Net Zero has come into focus in 2020 as the key sustainability objective for many Commercial Real Estate organisations, even with the backdrop of COVID-19 and related economic uncertainties.
The reason is clear, with the UK’s commitment to Net Zero by 2050, this theory has 30 years to become a reality. The sweeping changes required for the transition to a zero carbon economy will create winners and losers, so developing a plan has become a priority for many.
There are three main challenges we come across when approaching Net Zero discussions with clients.
The discussion of decarbonisation has come a long way, and now with investor pressure, a looming UK target and market momentum, the Net Zero discussion is timely. However, with any major change comes uncertainty and with competing priorities aligning key stakeholders can be challenging.
What many key stakeholders will be looking for is certainty on an uncertain topic.
What many key stakeholders will be looking for is certainty on an uncertain topic. Before embarking upon the overall pathway, it’s worth beginning with scoping the challenges and helping our clients understand the scope of the issue and how it directly relates to the organisation.
Our Net Zero diagnostic, for example, helps our clients to internalise the topic and build the internal discussion about why the Pathway matters, and how to make the most of it. It means the Pathway project becomes more specific and is better positioned for our clients to proceed with. This initial stage, helping clients align their own internal thinking, ultimately makes the project more effective.
Knowing the unknowns
Net Zero contains a lot of uncertainty, which is a challenge for all organisations. Many aspects of the decarbonisation roadmap, particularly when it comes to developments and embodied carbon, which are large challenges with unclear solutions.
A Net Zero Pathway may not resolve these uncertainties, but it will set them out as defined risks which need to be solved. As the industry develops a response to these challenges, your organisation will know how to interpret them as risks and opportunities which can be further managed. We see this as a very important part of the pathways we develop, so that we can start to focus on specific uncertainties which matter for our clients.
Recognising the risks that matter
All organisations will have different risks associated with the transition to a zero carbon economy.
One key risk is of assets devaluing faster than predicted due to poor energy performance, as they are not attractive to tenants or purchasers who have Net Zero ambitions of their own. With a sizable amount of the Commercial Real Estate market having ambitions to decarbonise, this risk of a “Brown Penalty” for under-performing buildings has already been seen on buildings with poor EPCs, due to the Minimum Energy Efficiency Standards.
A Net Zero pathway will put these risks into perspective, making it possible to prioritise and focus on the material risks which will have an impact.
We have thirty years until the UK will be Net Zero. Many organisations recognise the need to be in advance of that to maintain their position in the market. Without a plan which considers risks, stakeholders, and identifies the unknowns that need to be managed, the Net Zero will be a challenge that is harder to react to, and to take advantage of.
Download Net Zero: The Guide for Commercial Real Estate to help you define what a credible net zero strategy will look like for your portfolio and what you need to consider to successfully build the strategic roadmap to get there.