Investors get the measure of changed climate for buildings

Owners and tenants back initiatives to monitor and cut carbon emissions, reports Jane Roberts

Judging by the number of initiatives being launched now, the property investment community senses it urgently needs to develop ways to measure the sustainability, or otherwise, of the real estate it owns.

Two more organisations launched last month will attempt to benchmark portfolios and the managers looking after the assets in them: the Green Rating Alliance and the Global Real Estate Sustainability Benchmark Foundation.

Most of us know the figures: worldwide, the property industry produces 40% of  CO2 emissions and uses 40% of natural resources, says the Department of Energy & Climate Change. In the UK, commercial buildings contribute 17% of CO2 emissions; a quarter are from heating homes.

According to the Building Research Establishment, the CO2 emitted from the operation of all buildings in the UK makes up about half of total UK CO2 emissions. If you include CO2 from manufacturing, transportation of construction materials and transport of people (usually to and from buildings), this figure increases to 75% of the total UK CO2 emissions.

Both of the initiatives formally launched last month were unveiled after a considerable amount of initial work. The founders of the Global Real Estate Sustainability Benchmark (GRESB) Foundation, for example, started in 2009, when pension asset managers APG, PGGM and USS co-operated with Maastricht University to measure the energy efficiency and sustainability of their property investments.

One of the Green Rating Alliance’s largest backers is AXA Real Estate. AXA’s head of sustainability, Jean-Francois Le Teno, says the idea started in 2008, while last year a sustainability audit process was developed. AXA aims to instal automated measuring of energy-efficiency for 300 of its assets this year; it has completed 192 so far and has also done 44 full GRA audits.

Legislation, and the prospect of more of it, is finally turning landlords’ and investors’ minds to the sustainability or otherwise of their building stock and its management. Some parts of Europe, such as Switzerland, are further ahead, but in the UK, the Carbon Reduction Commitment scheme will provide a metaphorical shove in the back. This tax on carbon emissions for all companies that use more than £500,000 of electricity a year becomes payable next year.

A ‘game changer’ for property

Proponents of change have welcomed the CRC. Tim Mockett, co-founder of the green property fund at investment adviser Climate Change Capital, calls it a “game-changer” for large holders and occupiers of property.

He and others in the field believe “it is only a matter of time” before government  makes Display Energy Certificates mandatory for all commercial buildings. The UK Green Building Council argues compulsory DECs should be part of the Energy Bill going through Parliament, but the government has been vacillating on making reporting of buildings’ carbon use mandatory.

The hope is that CRC will create a direct correlation between property values and resource consumption, because a large company might be prepared to pay a higher rent for a better-performing building.

This leaves many investment managers scrambling to collect data on which to base energy reduction strategies and management and investment decisions, hence the many new bodies and measurement metrics coming out and the growing focus on existing buildings’ performance rather than what Le Teno calls certification ‘tags’ for new buildings (few of which are being built).

He says the most striking point made at last month’s GRA launch was “that if you have the hard facts, you can use them at any time in a property’s life-cycle. Measurement is a very versatile tool that is useful at all stages of the assessment-of-value chain. It is bringing real value to our industry.”

UK Parliament acts to make energy efficiency the law

EPCs and DECs: Became law in October 2008. Energy Performance Certificates apply to most residential and commercial buildings and are one-off carbon-emission estimates, calculated from plans or drawings. They are compulsory at the point a building is to be sold or let and are valid for 10 years.

Display Energy Certificates are so far only compulsory for large public buildings. They measure a building’s actual performance and rate its energy consumption on a scale from A (best) to G. They include recommendations about improving energy efficiency for the building owner when issued, but these are not binding. They must be renewed annually and display performance for the previous two years as well as the current year.

The Energy Bill: Introduced in December 2010 and about to go through its second reading in Parliament, the bill includes The Green Deal, under which experts will offer businesses and households energy efficiency improvements at no upfront cost; the cost is to be recouped through instalments on energy bills.

It also provides for the roll-out of smart meters and making energy performance data, such as Energy Performance Certificates and Display Energy Certificates, publicly available.

