Real estate must engage all stakeholders on climate crisis

Climate change has rightly been an area of concern for scientists, politicians, society and, latterly, business and industry for many years now. This year, however, the urgency of the situation has intensified dramatically. This July saw the hottest global average temperature on record, according to the US National Oceanic and Atmospheric Administration, superseding the previous high set only three years earlier. Campaigners and protesters, such as Swedish activist Greta Thunberg and Extinction Rebellion in the UK, as well as headline news events such as forest fires in the Amazon, have focused public attention on the issue to an unprecedented extent. Escalating the response The launch of the BBP’s Climate Change Commitment represents an important step in escalating institutional property owners’ coordinated response to this threat. Occupiers, investors, politicians and other stakeholders each have crucial roles to play as well in enabling the property industry to move along the pathway to the critical target of net zero carbon by 2050. It is for this reason that we at LaSalle and our colleagues across the real estate industry are also stepping up our efforts and have signed this Commitment, with a focus on improving the sustainability of our real estate portfolios. The Commitment is the outcome of a dinner I co-hosted with David Atkins of Hammerson earlier this year to mark the 10th anniversary of the BBP. Legislators are also responding in kind. Earlier this year, the UK government passed a law committing to reduce the country’s greenhouse gas emissions to net zero by 2050, consistent with the recommended timeline laid out by the Intergovernmental Panel on Climate Change. That legislation was based on the recommendations of the Committee on Climate Change. The report prepared by the CCC identified residential and non-residential buildings as the UK’s third greatest net emissions contributor, after transport and power. Mitigating risk As an investment manager, LaSalle takes steps to manage climate-related risks, such as the carbon emission of the buildings we manage, to ensure our clients’ portfolios are resilient and pre-empt regulatory change and related expenses. This ultimately protects our investors and delivers long-term value. The majority of our clients have clear and strong positions on climate change already. For those who do not, it is our responsibility to provide guidance through the upcoming changes and help protect and enhance long-term value in their portfolios. To underscore this, we are participating in the United Nations Environment Programme Finance Initiative pilot to establish a new methodology for assessing climate risk, including both the risk posed on the physical asset and also the risk posed through the process of transitioning to a net zero carbon position in our investments. LaSalle takes steps to manage climate-related risks, such as the carbon emission of the buildings we manage, to ensure our clients’ portfolios are resilient and pre-empt regulatory change and related expenses One pillar of our European sustainability strategy is ‘Future-Focused Investment Strategies’. As a result, all of our investment strategies are built around the four long-term trends of demographics, urbanisation, technology and environmental change, meaning that climate change is at the core of our thinking on the future of real estate. The Climate Change Commitment, however, represents a new standard of the leadership role played by the BBP and its members’ commitment to bringing about meaningful change. It lays out a detailed programme for signatories to achieve net zero carbon for their real estate portfolios by 2050. The concrete measures to which property owners commit include publishing pathways towards net zero buildings by end 2020, issuing comprehensive climate change resilience strategies by 2022, making annual disclosures on progress and developing industry benchmarks. Inadequate governance structures There are two striking features of the systematic approach outlined by the BBP – particularly in light of the recent comments made by Sir Ian Boyd, the UK government’s outgoing chief environment scientist, that technological changes alone won’t be sufficient to achieve net zero, and that current governance structures are inadequate for the challenge. Firstly, the BBP’s programme recognises that improvements in building design must be accompanied by changes in occupiers’ approach towards energy consumption. Modern glass and steel towers may be criticised as less energy-efficient but will remain in high demand as office buildings, because people typically prefer working in them and employers now largely understand the benefits that a high-quality built environment provides to employee physical and mental wellbeing and productivity. Human experience of buildings will remain front and centre and any practical net zero strategy will need to recognise that. That, of course, is not to say that there aren’t further improvements to be made in reducing the “embodied carbon” of new developments or fit-outs. Indeed, refurbishing and retrofitting older buildings to meet BPP energy-intensity benchmarks, and working out the best timeframes for scheduling this work around leases, will be a crucial component of improving energy efficiency. With that said, the movement to equitably share the economic and societal burden of the transition to a low-carbon economy is gaining traction, based on both the idea of fairness, as well as the pragmatic acceptance that large institutions need to facilitate and encourage all of us as consumers to make the best and most responsible use of new infrastructure. A call to action The second noteworthy feature of the BBP’s programme is the call to action that it issues to a wider group of stakeholders outside of its membership, such as investors, engineers, professional bodies and governments – primarily on the basis that it is patently in their interest to do so. We believe for society as a whole there is an existential interest in limiting carbon emissions and minimising the impacts of climate change. This is a global issue and, for LaSalle, the establishment of our global climate risk committee will help our knowledge and focus. Alan Tripp is head of UK at LaSalle Investment Management Read more about how real estate is committing to the climate change challenge >>