Janda, Kathryn; Kenington, David; Ruyssevelt, Paul; Willan, Catherine; (2021) Towards Net Zero in UK Commercial Real Estate: Key information, perspectives and practical guidance. HSBC: London, UK.

Text 2021 Janda Kenington Ruyssevelt Willan Net Zero in UK CRE.pdf - Published Version Access restricted to UCL open access staff Download (3MB)

Abstract

Buildings are a major contributor to climate change and in the UK they are responsible for 23% of all carbon emissions (direct and indirect emissions totalling 118 MtCO2/year)1. 30% of these emissions come from non-domestic buildings and these comprise of approximately 70% from commercial buildings and 30% from public buildings. The majority of these buildings are provided by the commercial real estate industry and they are a fundamental building block of the economy. In the UK the sector is responsible for 2.4m direct and indirect jobs (1 in every 13 jobs), with an economic output of £116.1bn. Despite the importance of the sector and the significance of its emissions, it has been little researched by comparison to the domestic building sector in the UK. What we do know is that little progress has been made in decarbonising this sector beyond the fortuitous gains of lower carbon emissions from an electricity supply which is increasingly powered by renewable energy technologies. There are many reasons for this lack of attention and progress, but two stand out. Firstly, buildings in the sector are extremely diverse in size, type, age and users. This heterogeneity makes it di¥cult to undertake ‘representative’ research, the results of which can be directly applied to many thousands of similar buildings. That said, many of the technologies that could be deployed to decarbonise these buildings have been studied for decades, and their application is not beyond the technical expertise that exists within the sector and its service providers. So why hasn’t more progress been made? This leads to the second major reason, the division between owners and occupiers or the principle/agent dilemma that pervades the sector. Put simply, owners are reluctant to invest in measures that save energy and money for their tenants and tenants are unwilling to invest when they may not stay long enough to reap the rewards. The situation is, in reality, more complex and nuanced than this but the problem is nonetheless a fundamental one. There are glimmers of hope. The Net Zero objective is now featuring as a key component of Environmental, Social and Governance (ESG) in the commercial real estate sector and ESG is becoming a much more important factor for investment businesses and their investors. The UK government is considering what form regulation should take in the sector and has recently consulted on this. As the regulatory landscape becomes clearer it will add to the pressure from investors and drive greater consideration of the decarbonisation agenda. Added to this, many large occupiers are themselves setting clear targets for Net Zero and are beginning to engage with their landlords to work collaboratively through green leases and similar arrangements. This report examines the challenges facing the commercial real estate industry, it identifies many of the opportunities that exist to drive towards Net Zero, as well as the barriers that have to be overcome. Most of all it recognises that this is only partly a technical challenge and that success primarily depends upon the active engagement with and between people in the key stakeholder organisations.

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