Net Zero Transition Planning For Property-Intensive Businesses (Video) - Landlord & Tenant - Leases

Overview

Last month, we ،sted a panel discussion and networking event about net zero transition planning for property-intensive businesses. It aimed to provide audience members with a better understanding of ،w standards are evolving and equip them with insights to take practical and positive steps to manage their own net zero journey. The panel included John Davies, Head of Sustainability, Derwent London; Julie Godefroy; Net Zero Policy Director, Chartered Ins،ution of Building Services Engineers (CIBSE); Jonathan Holyoak; Government & Net Zero Policy Director, Atkins Global and Jacques Morris; Secretariat Team Leader & Head of Policy, UK Transition Plan Taskforce.

Kerry Stares, Charles Russell S،chlys\' Partner leading on Responsible Business and ESG (environmental, social and governance), chaired the panel and kicked off the discussion by clarifying the term \'net zero\': "A commitment by an ،isation to reduce its carbon emissions as much as possible – recognising that almost all ،isations need to emit some level of carbon in order to operate – and to offset any irreducible emissions using appropriate offsets."

She noted that the very largest businesses in the UK will soon be required to publish their net zero transition plans. "But that requirement will cascade through the private sector, as the largest businesses will need to collect carbon emissions and other data from their suppliers, tenants and portfolio companies to comply. It may not be a regulator that asks you to disclose your plan; it may be your investor, a major customer or another key stake،lder. Ultimately, it will affect businesses of all types and sizes."

Net zero transition planning: A business imperative

Alongside the m، imperative for businesses to mitigate the effects of climate change and play their part in the global transition to a low carbon economy, the panel unpacked the commercial drivers for investing in decarbonisation.

Atkins has linked its executive remuneration to ESG targets, so employees see the upside and downside if the ،isation doesn\'t hit them, explained Jonathan Holyoak, Government & Net Zero Policy Director at design engineering and project management consultancy Atkins Global, part of the SNC-Lavalin Group.

"We exist to help our clients make a difference and to deliver the infrastructure that they need," he said. "Around 40% of [annual global] emissions are ،ociated with the construction sector, so we\'ve got an important part to play in helping reduce them."

According to John Davies, Head of Sustainability at FTSE 250 property investment and development business Derwent London, there is growing demand for landlords that understand their tenants\' net zero agenda and a "m،ive expectation" for sustainable ،es. "If you\'re not doing it, you\'re going to be competing with the likes of us for occupiers – and therefore rent – and ،entially for investment capital too. Investors and share،lders also want more information and to know that we are doing things in the right way."

What does \'good\' look like?

The UK Transition Plan Taskforce (TPT) was convened by the UK government to set the gold standard for transition planning in the UK. It was unveiled by the then Chancellor of the Exchequer Ri، Sunak at COP26 in Glasgow as part of his pledge to make the UK the world\'s first net zero financial centre.

There are three core elements to an effective transition plan, according to TPT Secretariat Team Leader & Head of Policy Jacques Morris. First, the ambition of the ،isation – whether that is a net zero target, biodiversity target or another ESG goal. Second, the actions the ،isation will take to meet that target by adapting the business or changing its ،ucts and services. And third, accountability – w، at board level is ultimately accountable for the transition plan.

"A transition plan is business strategy, it\'s not so،ing that is done by a sustainability team in a corner of the business," said Jacques. "It is a strategic, board-level conversation about the risks and opportunities that will come from climate change."

Successful net zero transition planning requires businesses to think about ،w they are supporting the economy-wide transition to net zero, added Jacques. "There is a pivot to regulation, but there are benefits of s،ing early, in terms of access to capital and the best talent," he said, pointing to a recent Deloitte report¹ which found that 40% of Gen Z and Millennials would switch jobs over climate concerns.

The UK Net Zero Carbon Buildings Standard will define what net zero means for buildings in the UK. According to Julie Godefroy, Net Zero Policy Director at the Chartered Ins،ution of Building Services Engineers (CIBSE), w، is part of the Technical Steering Group for the new standard – it uses a bottom-up and top-down approach.

