2013 is likely to be a year in which the fluidity of the sustainability agenda poses mixed challenges for office owners, occupiers, developers and lenders.

Miles Keeping, Deloitte Real Estate, is a member of the BCO's Environmental Sustainability Group.

In a selection of blogs from the BCO's ESG Miles shares his views on challenges of the sustainability agenda in 2013...do you agree?

Will energy performance become a bigger value bargaining chip?
Last year I predicted that 2012 would see an increase in investor attention towards the energy ratings of their assets and portfolios as the Energy Act 2011 promised to mark offices with poor energy ratings as unlettable without certain steps being taken to improve them. It seemed like a safe bet that Minimum Energy Performance Standards (MEPS) would be a motivating force.

Certainly, some investors took a more rigorous approach to investment due diligence with regard to the energy performance of prospective acquisitions. A number of property owners have also taken steps to assess the exposure of their standing investments to the risks that the prospective regulations hold, and to begin to put in place strategies for dealing with them. Moreover, we’ve seen lenders begin to factor these issues into their lending decisions and this trend will almost certainly continue through 2013, as Government consults upon its detailed regulatory proposals during the year.

What is somewhat surprising is that office occupiers haven’t to any great extent begun to consider the risks from MEPS that face them. There are downside and upside issues here: Potential restrictions on sub-letting surplus space on the one hand but also, perhaps, having a whip hand in releasing, rent review and dilapidations negotiations in the run in to 2018.

Regulatory uncertainty
However, this particular area of regulatory risk (and opportunity, for the savvy) sits within a much broader context of policy and legislative ambiguity. Whilst the broad direction of travel in the UK is reasonably clear, there is a significant number of policy and regulatory reviews on-going which are creating uncertainty within the market on how the relevant policy objectives will be implemented in practice. This affects many aspects of the property lifecycle, and is a key concern for many office owners, developers and occupiers. Key examples include the future requirements of Building Regulations for new construction and refurbishment, the next iteration of which is due in 2013, and the future of the CRC Energy Efficiency Scheme, which will remain in simplified form until 2016 but is to be reviewed thereafter.

From 2013, new regulations extend the requirements for Energy Performance Certificates (EPCs) in commercial property. Perhaps most notably, from January 2013 it is a requirement for all non-dwellings over 500m2 frequently visited by the public to display a valid EPC in a prominent place clearly visible to members of the public. The definition of what property this includes will be open to some considerable interpretation, and we expect this to cause confusion amongst office owners and occupiers. This move also goes against the recommendations of a strong industry lobby to mandate the use of Display Energy Certificates in certain commercial buildings. It’s likely that this new requirement to display EPCs, a mechanism in which the market has little confidence, will fuel more intense debate in this area.

Mapping carbon penalties & incentives
More broadly, there is likely to be considerable focus afforded to the array of financial penalties and incentives which currently relate to the energy and carbon performance of commercial property. The Green Property Alliance, including the BCO, with co-funding from the Green Construction Board, has instructed Deloitte Real Estate to engage with representatives from across the sector, and Government, to assess the effectiveness, proportionality and consistency of the existing fiscal framework with a view to positively influencing future Budgetary policy.

So, 2013 is likely to be a year in which the fluidity of the sustainability agenda continues to pose challenges for office owners, occupiers and developers. With the political cycle moving towards the next iteration of party manifestos, we can expect intense debate in this area to continue.

Climate Change: heresy and science

Nick Cullen is a Partner, Research & Development, at Hoare Lea and sits on the BCO's Environmental Sustainability Group (ESG).

Over the past few years he has been very active in BCO Research and played a key member in the team behind Good Practice in the Selection of Construction Materials (March 2011). 

In a selection of blogs from the BCO's ESG Nick shares his views on Climate Change...do you agree?

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I have spent the past 16 years of my professional life arguing the case for carbon reduction within the business and property sectors. I have used data and analysis from globally renowned scientists and policy makers - the case for action seemed irrefutable.

What’s more, it seemed important that the UK, the birth place of the fossil-fuelled industrial revolution, should lead the way and commit to a near carbon free future. Arguing for this was easy, what’s not to like? Well, the short term financial cost might be one thing, but this was easily countered by arguments about externalities and the long-term benefits of a green economy.

And yet over these 16 years something odd has happened: global temperatures haven’t risen as predicted. The upward trend forecast by the climate models has failed to materialise, despite CO2 levels punching through the 400ppm level in May. The actual global temperature is on the verge of being lower than the low range of climate prediction.

