Lars Huber, the CEO of Hines Europe who was appointed as chair of ULI Europe on 1 July, used his speech to delegates at the UK annual conference on Tuesday to issue a call for the built environment industry to unite over ESG.
Huber said the property industry was embarking on a 'seismic transformation' while trying to navigate the myriad market and geopolitical challenges. ‘The single biggest priority though is climate change, to drive social impact, and further enhance diversity. I will be very focused on putting forward exactly those ESG targets during my two years as ULI chair.’
‘We all notice that there's already a growing fatigue around these three letters (ESG). With all that's going on in the world as a whole - rising food prices, energy prices and impending recession, yes it can be hard to rationalise the long-term planning and the discipline that ESG progress requires.’
He continued: ‘ESG is a hot topic in the media and is on people's minds, and the whole concept is experiencing its first real growing pains as companies try to figure out which role they play. Climate change and inequality are long term ills, and if their resolution is postponed, the problems will be even bigger going forward.’
‘I really firmly believe that our industry can make real change to save the planet, to encourage governments to do better, and to innovate.'
'The environmental agenda is dominated by the challenge to rid our industry of carbon emissions altogether, while solving the challenges of biodiversity and circularity. By 2050, the entire world needs to get to net zero, and it is good to see the property industry is largely appraising this goal. There is now a broad commitment for everyone to be part of that solution.'
Valuations
Huber said he strongly believed the industry will accomplish net zero. He added it was encouraging to also see demand for carbon-neutral space 'fast increasing'.
'I think that will only intensify. We must urgently address how we use buildings and how they impact our global environment but in the near future, we also need to price and to value them accordingly. The market has started to incorporate green premiums and brown discounts. And it seems almost inevitable that there will be a continued divergence in the coming years as more data about carbon performance of properties will be widely available. ESG performance and financial performance are fittingly linked with each other.’
More innovation, embodied carbon still challenging
Huber said more technology was needed, and that even more importantly, widespread adoption of the knowledge to use the new technology.
‘This is a call for our industry to unite, and the ULI’s role is to spread knowledge and data.’
The ULI Europe chair said progress had been made, pointing out that low carbon space was now ‘the new class A space’. On the other hand, embodied carbon was ‘still challenging’.
‘Embodied carbon is seen as one of the biggest climate risks that the commercial property industry faces. The public is learning about embodied carbon and questioning the sense of short-lived buildings, in particular office buildings. Thankfully, there's a growing sense of the issue and as the debate shows here in the UK , city planning departments, developers and occupiers and are now taking this perspective into consideration more and more.’
‘There has been a lot of focus on creating new buildings in the most energy efficient way. But we really need to focus on the operational-side. How can we do this if we do not involve the occupier? They are the ones who consume the most energy in the buildings and also the ones who produce the most carbon so we have to make them a partner in the team, not only in that discussion but also by inclusion as members of the ULI.’
He said his own company, Hines, last week announced net zero goals for operational carbon for 2040 and said open knowledge sharing among peers would help the industry.
Meanwhile, the ULI has launched “C Change”, a decarbonisation initiative that real estate firms can sign up to. One aim is to establish a climate risk valuation approach, while another is to create more alignment between landlords and tenants.
‘It doesn’t help anyone if a company manages to fulfil goals on their own. This is about all of us achieving this mission together.’
'Cement, concrete and steel are areas where we have done a lot of research on alternative materials, such as timber. It is a challenging environment though, with high cost inflation.
Social
Huber then directed comments at the ‘Social’ in ESG, stating it was more important than ever before, yet even harder to quantify. Affordable housing had become one of the most pressing issues for society, he said.
‘We all inherently know that eliminating this stressor will have a great collective impact on people's quality of life, on the environment and for social advancement. Our industry needs to play a key role in addressing this issue.’
More than 40% of disposable incomes goes on housing costs. ‘Additionally, we know that a person's sense of community has an outsized impact on quality of life.’
Huber noted anxiety and depression had risen 25% worldwide as the covid pandemic had led to isolation, even if working from home had brought some efficiencies. ‘Therefore, more than ever we need to focus and be aware of the design and programming of schemes - how they are integrated with the surrounding community.’
Governance
Reporting, analytics, benchmarking, data collection, measurement, and data management had become increasingly important aspects of the real estate industry, Huber said next.
‘The concept of greenwashing as well as the more recent ESG bashing in parts of the media has coloured the conversation around ESG and made it seem like accountability is an unachievable goal. I don't agree. Sure, there is a proliferation of frameworks and benchmarks that may seem too complex to understand. But these initiatives are leading us towards a transparency in sophistication in regard to carbon and other factors that will make property valuations better, fervently reflecting climate risks and the associated costs of making the buildings more efficient.'
‘The result will be that the real estate sector is highly transparent when it comes to carbon and other ESG initiatives because it will be essential to investors and to the users of those buildings.'
‘To make our cities greener ultimately, the industry will first have to collaborate and work through the challenges around data and valuation and focus on those public private partnerships to create a level playing field.'
'All of these are critical broader goals to achieve as an industry and will be especially harder to overcome now that we're entering into a recessionary phase. Whether it's investors or tenants, architects or property managers, contractors or lenders, or the valuation community, it will take a lot of effort from all of these groups to have the determination to keep pushing in the right direction.’
‘London, and the UK is home to many of the most influential property firms around the globe. And what we accomplish here will be noticed globally.’
