Developers get a taste for ESG

I believe that the pandemic has presented such an existential crisis – such a stark reminder of our fragility – that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives,” those are the words of Larry Fink, chairman and CEO of BlackRock Investment Management.

BlackRock, with over $7.5trn of assets under management, have developed a strong reputation for sustainable investing through ESG (environmental, social and governance) principles.

Fink firmly believes that climate transition presents a historic investment opportunity and the excellent performance of sustainable investments since the pandemic struck backs up his thinking.

It seems that now, more than ever, there is good reason for property developers and funders alike to look beyond COVID-19 and focus on the UK’s exacting net-zero carbon target for 2050.

Housing and the built environment account for a massive 40% of UK emissions with the average house costing 50 tons of CO2 to build.

With investors increasingly refusing to put their money into projects that are harmful to the environment, the building sector literally needs to get its house in order if it’s to continue attracting investment from broad capital pools.

What was once seen as something of a fad is now becoming the new normal and on top of investors, developers are faced with further top-down pressure from government, lenders and insurers as well.

Little wonder then that developers are turning to eco technologies for house builds to ensure a low carbon, more environmentally friendly format in the future.

As a result, eco homes have rapidly progressed from one-off anomalies to far more widely available options.

Of course, it takes time for new technologies to filter down, but the UK is now seeing many larger house builders embracing greener building techniques and sustainability. Many are now doing so much more than simply meeting new build homes criteria on boiler performance, insulation, water storage and modern lighting.

They are looking way beyond energy efficiency and in some cases building zero carbon homes and the

fact that they are doing so is not purely a response to the top-down pressure already mentioned.

A KEY FACTOR

Potential buyers and renters, particularly amongst younger demographics, are also citing sustainability as a key factor in the new homes they are looking to move into.

Adherence by developers to eco principles and a green philosophy clearly aligns with these values and of course lower utility bills are a very tangible reward for residents in new, sustainably designed homes!

Young property hunters are increasingly critical of developers who they believe are merely paying lip service to sustainability with the term “greenwash” coming into more common use!

So, with pressure from above and demand from below, it’s clear that developers have ample incentive to become more eco focused and progress is certainly being made, but there is still much more that can be done. Many developers will argue that if they can’t secure funding, they can’t build these homes and therein lies the biggest barrier to hitting emissions targets.

Whilst there is clear appetite to drive the green agenda from all parties involved there is still a very significant log jam in the system, namely the lack of available funding.

Development lenders are all too often governed by restrictive covenants that have been designed around houses being built in situ over several months, as opposed to being delivered off the back of a lorry and erected in days!

To break the log jam developers and lenders need to get ahead of the curve. This is a tough challenge and one which may well require more proactive government intervention.

Of course, government have been making moves in this area already, as demonstrated by the recently announced partnership between Homes England and UTB Bank.

More partnerships are in the pipeline, but it’s questionable whether the focus is strong enough in terms of promoting eco homes.

Perhaps it’s time for a more radical approach such as the game changing intervention inspired by COVID-19 of the Coronavirus Business Interruption Loan Scheme (CBILS).

What better time than now for a CBILS inspired ‘Eco Homes Loan Guarantee Scheme’ to galvanise a market, drive structural change in lending models and massively accelerate the drive towards our 2050 net zero carbon target?

Building vastly increased numbers of stylish, insulated, airtight eco homes and then filling them with a diverse range of technology to further reduce the carbon footprint is entirely possible.

Doing so on sites close to public transport links that pro-actively preserve biodiversity and nature and provide healthy amounts of green and communal space will build new communities that really enjoy where they live. Yes, in the short-term these new homes will be potentially more expensive but curbside appeal and long-term savings are already driving demand.