The Carbon Reduction Commitment Energy Efficiency Scheme: The first direct UK tax on CO2 emissions, from which the government wants to raise around £1bn in the three years from 2012. This mandatory emissions reporting and pricing scheme covers all organisations that use more than 6,000MWh per year of electricity (equivalent to an annual electricity bill of about £500,000). CRC came into force last year and companies’ first annual reports of emissions are due in July 2011. They will start paying the following year on 2011-2012 emissions.

Companies will have to buy ‘allowances’, ie pay sums to government that have yet to be set, but will rise in relation to the level of CO2 emissions they produce. The money raised through the scheme was intended to be re-cycled back to participants that improved performance, while poor performers paid in full. But last October’s Comprehensive Spending Review said the government would keep all the tax. This means companies can lower their tax if they lower emissions but can’t get rebates. The government also plans to publish a league table so if a company does well it will ‘boost its reputation’.

Organisations setting the sustainability agenda

UK Green Building Council

Launched in 2007, the council campaigns for a 50% carbon emissions cut from buildings by 2020 and supports the government target for ‘zero carbon’ from new buildings a year before. Members include Land Securities, Lend Lease and British Land. In a report last month backed by the BPF, it recommended that owners and occupiers of commercial buildings should be required to show a Display Energy Certificate.

Building Research Establishment/BREEAM

BRE Environment Assessment Method is  the de facto UK environmental assessment standard for sustainable building design and environmental performance. For tenants and investors, it gives market recognition for low environmental impact buildings – but only about 12 have been rated outstanding.

Around 20% of assessments are for commercial buildings. Most BREEAM buildings were assessed when designed and built but there is a push to increase use at refurbishment/retrofit stage and to address management of existing buildings. An updated 2011 model for new-build projects  will be known as the BREEAM New Construction scheme. A different version is being drafted for refurbishments and fit-outs. In 2009 BREEAM In-Use was introduced and around 250 assets have been certified. BREEAM equivalents include US system Leadership in Energy and Environmental Design, and CSTB’s HQE in France, which is to be aligned with BREEAM.

Green Property Alliance

In October this UK-based group of landlords, tenants and construction lobbying bodies produced what it hopes will become the industry standard metrics for measuring rented buildings’ and portfolios’ sustainability. Members, such as the BCO, BCSC, CoreNet and the British Property Federation, also produce information. For example, last year The BPF produced a Landlord Energy Statement and Tenant Energy Review, funded by government body The Carbon Trust, to help landlords and tenants report on energy use.

Green Rating Alliance

GRA, a mix of large fund managers and environmental service businesses, aims to roll-out a Green Rating to assess buildings’ performance, and recommend ways to improve performance via third-party audits. Initially covering European assets, it hopes to expand to Asia-Pacific and America. It says: “Designed by property practitioners for the property sector, Green Rating allows investors and portfolio managers to enhance their assets’ value and to initiate dialogue with tenants for improvement actions.” The seven founding real estate asset management investors are AEW Europe, Allianz Real Estate, AXA Real Estate, GE Capital, ING REIM, KanAm Grund and LaSalle Investment Management.

Global Real Estate Sustainability Benchmark Foundation

Led by institutional investors, this new body aims to create shareholder value while cutting property’s carbon use. It will focus on investment managers’ performance and has launched an annual survey, to be published in September, to scrutinise their sustainability. Its outlook is global and covers both private and public investment. INREV and EPRA back the foundation as they see its goals as consistent with their  approaches to developing best practice in sustainability performance reporting.

The 11 founder members are pension  asset managers including APG, ATP, Aviva Investors, Hermes, Local Government Superannuation (of Australia), Ontario Teachers’ Pension Fund, Paramount Group (of the US), PGGM and USS.

International Sustainability Alliance

This occupier and landlord body was formed last year by 25 firms to promote BREEAM In-Use benchmarking for existing buildings. In January, ISA produced nine indicators to measure sustainability of members’ assets. It promises that a benchmarking study to be published next October, to coincide with Expo Real, will be “the most comprehensive commentary on the sustainability performance of buildings ever produced”.


The Urban Land Institute’s energy initiative,  launched in 2009, links practitioners from  a range of property disciplines to show occupiers how to use their buildings more efficiently; designers and managers how to retrofit buildings in an energy-efficient way; and owners and investors how to identify assets with the biggest efficiency potential.