Don’t pass responsibility down the supply chain

COMMENT After 18 months of dislocation and disruption, global supply chains are top of the agenda. From labour shortages amplified by immigration to rising logistics costs, soaring energy prices and concerns for Christmas stock, the vulnerabilities of a once fine-tuned global model of “just-in-time” delivery have never been more apparent. Within our industry, rebounding demand is a key driver behind disruption as workloads within the private and public sectors combine to put pressure on materials and expertise. While a number of key sectors stand out for particular attention post-pandemic, notably warehousing, data centres and life sciences, real estate projects in general are feeling the heat from government-backed infrastructure that is competing for the same resources. Our own recent research forecasts that cost inflation in the sector is expected to reach 5.5% during 2021, measured as tender price inflation. Perspectives on how long current disruption will be sustained are a matter for debate, and much may depend on government action – for example, to help businesses manage soaring energy prices. However, our advice has been to prepare for a continuation in the short to medium term. Climate action is the next disruptor What we can be sure of is that climate action will be the next big disruptor. With all eyes on Glasgow for COP26, our industry is in the spotlight as having one of the most significant carbon footprints of any sector. We have one of the longest and one of the most critical journeys to achieving net zero. While many businesses have already started to establish decarbonisation commitments, it will be COP26 that sets the global, national and business agenda. Real estate will need to respond with well-considered and programmatic plans that understand how these objectives will be met and what they will cost. They will also need to look at what could go wrong – not least as the challenges of climate change force us to reconsider long-established principles about how we keep our buildings dry, warm and comfortable. Re-evaluating net-zero supply chains A fundamental grasp of supply chain capability and capacity will be central to success, and in that context we need to have an honest and open conversation about how responsibilities are shared. In the face of high inflation, fluctuating availability of resources and the increasing focus on climate action, traditional routes to mitigate risk are no longer fit for purpose. Responsibility cannot simply be passed down the supply chain without jeopardising costs, timeframes and green credentials for developers and their projects. Real estate needs to pay more attention to where its materials are coming from and the journey those materials go on to reach their end destination. Throughout Brexit and the pandemic we have advised clients to look at the origin of their materials to reduce disruption, be it sourcing more from the UK or from markets outside the European Union. This focus on provenance and a product’s method of transit, from transport to regulatory or environmental checks, will become ever more important in determining the carbon footprint and green credentials of a project. There is no one-size-fits-all answer to this challenge, but clients need to be involved in considered decision-making when it comes to sourcing. Long-term supply chain partnerships will become increasingly crucial, and we are already seeing a move towards this approach, which offers breathing space for developers to carry out due diligence on suppliers’ credentials and to build mutual trust. Establishing longer-standing agreements can de-risk fragility in a just-in-time supply chain model, protecting costs, scheduling and carbon footprint. Such arrangements can help mitigate rising competition among developers for the most suitable, or greenest, suppliers. As demand grows for sustainable supply chains, the rebalancing of the buyer-supplier relationship will continue, and developers should expect to invest time and resource in their brand equity to present an attractive offer. The responsibility for delivering a good end result with green credentials will rest on developers’ ability to win over the best partners. We are currently delivering a similar approach working with the Greater London Authority on its retrofit programmes for homes and workplaces, where we are establishing a framework to bring together expertise. Known as the Innovation Partnership, the objective is to establish access to high-calibre, whole-building retrofit skills in a way that allows the industry to be scaled up. Finally, digitisation must be the common link that holds these relationships together. Having established a programmatic approach to net zero and a supply chain to deliver it, developers and investors need to have confidence in delivery. This means establishing common data standards through procurement and mechanisms to monitor performance throughout a project lifecycle. Without the visibility created through digitisation, we will miss opportunities to reduce waste and increase efficiencies, which will make achieving net zero very difficult indeed. Moreover, without thorough data-led analysis of our supply chain and the environmental impact of each aspect of that chain, gauging our progress on the decarbonisation journey will be impossible. Towards a reallocation of risk Ultimately, we need to reconsider the allocation of risk across the sector – between investor, developer and supplier. When faced with major change, be it Brexit, a pandemic or the climate emergency, passing responsibility down a fragile supply chain will only end in the problem resurfacing elsewhere. To complete our critical path to net zero we cannot expect the supply chain to carry us there, or to lead the way. Every part of our industry now needs to play its part, and clients setting the direction, and the requirements for net zero, are central not only to the success of the endeavour, but also to the pace with which we will adhere to it. Patricia Moore is UK managing director at Turner & Townsend  Photo © Turner & Townsend