Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.
The path to net zero is clear and widely agreed upon. It involves decarbonization, onsite renewables, renewable energy procurement, and offsetting, if needed. The steps to achieve carbon neutrality include reducing energy demand, improving energy efficiency, adopting onsite renewables, transitioning to offsite renewables, and using offsets as a last resort.
These steps are globally recognized through initiatives like the London Plan, UK GBC, World GBC, CRREM, and SBTI.
However, this all hinges on the availability of accurate and reliable data.
Consumption data
Utility data is crucial, but it’s just a starting point. Many funds focus solely on consumption data, yet a wider range of data is pivotal for effective planning and progress tracking.
Although the industry emphasizes carbon and energy intensity metrics, they provide an incomplete picture – essentially the endpoint. In the meantime, while essential strategies are underway, these metrics might incorrectly suggest inaction when the reverse is true.
By encompassing a broader range of data points, funds can not only monitor progress and highlight specific changes in completion, but also engage in proficient planning and informed decisions.
Let’s explore the top ten data points that lay the foundation for strategic planning, monitoring, and demonstrable progress towards net-zero assets.
One: Energy consumption
In 2023, EVORA assisted around 230 funds with their GRESB submissions. In real estate funds, the average portion of assets with reported energy consumption data hovers at around 60%, with 50% of funds falling within the +/- 20% range.
This illustrates a significant dependence on energy data approximations and proxies when determining fund performance. Here, it’s crucial to recognize that a decrease in energy consumption represents the outcome of a net-zero strategy, imparting limited instantaneous insight.
Two: Age and refurbishment
Asset age frequently serves as an indicator of its current condition and building structure. Older assets tend to have been constructed under less rigorous energy efficiency mandates, which can manifest in their performance. Understanding an asset’s age and original construction can provide insights into necessary interventions to achieve net zero.
Likewise, grasping where assets stand within their refurbishment cycle is invaluable. Incorporating modifications during the regular replacement cycle can mitigate the need for extra CapEx. In instances like lighting, where LEDs have become the norm, additional investment might not be necessary beyond standard operations.
Understanding the replacement cycle of components is crucial to prevent overly zealous maintenance teams from simply swapping like for like, potentially overlooking an opportunity for enhancement.
Three: Leasing breaks
Lease breaks frequently present significant chances for substantial asset changes. Being aware of these timelines facilitates strategic planning. Additionally, enhancement measures can be integrated into lease re-gears. The rising prevalence of green leases, more prominent in certain regions, offers another valuable metric for progress.
Four: Use and occupation
Although some assets adhere to standard daily usage, others exhibit considerable variation. An asset might seem inefficient based on its construction and interior arrangement, but if it experiences infrequent or low occupancy, justifying enhancements becomes questionable. Conversely, some assets may house energy-intensive machinery or feature unusual occupancy patterns, accounting for above-average energy consumption.
Understanding an asset’s usage pinpoints whether its performance aligns with expectations and whether industry benchmarks serve as appropriate comparisons.
The day-to-day usage of an asset wields the most substantial impact on emissions. This is predominantly beyond the direct control of landlords, and how an asset is utilized can dictate the assistance needed.
Five: Tenant engagement
Differing levels of tenant engagement with net zero are apparent. Identifying proactive tenants early can be beneficial for technology trials or new contract terms. Tenants with public net-zero commitments are theoretically more inclined to cooperate towards a shared goal.
Six: Energy tariffs
Understanding current energy tariffs improves reporting market-based emissions. Conversely, lacking knowledge about an asset’s tariff can result in substantial overestimations of emissions.
In the UK, 13% of SMEs have secured a renewable energy supplier, and an additional 10% plan to follow suit in the upcoming year (NatWest Group, 2022). As more guidelines on green energy tariffs emerge, understanding their specifics, such as whether they involve a Power Purchase Agreement, generation sources, additionality, and so on, will become increasingly significant. Knowing existing tariff expiration dates also helps landlords in strategically advising tenants or energy procurement teams on best practices and green tariffs.
Seven: Asset size
When embarking on fund decarbonization, many asset managers want to know the most impactful areas. While focusing on the most significant energy consumers (absolute and intensity) remains important, considerations can extend to the largest asset by floor area or highest Gross Asset Value (GAV). However, this data is frequently inaccurate or absent. Notably, the percentage of GAV aligned with science-based targets is progressively emerging as a KPI.
Eight: HVAC systems
Decarbonizing heat is crucial, but often costly. To accurately project future CapEx, data on HVAC/heating systems is needed: peak boiler capacity (current installation); peak heating demand (boiler sizing often includes extra capacity, leading to an actual peak heating requirement lower than boiler capacity); distribution temperatures; and heat emitters (heat pumps function optimally at lower temperatures, influencing the system chosen).
Moreover, determining net-zero progress can be measured and conveyed by tracking the proportion of fossil-free assets.
Nine: Building fabric and fit out
Understanding the current building fabric and interior fit out serves as a valuable progress indicator. Whether it’s the proportion of assets equipped with fully double-glazed windows or 100% LED lighting, this data point illustrates accomplished efforts and pending tasks.
An added advantage is the potential to leverage bulk discounts by implementing a comprehensive intervention program across multiple assets.
Ten: Fund strategy
An often-neglected factor is fund strategy. Grasping which assets are slated for disposal might accelerate decarbonization efforts to maximize asset value. Conversely, it could serve as a reason for minimizing investment. Ensuring asset alignment with science-based targets or crafting a sound plan for alignment is fast becoming a KPI for acquisition due diligence. Similarly, knowing which assets will be retained can substantiate CapEx, particularly for payback periods with longer timeframes.
In conclusion, by delving into these ten essential data points, you’re equipping yourself with the tools to drive purposeful planning, vigilant monitoring, and undeniable progress in your journey toward net zero assets.
This article was written by Sabbir Sidat, Associate Director for Evora.
References
NatWest Group (2022). “Businesses increase investment in green energy as energy prices pinch.”