UK ESG Real Estate update: Winter 2024

A global approach to whole-life carbon

As the global community intensifies its efforts to achieve net-zero carbon emissions, the substantial role of the built environment in this endeavour is increasingly recognized. It is essential to understand that carbon emissions are not solely a concern during the construction phase; every stage of an asset's life cycle contributes to its overall carbon footprint. In response, the Whole Life Carbon Assessment has emerged as a pioneering methodology, launched by RICS in 2017 and designed to provide a consistent global approach for measuring this impact. The second edition of the WLCA, released in September 2023, broadens its scope to include a diverse range of built assets and infrastructure, incorporating fit-outs, retrofits, and refurbishments. This standardized tool enables stakeholders worldwide to accurately assess and compare carbon impacts, ensuring that environmental repercussions can be evaluated consistently across different locations.

The importance of a unified method for measuring carbon impact throughout an asset’s entire life cycle – encompassing embodied, operational, and user carbon – cannot be overstated. Embodied carbon accounts for emissions arising from raw material production through to decommissioning; operational carbon focuses on emissions generated during usage; while user carbon captures emissions from activities associated with the building's occupants. All types of built assets – from commercial properties to residential developments – can benefit from a WLCA. Notably, it also applies to retrofitting and refurbishment projects, providing critical insights for investors and developers considering whether to undertake total redevelopment or enhancements of existing structures.

While some local authorities require a WLCA for larger developments as part of a planning application, many applicants choose to submit these assessments voluntarily to strengthen their sustainability strategies. The optimal time for conducting such assessments is during the initial design phase, with updates provided following construction completion or when evaluating existing buildings for potential improvements. The advantages are numerous: stakeholders gain insights into energy efficiencies that could mitigate initial build impacts; they receive consistent data that informs investment decisions; and they are encouraged toward sustainable practices. Ultimately, the second edition of the WLCA offers a robust framework poised to enhance energy efficiency across industries as we collectively strive toward a more sustainable future.

This is a summary (produced with the assistance of ELTEMATE CRAIG) of an article that previously appeared in EGi.

Rooftop solar installation - guiding landlords and tenants

The government’s September 2024 update on energy trends revealed that in the first two quarters of 2024, solar photovoltaics – or solar panels – represented over 80% of added renewable energy capacity in the UK.  While we might associate solar panels with homes, businesses are also turning to renewable alternatives to power their properties.  Doing so in the context of commercial leases can be complicated and many landlords, tenants and agents have little experience of these deals.  The parties need to consider a multitude of issues once it has been decided who will install the array including the owner's return on investment, who has the ongoing responsibility for the roof, who controls the airspace above, the power generation capacity as well as how to deal with any surplus generation.

The parties will need to implement a contractual arrangement for the power cost to be recovered but in a way that must not adversely affect the value or alienability of their respective interests.  If the landlord installs the array, it may be necessary to vary the occupational lease and if the tenant does so then a bespoke licence for alterations may be required.  Other generation infrastructure could also be necessary such as substations, connection cabling and metering, but the arrangements open a number of ancillary benefits such as electric vehicle charging and battery storage.

To help guide landlords and tenants, Paul Stones and Chloe Harrington in the UK Real Estate Team have prepared a helpful checklist of issues to consider when the parties are agreeing terms for rooftop solar installation, and the team have also developed a bank of precedent documents.  Paul has also delved further into the challenges of rooftop solar in this recent article. Please do get in touch if you would like to find out more.

The Autumn Budget: Net Zero and Clean Energy

The Autumn Budget contained several announcements on net zero and clean energy.  Below are two of the key changes which could impact the UK real estate industry:

• Together with the energy regulator and a new National Energy System Operator (NESO), the government will develop a robust grid connection process so that development projects can be connected to the grid more promptly, with the intention of delivering growth in clean energy industries and other growth sectors like AI, data centres, and manufacturing.
• The government has committed to providing over £200 million in 2025-2026 to accelerate the electric vehicle charge points rollout. There are currently over 70,000 public charge points across the country and, given the government’s target for all new cars to be zero emission by 2035, the demand for chargers, and places to install them, is set to grow.

ESG and the proposed changes to the National Planning Policy Framework ("NPPF")

The government's consultation on amendments to the NPPF closed on 24  September. As we await the results, what changes could we see in relation to ESG?

Reforms to onshore wind and solar

First with the "E":  Ed Miliband, the new Secretary of State for Energy Security and Net Zero, wasted no time in removing the de facto ban on onshore wind development in England, issuing an updated policy statement only days after the July election.  The consultation further considers whether on-shore wind proposals should be reintegrated into the NSIP regime and, if they are, whether the threshold at which onshore wind and solar panels become NSIP developments should be increased so that more applications for these projects are decided by local planning authorities.

Support for low carbon development

The proposed changes also set out that local planning authorities should support applications for all forms of renewable and low carbon development and give significant weight to a planning application's "contribution to renewable energy generation and a net zero future". More generally, climate change is clearly a top concern of the new government and the consultation sought views on how policy can be strengthened to aid mitigation and adaptation as well as managing flood risk.

Improving water supply resilience

There is a whole section in the consultation on supporting water resilience and closing the "growing gap in our water supplies" with the government hoping to promote faster delivery, "and improve water efficiency". To do this, the government proposes to expand the range of water infrastructure NSIPs to include projects designed to keep water in reserve to be supplied during droughts, infrastructure constructed, maintained or operated by a third party on behalf of a water undertaker, water recycling facilities and infrastructure to transfer treated drinking water.

Promoting diverse communities

Turning to the "S" of ESG, the government has boldly claimed that they will deliver “the biggest increase in social and affordable housebuilding in a generation”, and the consultation sought views on a number of proposed changes associated with affordable housing. Key proposals include removing the current requirement for a minimum 10% of homes on major sites being affordable homes, as well as the 25% requirement of affordable housing being for "First Homes". Local planning authorities would be expected to consider and identify the right mix and tenure of housing, but with express reference to social rent homes, and have regard for a new policy to be added to the NPPF that promotes the benefits of mixed tenure sites to create diverse communities.

A return to strategic planning

And finally, looking at the “G”, the government has made clear that alongside its intention to both deepen and widen the process for devolution and the associated governance structures, they have set an objective to introduce “ a universal system of strategic planning across England” within the next five years.  While proposed changes to the NPPF would support this, it is acknowledged that the introduction of mandatory mechanisms for strategic planning will require new legislation. We will keep you updated as this progresses.

Authored by Jackie Newstead, Christopher Somorjay, Benjamin Willis, Hannah Quarterman, Louise Cadman, Sara Ahmed, and Rosie Shields.