Real Estate Management
Sustainability Strategies in the Built Environment
5 min read
The built environment — our human-made surroundings including buildings and infrastructure — is by far the largest carbon store, accounting for approximately 40% of the UK's carbon emissions.
Due to the current regulatory environment, changing occupier demand and the impacted value of assets and investor confidence, the real estate sector is shifting its focus towards becoming more sustainable and to help reduce emissions.
Hugo Healing, Head of our Real Estate Practice spoke with Oliver Light, Director of Commercial Property at Accenture, to explore the diverse sustainability strategies, investment areas, stranded assets, the talent landscape and the core skills required for leadership success in the context of the rising ESG agenda in real estate.
Investment Strategies
“Real Estate Investment Trusts (REITs), the listed property companies on the UK stock market, are the forerunners of sustainable real estate investment and adopt a holistic and ambitious approach towards sustainability,” commented Oliver. With long-term securities and large sustainability teams, REITs invest significantly in decarbonisation efforts, communities and biodiversity conservation. Their proactive stance towards sustainability extends to leveraging nature and social value to create attractive communities within their investment portfolios and increase yields.
REITs often align their financial strategies with regulatory frameworks and ecological commitments, demonstrating thought leadership in sustainability.
Asset managers can be viewed as a hybrid of REITs and private equity organisations or opportunistic investors, who try to gain a competitive advantage by integrating sustainability into their investment strategies. With the aim of differentiating themselves from others, they tailor their sustainability initiatives to align with market opportunities. For instance, asset managers with logistics infrastructure expertise may support initiatives, such as solar innovation, to enhance the sustainability performance and profitability of a project.
Private equity firms usually approach sustainability in a different way, often driven by short-term investment horizons and stringent profitability mandates. Private equity firms prioritise actions that protect asset value — and safeguard against the potential risk of not being able to sell the asset — and generate a return on investment within a short time period.
Despite different reporting requirements, some private equity firms leverage sustainability as a value-enhancing proposition, albeit with a focus on immediate profitability.
Stranded Assets
Stranded assets are those which suffer a sudden loss of value or usability, normally commercial buildings requiring significant investment to bring them up to a standard of an investible asset. Oliver emphasised that, in response, real estate investors and developers alike are exploring strategies to unlock value in these assets and help alleviate some investment risk.
“For example, through the repurposing of office buildings into private residential developments, student housing or transforming often brownfield sites to meet the demand for data centres and industrial sites with sufficient renewable energy infrastructure.” These solutions can help investors realise marketable value by aligning sustainability credentials.
Sustainability Expertise & Talent Landscape
The talent spread within the built environment encompasses a diverse range of roles, spanning from engineers to biodiversity experts. Such expertise within the real estate ecosystem relies on a highly varied and dynamic talent pool with technical skill and strategic insight.
“REITs have large teams dedicated to sustainability that are very much relied on to drive responsible initiatives across diverse portfolios, whereas in the asset management space, there is an upward trend towards integrating sustainability across various roles, with an emphasis on technology-driven solutions and regulatory compliance,” commented Oliver.
Key Skills of Sustainability Leaders
The path towards sustainability leadership demands a blend of soft skills and technical know-how. Soft skills include negotiation, stakeholder management and strategic communication which are vitally important for aspiring leaders to hone.
The ability to navigate organisational hierarchies and drive agreement around environmentally conscious initiatives is also paramount in effecting meaningful change.
“Technical proficiency, particularly in retrofitting and through the implementation of capital expenditure and operating expenses projects to enhance assets, is essential for driving value-driven sustainability programmes”
Additionally, the integration of these initiatives into real estate accounting software and asset optimisation solutions illustrates the developing nature of sustainability leadership.
At Odgers Berndtson, we use our expertise to help organisations achieve their sustainability goals by identifying and attracting the best talent from across industries. Our work in this area has supported consultants, architects and developers in their executive search for sustainability-focused roles.
Our own carbon emission reduction targets have been approved by the Science Based Targets Initiative (SBTi), an independent organisation which evaluates companies’ carbon targets and provides accreditation to the targets.
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Get in touch. Follow the links below to discover more, or contact our dedicated leadership experts from your local Odgers Berndtson office here.
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