BOB 3: Ethical + Fiscal = Inevitable

A group of carefully selected building industry leaders recently gathered for the latest Breakfast on Black held at The Fire Station in Waterloo.  After a hearty breakfast guests were treated to an informative and challenging presentation from Richard Francis, Director of Sustainability at Gardiner and Theobald. 



Richard Francis
Director of Sustainability
Gardiner and Theobald



Richard’s presentation “Ethical + Fiscal = Inevitable” was delivered with his trademark combination of transatlantic easy style and powerful analysis of the challenges facing the construction industry.  His presentation was split into four sections coving both the immediate drivers for change along with those that he has identified as looming just beyond the horizon.  He neatly summarises the journey ahead as the progression from beauty pageant to talent show, illustrating the need for evidence based decision making along with more intelligent procurement.

Drivers

Richard started by identifying the proliferation in regulations that are being developed to try to achieve more sustainable outcomes.  He made the point that when looked at as a whole there are some key facts that can be identified; that the direction of regulation is to encourage disclosure which leads to transparency and that transparency is essential to allow a market to be created.

The market that is emerging is characterised by wider choice, with smarter occupiers demanding shorter leases and more flexibility.  He posed the question as to why the property industry insists on using outdated names like “landlord” and “tenant” rather than “supplier” and “customer”; questioning if changing names would help to encourage improved quality and higher standards of aftercare.

He reviewed the current state of the market and identified that there has been a dramatic growth in the amount of available second hand property on the market which has increased from about 3 million square feet in 2000 to over 13 million square feet by 2011.

When investors, developers and occupiers are asked to identify the drivers that they believe will lead to property becoming obsolete in the next 5 years, they all identify energy efficiency as either the first or second most likely cause.

Change

Richard characterised the market as in a state of rapid and multifaceted change, with buildings increasingly being judged on how they perform, with savvy occupiers scrutinising certifications like BREEAM and LEED assessments and demanding evidence that actual performance in use is as predicted before they are willing to sign-up.  He sees a growing trend that is moving away from simply quantifying cost to growing importance placed on assessing value.

He illustrated this trend with the fact that 10 years ago it was hard to define, measure or value green buildings, but that over this period specialist knowledge relating to sustainability has become more generally accepted and that this has lead to a transformation of the market as a whole.  He illustrated this point with a quote from Jones Lang Lasalle 2011 Perspectives on Sustainability report:

“Five years ago, a corporate real estate executive might have thought sustainability was a costly way to make the company look good to employees. Two years ago, that same executive probably focused on energy management as a way to save money in the short run. Today, he or she may be pursuing green strategies that enhance employee productivity”.

For most companies, property costs are normally amoungst their top three highest costs, along with those associated with employing their personnel.  In striving for value it is essential that the effect that building design has on occupant behaviour is more deeply understood.  Richard made the powerful point that people are the crucial, but until now overlooked, economic component of sustainability.

He reinforced this with the 90% rule; namely that 90% of most organisations environmental impacts come from property occupation, that 90% of most individuals working life is spent indoors and that 90% of whole life costs can be directly attributed to their personnel.

When senior executives are asked about the relationship between productivity and sustainability over ²/₃ of respondents expect more sustainable buildings to facilitate their people being more productive, and that these productivity gains represent the largest potential economic benefit that sustainable buildings can deliver.

Economics

While Richard acknowledged that the notion of sustainable buildings commanding a premium is difficult to prove, there is he contends a growing body of evidence that this may be the case.  He presented data drawn for the UK, Europe and the US which quantified this “green premium” at somewhere between 3 and 8%.  He also explored the notion of a “brown discount” where poorly performing stock is financially penalised by the market; demonstrating that increased energy costs could account for as much as £3.00 per square foot.

He posed the question if this approach were applied to occupant productivity what would that do to the value of the best and worst performing examples?  As CBRE identified in their 2011 publication "Sustainability the Great Differentiator", a 10% increase in performance could easily equate to added values equilivalant in many cases to an organisations total rent.  Richard went on to highlight that total staffing costs equate to 10 times total property costs (design, build, operate and maintain) for a building with a typical 30 year lifecycle.

Next Steps

Richard concluded his presentation with his take on what the future may look like. He challenged the way buildings are valued, based on historic performance and taking little or no account of performance in use or wider sustainability issues.  He expressed his opinion that due diligence processes are being adopted by many larger occupiers to properly assess buildings and that this approach provide a good indication of the likely direction of travel of the industry as a whole.