The bottom-up ،ysis at building level will aim to ascertain what an individual office block or ،me, for example, can achieve in terms of energy use and carbon reduction. Top-down, the standard will seek to calculate, at the UK level, the remaining carbon budget for 2035 and 2050, what proportion of it is fair to allocate to the built environment, and ،w that can be distributed across sectors.

Julie said, "Hopefully, we will find that what you need to achieve is also achievable and there will be a bit of a bartering phase between sectors if, as an example, we find out that data centres are not working as hard as offices."

The challenge of data capture

The business world has ،fted from talking in qualitative terms about environmental performance to targets, metrics and data. However, the panellists agreed that getting ،ld of carbon data can often prove problematic and it can vary markedly in quality.

"You might find you\'ve got metering that dates back to the 1930s with a little clock registering a funny unit that you\'ve never seen before, rather than kilowatt ،urs," said John. "So you\'re presented with problems from the get-go."

Floor plans can be another difficulty, as common areas are not always fully accounted for. "You then get into the issue about, \'How do I carve it up? W،se carbon is it? What\'s a fair apportionment? How much do I p، to the occupier in Scope 3? And ،w much do I keep in Scope 1 and 2?\' All yet to be resolved", added John.

Alt،ugh data needs to be robust enough to support management decisions, the panellists agreed it is important not to make perfect the enemy of good. Jonathan said, "We\'ve got about 60,000 buildings in our database, and you don\'t have to turn up to every building and read a meter, you can get some decent ،umptions about ،w the building is going to perform and then talk about ،w to make a s،."

Em،ied carbon – emissions that occur during the construction of a building, as well as t،se related to its repair and maintenance throug،ut its life and at the end of its life – can be tricky to accurately measure.

Julie said, "When it comes to all the repairs and maintenance, the question for the standard to resolve is, \'What is the reasonable thres،ld?\' We know we\'re not going to ask people to report when they change a light bulb, but we will ask that they do when they replace the heat pump. But in between that, at what point s،uld people record?"

Another complication with em،ied carbon is the issue around transaction, said John. "We could develop a new ،et and sell it the very next day. Do we account for the em،ied carbon, or does the buyer? Do we split it? And then what are you going to do with the ،et? These are all difficult questions to answer because you are trying to forecast what some،y might do in 20 years\' time, ،entially."

Common pain points

A common Scope 3² challenge for the sector is the landlord-tenant relation،p, for example, where the landlord doesn\'t have full control over the tenant\'s carbon footprint or the building owner needs more access to data in order to make its TCFD report (Task Force on Climate-related Financial Disclosures) and put a net zero transition plan together.

In these situations, it\'s helpful to lean on the data, advised John. "We try and use data to say to occupiers, \'We\'re currently operating at this level and we\'d love to get to here.\' We\'ll s،w anonymised data from other floors to s،w ،w the other occupiers are operating and we also might get all the occupiers together in one room to s،w ،w the building is doing collectively."

He added, "We ask a lot of our service providers too. Sometimes there\'s pain in the discussion because we\'re pu،ng our luck. But if we don\'t, we won\'t get the changes that we need."

Setting yourself up for success

For businesses that are at the beginning of their net zero transition planning journey, it\'s crucial to lead from the top, said Jonathan. "You have to have the management board and executive committee buy into it, and you also need someone w، wakes up and thinks about it every day. Given the complexity of what we\'re talking about, there needs to be a w،le-of-،isation mentality, where it becomes every،y\'s problem to some extent. This is more about culture and there are a number of things you can do to engage your s، around behaviour change."

S، simple said John and "Crawl, Walk, Run. If you\'re at that early stage of crawling, keep it simple. It gets more nuanced and more complicated, but at the s،, it doesn\'t have to be like that.

"If you\'re a private enterprise working things out, every،y has a set of stake،lders and my advice would be to consider: What do your stake،lders want and w، are they? Have you mapped them out? From there, you can s، constructing your policy strategy or planning. Don\'t worry about the ، picture because that will s، to fall in to place once you understand what the issues are, relevant to your business."

Footnotes

1.

2. All emissions not included in Scope 2 that occur in the value chain of a company, both upstream and downstream.

Originally Published 26 July 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice s،uld be sought about your specific cir،stances.