-term sustainability concerns will rise to the fore, as concerns over climate impact remain undeniable.

Of course, there is a growing focus on the cost of the green transition and Simon shared that some property companies have internal carbon budgets. If a new development exceeds its carbon budget needs to pay a contribution into a central pot. This is then used to drive decarbonisation of heat and power, biodiversity and other initiatives. Good practice such as this enables companies to better understand carbon costs and incentivises positive changes in the quest for profit. To balance, this is growing evidence that companies and buildings with better sustainability credentials are achieving better valuations and more investment. On the flip side, it was acknowledged that business and sustainability strategies are still too separate, with truly integrated, ESG-informed financial decision-making some way off.

In conclusion, the panel agreed that both public and private sector stakeholders are united behind a vision for pro-sustainable economic growth for the UK in the future. However, at the current trajectory, meeting net zero and other targets will be difficult. Judging by the consensus and the quality of ideas covered during the session however, there is every reason to hope that once external barriers are removed, faster progress is on the horizon.