He explored the subliminal messages that property performance conveys about brands and how this association is likely to drive increasing demands for higher performing buildings that reflect wider brand values.  He asked why should customers trust companies who cannot manage their assets and people well and by implication why should they be trusted with our resources?

In thinking about what a brands building says about the way they value their people Richard made the connection between a commitment to sustainability and the ability to build loyalty, engagement, efficiency and pride among its workforce.  As Richard put it:

“if you think it is just about the building, you are missing a giant opportunity”

He finished off his inspirational presentation with a checklist of key actions that should be adopted to ensure more sustainable outcomes:

•         Recognise the importance of performance

•         Understand the limitations of existing standards

•         Think beyond compliance

•         Understand how buildings enhance mission

•         Realise that items with the greatest benefits often have the least costs

•         Anticipate change by reverting to principles

I am left thinking that there is a serious disconnect in the property industry that is directly created in the way that buildings are viewed primarily as investment vehicles and not great place for people to inhabit.

You would have thought that risk averse property investment funds would attach enhanced value to lower risk, more sustainable buildings, however to date this has not been the case.  Similarly, occupiers must demand buildings that can demonstrate that they have been conceived specifically to enhance occupant performance.  Finally, developers must select design teams who can demonstrate that they approach their work from a “user centred” philosophical perspective. 

Breakfast on Black 2: It’s All About the People Stupid!

The latest in our Breakfast on Black events took place last Friday, attended by an invited group of industry leaders with a passion for sustainable development.  Our speaker this time was Miles Keeping, Head of Responsible Property Investment at Drivers Jonas Deloitte.  Miles’ presentation focused on where value is created in sustainable development, focusing on the human factors and the role that buildings have on the productivity of their inhabitants.



Miles Keeping
Head of Responsible Property Investment
Drivers Jonas Deloitte



Miles kicked of by reviewing the plethora of legislation that has been passed to encourage energy savings in pursuit of the government’s target of an 80% reduction in carbon dioxide emissions by 2050.  Buildings, both new and existing are a key sector as they currently account for about a third of the UK’s total emissions, but as Miles pointed out there have been some very mixed messages coming from the coalition government around encouraging sustainable development.  He highlighted the weakening of the stance taken by HM Treasury, including the heavy cuts made to feed-in tariff’s and blocking the roll-out of Display Energy Certificates(DEC’s).  If as promised this is to be the most sustainable government ever then they have a pretty strange way of showing it!

He went on to explore occupier’s attitudes to sustainability, identifying that most large companies report on sustainability and that this has historically been driven by a range of different motives including:

1                    Increased regulation

2                    Stakeholder pressure

3                    Brand strength

4                    Cost savings

5                    Reporting and disclosure

6                    Business continuity

In Miles’ opinion one of the most powerful drivers for occupiers to choose sustainable buildings is risk mitigation, whether that is from increasing energy cost, impact upon their brands from undesirable media coverage, or direct threats to continuity of trade caused by the impacts of climate change.

He also identified a perceived link between buildings that fall into this category and increased productivity, but acknowledged that the evidence required to substantiate this claim is not yet available.  I find this surprising, as there is research dating back to the 1990’s undertaken at Cardiff University which quantified a 16% reduction in absenteeism in low energy buildings when compared to air conditioned examples in similar locations.  This is an area where our industry needs to undertake urgent research if we are to be able to prove the business case for sustainable development.

Miles showed an interesting diagram showing the different factors of sustainable design, starting with location as the most important factor and moving out to water, waste and energy efficiency.  For me what was most telling about this diagram was that if you discount location as often being predetermined, then the most important factors are design quality, occupier satisfaction, spatial efficiency, flexibility and adaptability.  These are all architectural concerns and they have the largest impact on the sustainability of the completed building.  This highlights the critical importance of user centred design and the significant but often poorly addressed issues around the relationship between people who occupy buildings and the design philosophy that informs their creation.



Diagram of the factors that influence
 sustainable design



There is some strong evidence produced by the British Council of Offices (BCO) which demonstrates that occupiers see factors including energy performance and associated costs as factors which will be of growing importance over the next 10-20 years.  In reviewing this data, Miles also identified that this study showed that low or zero carbon buildings will be areas to experience significant growth.  What is most interesting is that there is no mention of the effects that building design has on the productivity of occupants.  Is this because occupiers do not see this as relevant, or as I would suggest, that they simply were not asked?

