Two industries… one ultimate goal, but entirely different languages. We took a step towards tackling the language barrier of Net Zero Carbon with a tool as old as time… talking.
Two sides of the same coin.
Paul Nicoll, Triodos Bank Frances Brown, Hoare Lea
PEOPLE
With the pressure-cooker that is the carbon challenge only set to get more intense in the coming years, the world of finance is beginning to demand bold action from the construction and real estate industry. It’s a recipe that could easily lead to frustration, finger pointing, and worst of all failure to achieve the Paris Agreement targets. Breaking down the language barrier between both industries is the first step to an empowered ecosystem existing between them… one fuelled by dialogue, insight and true understanding of the challenge.
These are big conversations, but they can start small. In the week before COP26, Paul Nicoll from Triodos Bank UK joined Frances Brown to explore the common threads, needs, and mutual benefits between Zero Carbon investment and development – a discussion that simply would never would have taken place just a few short years ago.
Frances
So Paul, what put Zero Carbon on your radar?
Paul
Well it’s a term that’s been quietly bubbling away for years now in our industry, but it’s only in the past 18 months or so that it’s properly come to the fore and has begun to dominate so much of our thinking and decision making. Obviously, our ethos at Triodos has always been about ethical and sustainable investment, and for over 40 years that’s meant supporting sustainable assets across a number of sectors. Energy has been a big part of that, in terms of financing renewable energy projects, new technologies and energy saving projects. But we now have an urgency; we need the eco or social-led developers whose projects we finance to measure and report against the specific targets in terms of carbon, not just in the construction phase but in terms of ongoing usage too.
Then of course, in tandem, there’s our own proactive pledge. We’ve joined the Net Zero Banking Alliance convened by the UN, which is a commitment to look at our own operational and lending practices.
It means setting a science-based Net Zero target, informed by a full understanding of all our current carbon impacts and those of our loans and investments. So, plenty to keep us busy!
Frances
Absolutely, I think that’s a statement that holds true for almost every industry… It’s no longer an overstretch to say it’s become business critical; at least if you want a business that will still exist in 20 years!
The conversations that are happening now are really exciting to be honest – in the 14 years I’ve worked on developments in London, we’ve gone from clients adding on sustainability credentials as an ‘extra’ to now starting with carbon considerations, and ESG strategies leading the decision making.
There was a time where the main risk for a building was that it wouldn’t have enough capacity to meet demand. Now, both in terms of embodied and operational carbon, the risk is you have too much!
Yet, I do think we also have to remember that although there is lots of progress in terms of mindset switch, so much of the reality of actually achieving Net Zero Carbon is new to people. Even in our engineering world where we know both the principles and practicalities of it, it’s still new. For example, I’m on the Board of Management at the British Council for Offices as I specialise in workplace development, and NABERS UK has only just launched the energy efficiency rating scheme, based on measured outcomes for offices that’s aligned with Net Zero targets... And even on some of the most progressive pilot projects, we’re still only a year or so into actually having fully complete buildings that can be measured and reported on. So, it’s understandable that there’s still a lot of confusion around the topic.
Paul
Yes, there’s so much noise, isn’t there? We haven’t challenged hugely in the past on metrics, but we are beginning to now. There is potentially some confusion at the smaller end of the market, because so many businesses understand the broad concept of the phrase Net Zero Carbon, but they don’t yet understand practicalities around the implementation of it. Awareness and education need to be prioritised and it needs to be reliable and consistent.
These sorts of conversations aren’t stopping at building or development level; every other sector we work with, whether that be retail, organic farming, education, social housing, or healthcare; everyone is trying to understand what’s critical, what’s real, and how best to achieve these goals.
Frances
Exactly, each sector is having to carve out its own parameters, but the one thing that’s universal is the need to monitor. How can you improve on something you aren’t yet even measuring? It’s fascinating to me that positive pressure from the investment world has now made the conversations happen in development that we’ve been talking about for years – that you need to monitor a building to ensure it actually performs as it was designed.
So often, buildings are designed to be incredibly energy efficient, but what actually changes the performance of a building in reality is behaviour – the people using it.
So if we can monitor developments to understand exactly what’s happening in terms of the human interaction, we can understand how to make it perform as intended rather than actually having to make wholesale changes to the building itself.
Paul
Sure… the monitoring is critical. We need to be assured that what’s coming out at the end can be relied on and is comparable for all.
