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Natural Environment

Tipping point: Towards a global consensus on greener construction and real estate

Across the world, policymakers are pressing construction and real estate professionals to improve the green performance of their industries. Against a backdrop of falling business confidence, is the built environment sector ready to respond?

Kisa Zehra, Sustainability Analyst, RICS
16 July 2021

Some interesting insights can be drawn from the latest edition of Emerging Trends in Real Estate, an annual report published by PwC and the Urban Land Institute. The survey of almost 1000 industry experts (including investors, fund managers and developers) from 25 European countries points to a prevailing sense of caution in the real estate sector. Unsurprisingly, business confidence appears subdued, with almost half of respondents expecting a fall in profits and around a quarter anticipating job losses this calendar year. However, behind these headline numbers, a second, perhaps longer-term, trend reveals itself. The results seem to imply that environmental, social and governance (ESG) factors are reshaping the sector.

Around 80% of those surveyed say that energy efficiency, carbon emissions and climate adaptation will increase in importance in their portfolios. Nearly 70% said that investment directed towards reducing the environmental impact of the built environment was the most important action that the industry could take. What’s more, around 86% of respondents believe that, moving forward, health and wellbeing will become a crucial factor across all sectors of real estate.

Government policy could play a major role in driving these trends. The European Commission has introduced legislation to improve the energy efficiency of buildings. This is a key part of the Commission’s renovation wave strategy to decarbonise the continent’s building stock and a central pillar of the European Green Deal. Furthermore, member states have been asked to submit plans on how they intend to increase the number of nearly-zero energy buildings in their respective countries.

Momentum also appears to be building in the UK. In January, the government set out plans to improve the energy performance of British homes. By 2025, all new dwellings are expected to reduce carbon emissions by 75-80%. Existing homes will also be subjected to higher energy efficiency standards, while similar regulations are also likely to be established for non-domestic buildings.

Over time, it may transpire that these measures were just the beginning. The Committee on Climate Change (CCC), the UK’s independent statutory body, has outlined the true scale of the challenge. By their estimates, if the UK is to achieve net zero by 2050, carbon emissions from buildings must decline by around 50% in the next 15 years. The analysis furthermore suggests that government policy has yet to match rhetoric, with very little progress noted so far in decarbonising national building stock.

There has also been a push by President Joe Biden’s administration towards slashing emissions generated by the US’s 140 million homes and 6 million commercial buildings by 2030. This, so says the proposal, can be achieved through low carbon electricity generation and retrofitting. Sustainable building designs are becoming increasingly popular across the Middle East, with Qatar, UAE and Lebanon developing their own green building certification systems. Recently, the Japanese government has outlined plans to make solar panel installations a mandatory requirement for all new public buildings. A proposal to extend this mandate to include both new public and private buildings is also under consideration.

The debate, of course, extends beyond just carbon and energy efficiency. The buildings and construction industry is a voracious consumer of raw materials and produces more waste than any other sector. Very little is currently being done to drive uptake of recycled and reused materials. Questions remain, also, as to how the sector can improve water efficiency practices.

The buildings and construction industry is a voracious consumer of raw materials and produces more waste than any other sector. Very little is currently being done to drive uptake of recycled and reused materials.

In the UK, the Dasgupta Review has highlighted the importance of conserving and restoring natural assets, and addressing biodiversity loss. In response, the Government is introducing legislation that will require major infrastructure projects to increase levels of biodiversity on site. Furthermore, the Department for Environment, Food and Rural Affairs, in partnership with Natural England, is expected to develop an updated biodiversity metric this year. The tool will help developers, planners and land managers to calculate baseline biodiversity levels wherever new developments are planned. From there, they will be expected to build biodiversity gains into their projects.

As part of the Q2 2021 RICS Global Sentiment Monitors, the RICS Economics team will assess how sustainability and green initiatives are influencing the built environment. The Global Construction Monitor will survey professional attitudes to climate adaptation work, and the extent to which policy conditions are helping or hindering efforts to green the sector. The Global Commercial Property Monitor will assess the growth, or otherwise, of demand for sustainable buildings among occupiers and investors. It will furthermore explore the consequent impact on rents and prices, and examine the main drivers of rising investor appetite for ESG funds. A similar exercise in 2020 found that sustainability and environmental concerns were rising in importance across both sectors, though they remained some way from centre stage. This year’s results will help to pinpoint whether the events of the past 18 months have moved the discussion forward.