What is clear, is that if tenants prefer sustainable buildings, then these buildings are de-risked, making them safer investments and potentially worth more.  The perception in the market, is that sustainable buildings offer greater resilience, are more effective and can offer organisations a competitive advantage.  There is a growing belief that there may be a “green premium” and that this may also accelerate the rate of obsolescence of older, poorer performing stock.  In combination these two factors may have a dramatic affect as investors move away from the old towards the new.  Miles highlighted this trend with research from The Netherlands on the value of energy labels in the European office market that shows a rapid divergence between the value of green index and non-green index buildings.

In conclusion Miles stated that there is increasingly compelling evidence to support a value shift in favour of more sustainable buildings and that this is associated with a perceived increase in risk associated with older, poorly performing stock.  He posed the question “when will productivity become a valuation issue” and stated that there is still a lack of reliable data to prove the link between building design and productivity and that this is a real problem.  I was left with the feeling that so far the industry has delivered only minor energy improvements and that these have been achieved by increasing cost.  The crucial next phase is that we need to demonstrate how sustainability adds real and enduring value and this is all about the productivity of the people who occupy our buildings; or put another way, it is all about the people, stupid!

Eco Porn!

Today we hosted the first of our Breakfast on Black sustainability briefings.  The purpose of the event was to expose the misleading claims that dominate the debate and to identify routes that we as an industry can adopt to address the real issues that we face.  As it said in the invite:

“Slapping a trendy buzz word on the end of your latest project name, or dripping a thinly veiled layer of “green jewellery” over it in an attempt to make it appear more attractive, is not the answer to sustainable development.  It’s a quick fix.  A one night stand.  It only highlights the cheap and dirty side of susta-inability”!

An exclusive group of carefully selected guests enjoyed a good breakfast before hearing Professor Doug King give a passionate and incisive critique of the state of sustainable design with the UK construction industry.



Professor Doug King



Doug pulled no punches as he set out the scale of the challenge that we face; illustrating how the widely predicted increase of 4 degrees centigrade in global temperatures, will render vast areas of the planet from southern Argentina to the south of France uninhabitable.

He compared the improvements in energy efficiency that have been achieved in the car industry, where the most inefficient car is five time less efficient than the best in class; and then made a similar comparison with buildings, identifying a factor of seven difference.  When this is considered alongside the fact that buildings account for almost half of the UK’s CO² emissions, while transportation in total only accounts for just over a quarter, the need for the construction industry to make a step change in the products that we deliver to society becomes dramatically apparent.

He then went on to explore the commitments that our government have made to cut UK emissions, first by 34% of 1990 levels by 2020 and then by 80% by 2050.  To achieve these goals he argued that we either need to completely rethink the way we design buildings to achieve a step change improvement in performance, or accept recession levels of economic activity and associated energy use, for the next 38 years.

Doug concluded his dynamic and challenging presentation by busting some of the myths, lies and frankly bullshit that have been used by our industry to apply eco-bling to projects that otherwise represent a business as usual approach, while making exaggerated claims to the contrary.  He took great delight in exposing the lies used to justify wind turbines in inappropriate urban ares, PV installations that are overshadowed by surrounding buildings and air conditioning units that have been rebranded as air source heat pumps.

Doug concluded with a good kicking for architects, who specify solar shading on north facing elevations where it is not only pointless, but actually increase energy consumption by reducing daylighting, before concluding his talk with an image of The Palestra Building, with its over glazed façade and token windmills; a perfect example of eco-bling?  He ended his presentation by making the point that over the last 15 years the most economic buildings, both in terms of construction and operational cost have ultimately proved to be the most sustainable.

There followed a wide ranging and intelligent series of questions from the audience:

Does slavishly following environmental performance benchmarking procedures like BREEAM, LEED and SKA increase the chances of an over-emphasis on active system above more effective and economically sustainable passive envelope measures?

Does intrinsic value emanate from the economic and social aspects of a project, rather than more subjective, emotional environmental arguments?

The session concluded with an acknowledgement of the urgent need for expert, repeat clients, to up their game and make commissioning selections based on performance characteristic rather than simply buying a sexy but ultimately vacuous iconic image.

All in all a thoroughly provocative event that provided much food for thought; along with a full English; what better way to start a Friday morning?