Growing environmental regulation and legislation
The impact on property decision making
Environmental regulation is increasing, and the UK Government has set out a framework that requires all commercial non-domestic buildings to achieve a minimum energy performance certificate (EPC) rating of B by 2030.
However, this does not seem to be a deal breaker for businesses considering moving into new space. When asked if they would enter a lease that expires in 2030 or beyond for a property with an EPC rating below B, only 5% said nothing would encourage them to do so. By contrast 48% of businesses said they would move if the building was in a better location for their business and 48% would if it was at a more attractive rental level. 36% said they would if the landlord agreed to carry out upgrade works at their cost.
Naively, business attitudes seem to be that poor EPCs are not their problem: that they are either too far in the future to be worrying about now, or they see them as a problem for their landlord to take responsibility for. Whatever the reason, location and cost are more important criteria than a poor EPC rating.
Interestingly, almost one fifth (18%) of respondents said they did not think the Government would implement the proposed legislation in any case.
However, this does not seem to be a deal breaker for businesses considering moving into new space. When asked if they would enter a lease that expires in 2030 or beyond for a property with an EPC rating below B, only 5% said nothing would encourage them to do so. By contrast 48% of businesses said they would move if the building was in a better location for their business and 48% would if it was at a more attractive rental level. 36% said they would if the landlord agreed to carry out upgrade works at their cost.
Naively, business attitudes seem to be that poor EPCs are not their problem: that they are either too far in the future to be worrying about now, or they see them as a problem for their landlord to take responsibility for. Whatever the reason, location and cost are more important criteria than a poor EPC rating.
Interestingly, almost one fifth (18%) of respondents said they did not think the Government would implement the proposed legislation in any case.
What, if anything, would encourage your organisation to enter into a lease that expires in 2030 or beyond for a property with an EPC rating below B? (Select all that apply)
When it comes to other environment regulation, businesses do appear more aware and compliant. Many firms, especially large ones, are now regulated in reporting their carbon emissions.
What emissions reporting regulations, if any, is your organisation subject to? (Select all that apply)
Only 14% said they were not subject to any emissions reporting regulation at all, and 19% are B Corp certified which is a significant percentage, given this is voluntary.
Businesses are now calculating and reporting their emissions policies (Scope 1, 2, and 3), with larger firms leading the way. 53% of businesses said they reported on direct emissions (Scope 1), a high percentage given how much work is involved in working out emissions from all sources owned or controlled, including looking at energy efficiency, energy audits, invoices, company vehicles etc. 60% said they report on their own indirect emissions (Scope 2), perhaps the easiest and quickest change to make since this can be improved by simply changing to a more energy efficient supplier. 31% said they report on Scope 3, indirect emissions created by their value chain.
Significant numbers are also reporting voluntarily. 46% revealed they reported on Scope 1, 47% on Scope 2 and 29% on Scope 3 on a voluntary basis.
Of those organisations that voluntarily report on Scope 3 emissions, the main reason for doing so is to reduce environmental impact (54%), however this was closely followed by a consideration of brand value (50%) and meeting client expectations (49%). 34% also said they did it because they were anticipating this would be mandatory in the future.
For certain industries meeting client expectations is even more important in the decision-making process than reducing their environmental impact, most notably in finance. Are businesses taking these actions primarily to support their business objectives rather than out of concern for their impact on the planet?
What, if anything, are the main reasons your organisation voluntarily reports its emissions? (Select up to 3)
Which, if any, of the following emissions does your organisation calculate and report on? (Select all that apply)
Breaches of the legislation could be costly, and sanctions for breaches include substantial fines as well as preclusion from public contracts. Whilst Germany is, at present, the only country in the EU to pass such legislation, last year the European Commission proposed a new Directive on Corporate Sustainability Due Diligence. If the Directive is adopted, other EU countries may put in place similar laws. It is conceivable (if not inevitable) that the UK will follow suit.
Carbon reduction and green finance is now playing an increasing role in a company’s financial strategy.
Is your organisation currently engaging with or considering issues of embodied carbon in your property strategy?
More than a third (35%) of businesses are currently factoring the issue of embodied carbon into their property strategy, with a further 45% saying they are considering this for the future. This is an encouraging trend and reflects a growing recognition of the impact of embodied carbon. It also highlights understanding that as operational carbon is reduced by the decarbonisation of the grid, companies will have to shift their focus to a reduction of embodied carbon.
Given the likelihood of further regulation, businesses that have not yet started tackling the issue of embodied carbon should be thinking about doing so now. A planned approach would enable businesses to manage costs to a far greater extent than if they had to act reactively. Such actions could help boost a business’s KPIs, making them more attractive to do business with and opening up favourable finance options.
More than a third (35%) of businesses are currently factoring the issue of embodied carbon into their property strategy, with a further 45% saying they are considering this for the future. This is an encouraging trend and reflects a growing recognition of the impact of embodied carbon. It also highlights understanding that as operational carbon is reduced by the decarbonisation of the grid, companies will have to shift their focus to a reduction of embodied carbon.
Given the likelihood of further regulation, businesses that have not yet started tackling the issue of embodied carbon should be thinking about doing so now. A planned approach would enable businesses to manage costs to a far greater extent than if they had to act reactively. Such actions could help boost a business’s KPIs, making them more attractive to do business with and opening up favourable finance options.
An impressive 35% of businesses said they are already obtaining ESG related financing or green loans, with another 43% saying they would consider this in the future. And 37% of businesses also said they are currently obtaining ESG/Green financing over standard debt financing with 41% saying they would be considering in the future.
The appetite for green financing therefore appears to be growing.
Given this type of financing is dependent on achieving certain environmental KPIs, it is essential the company’s property enables it to hit and sustain these measures.
This highlights even more the necessity for companies to align their employment, property, financial, and growth strategies.
An impressive 35% of businesses said they are already obtaining ESG related financing or green loans, with another 43% saying they would consider this in the future. And 37% of businesses also said they are currently obtaining ESG/Green financing over standard debt financing with 41% saying they would be considering in the future.
The appetite for green financing therefore appears to be growing.
Given this type of financing is dependent on achieving certain environmental KPIs, it is essential the company’s property enables it to hit and sustain these measures.
This highlights even more the necessity for companies to align their employment, property, financial, and growth strategies.