Frances
Yes, and the only thing you can ultimately rely on is what’s monitored and reported! Even as an insider in the industry, it seems counter intuitive to me that it’s not standard practice for the development world to actually check that the projects they paid for perform as intended…
Paul
I completely see your point... I remember being involved in the finance of a development 10 years ago that had – at the time – a state-of-the-art climate-controlled system. It was incredibly complex, and a few people in the building management team understood it on day one, but six or seven years down the line, the knowledge had waned, and efficiencies and good practice were being lost.
Frances
It’s something we see time and time again when we’re brought in to improve existing buildings and it speaks to the benefits that can be grasped by developers who keep their assets. They have this amazing chance to have the most incredibly efficient portfolios, by just investing a little in operational knowledge retention. Now we exist in a world that increasingly needs us to think about long-term value from a profit point of view, it’s so much more advantageous over building something purely to be sold on in the short term.
Paul
That’s so interesting you say that, because that long-term value is something we’ve always considered, and it’s exactly what’s leading the insistence on science-based Zero Carbon targets in the finance world. Even though we fund social-purpose-led landlords, who are thinking about more than just profit, we still have the question of a development’s market value, which in turn also depends on its current and ongoing carbon efficiency. We’re now asking, firstly, is our security going to degrade over time if money isn’t spent on it to bring it up to standard? Secondly, can all socially-led organisations afford and plan that expenditure, and if the answer is no, how can we work with them to help them understand and afford it?
Frances
Talking of the cost of carbon reduction, as you say, there has to be some investment. I also think it’s really important for both our industries to dispel the myth of anything that’s good for the planet costing more. Reducing embodied carbon, in the case of new builds or retrofitting can be about doing less, and it’s the same for operational carbon.
They both certainly require more thought – the kind of thinking that perhaps hasn’t been part of the conversation before – but they aren’t always about spending more.
There are now financial reasons to go for high standards in carbon reduction. Years ago, it could have ‘made sense’ to build a huge basement to accommodate technology that would reduce carbon usage in an operational sense or create better amenity space on upper levels. But now this is less acceptable; there would be a massive cost in terms of embodied carbon because of all the material used to create basement space. There was a recent project that really brought this home to me – a developer who had a set pot of money specifically dedicated to reducing embodied carbon. But the solutions we kept finding for that reduction kept making overall cost savings… we got to the point where they were saying, “how do I actually spend this money?!”
Paul
Ah yes, that embodied carbon conversation is one we’re trying to find our way with. We’ve often funded the repurposing of older buildings, which we know is beneficial from an embodied carbon point of view – as opposed to tearing something down and starting again. For instance, a decade or so ago there was such a trend towards repurposed old warehouses (tech companies and creatives love them so they have great market value), but ultimately, they are large, draughty buildings that often make for a poor carbon impact. So, in the context of Net Zero Carbon targets, we now need to be asking more questions in this area and work out the effect of retaining them versus complete redevelopment… and that’s no doubt the same for most investors. We just don’t have the consistency and clarity of information to make truly informed decisions at the moment. It’s important to consider expert input for those scenarios –people who can help us and our customers see where the risks and opportunities are.
Even for our own head office in the Netherlands, which opened in 2019, we couldn’t find suitable existing office space available for redevelopment, so constructed a brand-new building. However, it’s completely focused on circularity and could be dismantled and built elsewhere – like a giant Lego set. It has been created with a long-term view in mind – sustainable in construction, operation and – eventually – reuse.
Frances
Absolutely, every building is different. There are general principles in terms of what’s best from a carbon point of view, but they always need to be balanced against so many other factors – cost, social considerations, preservation considerations, and so on – all of which are so specific to a development. One positive to consider, though, is that instinctive feeling more of us have now, no matter what the industry – that tearing something down and rebuilding can be a bad idea when it comes to the planet – will start to become the norm; the default that has to be explored before anything else. There are plenty of buildings that could have their operational efficiency reduced significantly by looking at performance improvements, and then by 2030 – as long as they continue to monitor and refine that behavioural aspect – hit the carbon targets thanks to a decarbonised grid. So, what seems like an almost insurmountable challenge for some buildings, will become easier thanks to more broader help along the way… The real positive is that the finance world asking these kinds of questions isn’t something that ever would have happened five years ago; we’ve got a long way to go, but I think the first few hurdles are already cleared!
All photos by James Cheadle.