This isn’t due to any action taken by mankind, we have still managed to pump 100 billion tonnes of CO2 into the atmosphere over the first decade of this new millennium. In truth, climate scientists have yet to understand why the climate is not responding in line with model predictions, and they continue to update their models as data builds. This is the nature of science. Global Climate is complex and perhaps we have been unrealistic about our expectations of the science. Understanding how our global climate responds, climate sensitivity, to the undoubted increase in greenhouse gases is now the focus of many climate scientists.

Rather like a flat lining economy, there are mixed signals. While global temperatures may have not increased, averages can disguise a multitude of other signals. There have been temperature increases more locally, most notably in the polar regions leading to a decrease in the amount of Artic sea ice.

What does this mean for the UK? Should we continue with the current raft of policies that will directly increase costs, particularly to businesses and individuals, at a time when we are struggling to grow our economy and when fuel poverty is increasing? A significant proportion, 28%, of the domestic electricity bill is attributable to environmental measures and £300 billion of investment is required by 2020 to adapt our infrastructure to enable our low carbon future.

While I confess to heretical thoughts on the subject of climate change, I am going to hedge my bets. The precautionary approach remains a sensible response to the uncertainties of climate science and we can’t wait until the science of climate is better understood. The basic principles of mitigation, such as improving resource use efficiency, are sound. However, the successful transition to a low carbon economy requires considerable investment and a successful economy above all, perhaps we should at least consider whether the fact that the planet's climate does not appear to be as sensitive to CO2 as first thought, may justify a pause.

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For further information covering the topics raised in this blog you can take a look at the following BCO Research papers, which have been produced in association with the BCO Environmental Sustainability Group:

• On-site Renewables (September 2012)
• Whole-life Carbon Footprint Measurement and Offices (March 2012)
• Designing for Biodiversity, Productivity and Profit (March 2011)

At a time when Germany is in the midst of a rapid transition to renewable energy, which is said to be the country's biggest and most expensive project since the fall of the Berlin wall (see article from www.bbc.co.uk/news), should we be following suit? Or do you agree that we should be taking a brief pause? Post your comments on our LinkedIn Group BCO Online.

60 seconds with...Simon Sturgis and Gareth Roberts, Sturgis Carbon Profiling

Simon Sturgis

We spent 60 seconds with Simon Sturgis, Managing Director, and Gareth Roberts, Partner at Sturgis Carbon Profiling, members of our Environmental Sustainbility Group (ESG) and contributors to the recently published BCO On-site Renewables report. 

The On-Site Renewables report is a follow up to the BCO's 2007 report on the Greater London Assembly's (GLA's) target for acheiving emissions reductions through on-site renewables from 10% to 20% of a building's regulated energy demand.

Whilst investigating our original concerns that the policy would not be effective, the research also offers an insight into:

• the implications of using on-site renewables
• identifying the factors driving performance
• the potential to cut costs and increase environmental benefits from reduced emissions in the future.

Gareth Roberts

What led to the On-site Renewables report being commissioned?
Previous to this report no quantitative work has ever been undertaken examining the actual costs and benefits of on-site micro-generation in the UK and Sturgis Carbon Profiling felt that given the large amounts of money being spent on this it was worth trying to understand if value to environment and developers was being achieved.

What do you think the commercial property industry can learn most from this report? 
That you need to think holistically about carbon emissions to achieve accurate, comprehensive results. That Government and Local Authorities when developing policies to promote carbon reduction need also to look at the indirect losses that take place before considering if a policy is effective.

Are there any findings in the report that surprised you?
The aggregate scale of the inefficiency of the use of renewables in London Offices is quite staggering, in that for every £10 spent by developers and taxpayers to provide benefit to the environment through micro-generation less than £1 is actually being delivered.

Where should we be looking to for best practice at present? 
Us!

Who/what most inspires you in the world of commercial property? 
Anyone who is thinking ahead and looking to a more efficient future in office design.

What couldn’t you live without in your daily routine?
Simon - Lunch
Gareth - Coffee

Join Simon and Gareth on Thursday 7 February 2013 for the BCO ESG Breakfast, where they will be discussing and debating the findings of the On-site Renewables report with a response from Celeste Giusti from the London Plan Team at GLA. Click here to find out more and book your place.