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10 Jun 2013
Whether you’re talking about governments or business everyone is focused on growth. The question is how to align economic expansion with emissions reduction? Historically these have been competing forces but now in the commercial property sector we can see a potentially perfect marriage. Professor Dr Uwe Krueger, the chief executive of Atkins, considers this challenging balancing act.
Former Mexican President Felipe Calderon recently told the World Economic Forum in Davos that a $14 trillion (£8.8 trillion) investment in green infrastructure and industrial practices was needed by 2030 to avoid catastrophic climate change. This would require a multi-dimensional strategy including major capital programmes such as new energy generation and low carbon transport systems. However, as we face these complex challenges we must be careful not to miss the obvious.
The business case for improving the sustainability characteristics of the existing commercial building stock is becoming compelling.
In the UK alone this sector accounts for 40 per cent of all emissions which could lead to a refurbishment project list worth £10 billion a year. In the US there have been estimates of a market worth around $17 billion (£11 billion) a year by 2015. This is an area promising a tidal wave of spending and a massive green growth boost.
However commercial property owners are not yet convinced that improving the sustainability of their stock is a good investment so it is up to us to demonstrate the business rationale.
The UK’s Royal Institute of Chartered Surveyors (RICS) is already preparing guidance on pricing climate change risks into rental and capital value assessments. They are reacting to a growing weight of evidence such as a study of 26,000 commercial buildings in New York which recently suggested Green rated buildings attracted eight per cent higher rents and 13 per cent higher selling prices. The reason is the market is starting to price in risks such as energy prices and flood potential, however I would argue these are not the only elements at work.
In the UK, the Energy Act 2011 opens the door from 2018 for laws that will mean any building rated below E on the Government’s energy performance scale cannot be rented or sold. This would affect 18 per cent of all commercial buildings in the UK according to the British Property Federation. There is also a growing weight of evidence around the positive impact that lower emission and well-design buildings can have on staff productivity. Taken together these motivating factors have already convinced corporate landlords such as Legal & General and the Crown Estate to develop refurbishment business cases.
We cannot forget Government either. Small steps such as making it compulsory for all UK commercial properties to display energy certificates rather than only those housing public sector bodies would help. Most of our clients tell us they see the value of this and if framed correctly it should be well received.
Germany and the US are showing leadership in this sector and as a result they are protecting capital assets and their economies from additional shocks. It also positions them well to transfer those skills to other markets. The UK can also compete because it has a strong skills base and the opportunity to build on that through the Green Deal’s extension to the commercial sector.
Ultimately, whether the motivation for improving the commercial building sector is driven by climate evolution, the demands of tenants or legislation this area has huge green growth potential. So what now?
The design and engineering sector must work harder to explain the business case as it is our role to properly articulate the risk of inaction. We can also come up with cost-effective and efficient design solutions that can cross international boundaries. This is not just about the private sector though as Green Growth requires a solid partnership with Government, with the development of legislative tipping points that move the needle from ‘pioneering’ to ‘must do’.
Prof Dr Uwe Krueger is the chief executive of Atkins. He has served as President of Cleantech Switzerland, a group providing sustainability advice to companies on behalf of the Swiss Federal Government. In addition he served as Senior Advisor for TPG Capital. Until September 2009 he was CEO of Oerlikon Group, a CHF4bn Swiss industrial conglomerate. He began his career at international strategy consulting firm A.T. Kearney, followed by several senior executive positions at Hochtief AG, including CEO of Central/Eastern Europe, and Chairman of Turner International. He lectures as an honorary professor of physics at the University of Frankfurt.
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