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Time to start a clean energy movement in UK property

Author : Jon Fletcher, MD, Big Clean Switch, Chris Birch, director of sustainability, Hilson Moran

04 September 2019

In July, the Mayor of London held the first London Climate Action Week. It followed hot on the heels of the UK Parliament declaring a national climate emergency in May.

That same month, a survey of sustainability, energy and environmental managers at major organisations including PwC, Nando’s and ITV was undertaken to understand the use of energy from renewable sources in commercial rented property.

The result – four in five businesses are struggling to switch to clean energy. ‘Going 100%: How landlords hold the key to corporate renewable energy targets’, was published by Big Clean Switch and edie in association with the Climate Group’s RE100 initiative.

The report cites a lack of engagement between landlords and tenants as a key factor in the slow provision and uptake of clean energy, whether businesses are trying to switch to a renewable tariff, or install on-site generation, sub-metering or EV charging facilities.

FMs, either within landlord or end user organisations, have a central role to play in the adoption of clean energy and are instrumental in helping the property sector, which accounts for 40% of the UK’s GHG emissions, to improve its performance.

Here, we set out the challenges and what can be done to overcome them.

The challenges

The blockers to embracing clean energy lie on both sides of the fence. Fundamentally, they come down to business priorities, money and ethics.

First and foremost, the landlord is an investor and the building is an investment vehicle, so what matters is the yield from letting the property and capital asset growth. Any expenditure needs to result in a short payback period, or an increase in yield or asset value.

Improvements funded by landlords are finely judged to ensure a building is able to compete for lettings or attract a different tenant demographic and are often therefore cosmetic.

Also, among landlords, there is a perception that there is little demand from occupiers for sustainable buildings.

Chris Birch

This might well stem from some stark statistics: despite 20 years of BREEAM certification, less than 1% of buildings in the UK have one; and despite Building Regulations requiring ever increasing improvements in energy performance, many local authorities require only basic compliance at planning stage, with only the largest office developments in cities like London an exception to this rule.

Equally, upgrading existing buildings that are multi-tenanted poses a real challenge unless all tenants are on board. If clean energy isn’t on a tenant’s agenda, why would they accept an increased service charge or the disruption?

It takes a forward-thinking landlord to make commitments that go beyond basic compliance. Bruntwood, for example, recently signed up to the Green Building Council’s Net Zero Carbon Commitment across its whole portfolio, and we need more to follow suit.

For tenants, there’s no encouragement to adopt sustainable practices in tenancy agreements. Many occupiers are tied to fixed fees for energy with minimal visibility of data, which gives little incentive for either landlord or tenant to save energy or implement low carbon strategies.

Then there are a number of shared issues. From a landlord and tenant’s perspective, energy typically represents less than 1% of an organisation’s overall costs so, while it should be a key objective for multiple reasons, there’s no financial driver.

Legislation has attempted to “tax” carbon through schemes like the Energy Savings Opportunities Scheme (ESOS) and compulsory sustainability reporting for some organisations, but this only impacts larger companies.

There is also disruption when sustainability interventions are made, which can mean a tenancy break, displacing tenants, and loss of income for the landlord.

The solutions

So, what’s needed? First, communication! On-site property management teams and building managers must be empowered and equipped to have meaningful conversations about improving energy performance.

This means investors, landlords and managing agents need to understand their buildings and existing systems, so they understand their limitations. Tenants must then be much more proactive in communicating their needs.

Jon Fletcher

Sixty per cent of the businesses surveyed by Big Clean Switch said they would commit to being part of a movement to educate, encourage and inspire more landlords and managing agents to switch to renewable energy.

The Royal Institution of Chartered Surveyors (RICS), whose members are the very people who create, cost, plan and manage the delivery of clean energy solutions, has pledged its support to such a campaign. We need a new mindset.

The old property and asset management approach ingrained over hundreds of years is in direct conflict with what needs to be done to improve the UK’s building stock. It must be possible to satisfy both the business objectives and the urgent and essential climate change agenda.

Investors and landlords must start from a desire to improve sustainability and then work out how to make it pay rather than the other way around. It’s also worth noting that many suppliers will now provide green power at no additional cost.

Action is going to be mandated too. An amendment to the Climate Change Act 2008 is going to mean emissions from buildings will need to be avoided or offset.

The UK government’s commitment to nett zero by 2050 means that greater regulation is almost a certainty. Businesses have an opportunity to get ahead of the curve, spreading costs and creating a differentiator ahead of change being imposed by government.

So, let’s start with Green Leases or a Memorandum of Understanding, where each party makes a concrete commitment to consider and act on energy and utility consumption.

This can be taken forward by the landlord management teams in the day-to-day occupancy, making it an agenda point at tenant meetings and creating an action plan for positive change, informed by the maintenance service provider, FM or FM consultant.

There must also be a good building management system and controls as well as auditing to optimise the systems and avoid issues such as plant running beyond required time schedules and simultaneous heating and cooling.

Metering and analysis of utilities, targeting, monitoring and management will show where improvements can be made.

Some office buildings are so poorly maintained already that they will need a comprehensive, systematic intervention.

For these buildings, it’s not just about adding renewables but replacing or upgrading all the engineering services that have come to the end of their life.

Once that’s done, there should be a detailed plant-replacement life cycle plan, refreshed each year to keep things working efficiently. In other cases, it may be possible to simply switch to a renewable energy supplier. Where possible, landlord and tenant electricity supplies should be separated.

This would make the tenants responsible for making their own arrangements with the electricity supply company and therefore the decision on whether they procure energy from renewable sources. If they lack the expertise to do so, there are companies that can help with switching.

Time for action

Many real estate portfolios are at considerable risk from climate change. If we just take flood risk as an example, around 12% of land in England is adjacent to a river or stream and therefore vulnerable to flooding.

If these future costs were factored into decision-making, action on climate change would become a much greater priority.

For tenants, if they are serious about sustainability they need to collectively speak up, collaborate with their landlords and develop a good understanding of the performance of their space.

If they are still not satisfied, they need to vote with their feet and move to more sustainable spaces – this will in time change market perception, encourage innovation and the format of tenancy agreements.

The case for action on climate change has never been clearer. If we are to keep to a world of no more than 1.5°C warming, the question is not if, but how fast, we can slash greenhouse gas emissions (GHG).

Now is the time for change.

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