Lights, camera, action… on ESG

The evolution of TV viewing habits – accelerated by Covid lockdowns and advances in mobile technology – has driven demand for new film and TV content in recent years. This has made the UK film and TV studio sector an attractive opportunity for many real estate investors. However, it is not immune from the macro challenges affecting the real estate market generally, with the increase in the cost of debt, high inflation and the uncertain geopolitical situation all leading to a general cooling in investment in this specialist market. The sector is also facing its own unique challenges: business rate revaluations; the impact of recently settled industrial action; a 12.8% reduction in advertising spending year-on-year for Q2 2023 according to the Advertising Association; and a slowdown in production spending by major streaming platforms to control rising costs. Notwithstanding these headwinds, the UK film and TV industry – with its highly skilled workforce, generous tax reliefs and strong track record – remains robust and growth in the sector is expected to continue in the medium term. The ESG plot twist As a result of ethical and regulatory pressures to achieve net zero, ESG is one area of increasing significance. The sector will need to grapple with its own unique green challenges. Productions typically have a very high carbon footprint – an average hour of filming has the same carbon footprint as a return flight from London to New York, according to A Screen New Deal, a report published by the British Film Institute, specialist consultant Albert, and Arup. High energy consumption, reliance on diesel generators for convenience, set and prop disposal, water wastage and light and noise pollution are all challenges that developers, investors and operators face. Recent industry reports challenge the traditional view in the sector that sustainable production practices stifle creativity and aim to provide route maps to a greener approach. A Screen New Deal identified that sustainable practices could be adopted in the procurement of production materials, the use of energy and water, the design and location of studio buildings and facilities, and in production planning. The report included recommendations for tackling sustainability in each of these areas, serving as a useful guide for the sector. In addition, new initiatives have been launched to tackle specific issues, such as Film London’s Grid Project, which supplies green energy via electrical feeder pillars to power productions. As production companies face increasing pressure from environmentally astute stakeholders and consumers to make green productions, the flight to quality evident in the office sector is likely to similarly drive demand in the studio sector for best-in-class, purpose-built studios with strong sustainability credentials. Retrofitting existing sites may be a cost-effective solution for dealing with the current shortage of studio space, but this might only be a short-term fix (if they are rendered obsolete due to a failure to meet newer and more stringent green requirements). A-listers The creation of the next generation of A-list studio spaces presents real opportunities in this space and will require investors and developers to prioritise sustainability from the building design stage through to operation. The planning system imposes requirements around sustainability, carbon offset commitments, green spaces and various measures to sustain and enhance the socio-economic and ecological environments. Most of this will be achieved through the usual practical measures, such as water harvesting and recycling, incorporating renewable energy sources (such as solar panels) and passive design measures, such as natural lighting and ventilation into building design to reduce power consumption. The delivery of buildings to high energy performance certificate ratings and a BREEAM standard of Very Good or better will also be highly relevant. The Studio Sustainability Standard, implemented by Albert in 2022, evaluates the sustainability performance of studios in six key areas: climate, circularity, nature, people, management and data. This framework is expected to become the industry-leading standard for sustainability and increasingly important. With the market anticipating a shift from master lease agreements and a return to short-term hire arrangements, studio design should also maximise flexibility to create spaces that can be adapted to the needs of multiple occupiers. Special effects Technology will play a leading role in supporting the drive to green in the sector. Purpose-built studios looking to attract tentpole films are likely to incorporate “the Volume” – a 360-degree sound stage lined with 20ft LED panels displaying interchangeable video footage to create hyper-realistic backdrops. The creation of virtual filming environments using Volume technology will minimise post-production time and reduce the carbon footprint associated with physical sets, location shoots and the creation and transportation of materials. Occupiers and operators also have a role to play. Hire agreements and studio regulations could be used as tools to promote a circular economy within the sector. In addition to the “green lease” provisions we have seen in the office and retail sectors, occupiers could be: a. encouraged to source set components, costumes and props from reusable networks and to recycle; b. required to use a whitelist of companies with green credentials for the hire of production equipment; and c. prohibited from using diesel generators on site (although this would need to be supported with green energy infrastructure). Naturally, investors, developers and operators must balance the goal of creating sustainable studios with the cost. Yet those who are able to do so are likely to gain a competitive edge as demand for green studios grows. Verity Waington and Alan Twine are partners and Eleanor Willatts is a senior associate at Bryan Cave Leighton Paisner LLP Image © Jakob Owens/Unsplash