Dnz full ree

The clock is ticking on the UK’s commitment to net zero greenhouse gas emissions by 2050 and as with all areas of the economy; pressure is growing on the commercial property sector to demonstrate carbon emission reductions.

We have developed a specialist "Delivering Net Zero” (DNZ) service which is aimed at commercial property investment portfolios to assist in improving building performance ratings.

We asked Philip Chapman, one of our Sustainability Advisers based at our Banbury office, to explain our Delivering Net Zero (DNZ) service in today’s market and how we are helping our clients achieve their sustainability goals.

With upcoming changes to the EPC process in June 2022, the need for our DNZ service is more important than ever. We are here to manage this change and the implications for our clients on future EPC scores.

Initial feedback has shown that the expected performance of electrically heated properties will improve due to reduction in the carbon intensity of electricity and some types of uninsulated, gas heated property may deteriorate.

For commercial property portfolios the carbon squeeze is coming from three directions:

Legislation

Minimum Energy Efficiency Standards are becoming increasingly stringent which will prevent landlords from letting buildings with energy performance ratings below the required minimum standard.

Non-compliance risks not only significant fines, but also rental income and building value so it is vital that those responsible for managing commercial property get to grips with the regulations and energy performance assessments.

Financial Impact

Investors and financiers who are increasingly aware of and having to report on their climate impact both in terms of emissions directly attributable to their operations, but also the impact that their investment portfolios have on climate change.

Climate financial reporting is now mandatory for larger financial institutions as of 1st April 2022 as a result of the TCFD* regulations. This has a knock-on effect for the commercial property sector as those that own and fund commercial property investment review the impact and exposure of their investments to climate risk.

Faced with rapidly rising energy costs; changing social values of staff and customers; as well as mandatory carbon reporting pressures of their own, building occupiers are becoming more discerning of the sustainability credentials of the buildings they choose to occupy.

There is growing evidence of tenants giving high priority and value on buildings with provision of EV charging, higher EPC rating, and social benefits which will attract employees back to the workplace as COVID restrictions have been lifted.

There is plenty to encourage building owners to undertake improvements, but there remain significant questions that need to be answered.

This is where we can help:

  • Where to start? - with portfolios of hundreds of buildings sometimes knowing where to start can be an issue and a strategy is needed to tackle this
  • What is the EPC process? - for the uninitiated the assessment of energy performance is highly opaque with ratings and recommendations which can sometimes seem unrealistic
  • What improvements will work for me? - identifying the improvement measures which will deliver the required improvement. Most EPCs provide a relatively generic list of measures offering limited detail on the benefit that will be delivered – we work with our clients to understand what measures are most practical and economically viable

So what is the answer? From our experience the best place to start is a review of the existing data to understand the starting position of a portfolio. This will identify gaps; help to prioritise properties in terms of actions and timing of works to coincide with lease events.

It is often useful to set some reporting metrics for a portfolio so that improvement in the portfolio can be assessed over time and provides some targets to ensure progress.

Engagement with and working closely with existing or incoming tenants can also be helpful. For example it may be possible to define a minimum specification for a tenant fit out to aid EPC rating or there might be improvements which are mutually beneficial to landlord and tenant.

For new buildings addressing operational emissions and energy performance is one element with more stringent Part L building regulations due to take effect in June 2022 which should deliver increased energy performance of new buildings, although performance gaps between design and build especially once a building is occupied are an area the sector must seek to address.

More complex is the issue of embodied carbon i.e. the emissions associated with the materials and construction process for new buildings. As net zero targets approach minimizing embodied carbon and perhaps even achieving whole life net zero emissions will be an altogether greater challenge, but perhaps represents the next step for carbon policy.

A private member bill on this subject was put forward earlier this year, but later withdrawn, but Warwick District Council is consulting on Net Zero Carbon Development Plan Document which may provide some insight to developers of what is to come.

A collaboration of property-based organisations has developed a useful summary of requirements for Net Zero operational Carbon new buildings document outlining key steps.

*Taskforce on Climate-related Financial Disclosures

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