Reaching net zero by strategic asset management

In the UK, commercial organisations' net-zero strategies often form part of the overall corporate vision. Meanwhile, as of February 2021, 74% of UK councils and many housing associations had declared a climate emergency.

Yet over the course of the past year, my employer Baily Garner found that applications to fund residential retrofitting of energy efficient measures expose the poor quality of data held by organisations on the energy performance of carbon emissions associated with their stock. These findings reached a peak when submissions were due for the first round of the Social Housing Decarbonisation Fund (SHDF) bidding process.

Historically, there has been an overreliance from social landlords on funding and a reactive approach to asset management. In SHDF, funding applications were based on untested assumptions made by social landlords, that meant a high dropout risk for retrofit where occupants were not consulted as a part of any programme and delays in implementing asset management programmes, as data had to be validated.

The push for retrofit comes at a time when the cost of retrospective fire safety works to apartment blocks following the Grenfell Tower disaster is still being addressed by social housing providers. The overall cost burden is now significantly increased by the policy requirement for net-zero carbon.

The UK's independent Climate Change Committee (CCC) has said that to achieve net-zero, the UK's building stock needs to be almost completely decarbonised by 2050. It has also recommended that all buildings achieve an energy performance certificate rating of C over the next ten to 15 years.

This has created a trifecta of requirements that have become a particular challenge for asset managers: safety, quality of workmanship (avoiding a race to the bottom), and net-zero carbon. The latter effectively becomes another plate for the asset manager to keep spinning in their financial forecasting.

Costs are averaging around £70,000 per dwelling at the time of writing. Poor strategy has often meant a failure to exploit economies of scale, and the situation has been exacerbated by increased labour and material costs due to the pandemic, Brexit, and further supply chain issues.

These macroeconomic factors also mean that, although costs should decrease as retrofitting is carried out at scale, they are not likely to fall to the levels previously expected. Without a fundamental shift in thinking – such as acceptable off-site solutions (prefabricated insulation systems, crane-in building services modules) or mass, fabric-first retrofit – economies of scale are unlikely to materialise quickly.

There is currently a lot of conversation around a whole-house approach, inclusive of services and renewables.

However, this is not a financially sustainable way to retrofit every property. A strategy for delivery of retrofit upgrades cannot be feasibly compiled through assumptions that are often either inconsistent or invalid, accordingly adequate condition data is paramount to strategy.

Given that PAS 2035 requires each home to be assessed on an individual basis, this uniform rejection of retrofitting proposals by planning departments often gives no consideration to the objectives for retrofit in each case.

Indeed, this response conflicts with the drive for net zero from both industry and government, putting asset managers in an untenable position: there is no way of adequately planning works based on strategic objectives if there is such a level of uncertainty surrounding the planning authorities' disconnection from the strategy on achieving net-zero. Early engagement will mitigate this; however, a lack of engagement between social landlords and planning departments – who are often the same organisation – will not.

There has been an average refusal rate of around 40% by occupants across all retrofit projects. We can only resolve this by explaining clearly what our plans are. But while the PAS 2035 framework calls for early engagement, it doesn't necessarily provide the tools required for a diverse range of occupants; resident engagement strategies, a clear point of contact and a clear process map to follow are some of the items that could improve this position.

This means services components can be replaced once they are no longer useful. Although on face value this appears to be a counter-intuitive approach, the embodied carbon in the manufacture and transport of low-energy systems – combined with the embodied carbon of a gas boiler that will be disposed of at only a few years old – is higher than the carbon used in gas combustion for that gas boiler. When the existing boiler reaches the end of its natural life, there may be viable alternatives, such as better performing air-source heat pumps, infrared heaters or hydrogen combustion boilers – if supply becomes widely available. There may even be an alternative that nobody has yet devised.

At a high level, we need to take an approach according to property archetype, to ensure consistency across dwelling types. This would enable the asset manager to provide a clear strategy on difficult retrofits, which in turn could become a revenue stream that funds retrofit through disposal or regeneration.

Heritage, high-value properties occupied by social residents in fuel poverty would likely be prohibited from retrofit due to their conservation status. Although selling such properties would simply shift the responsibility elsewhere, it could at least provide a revenue stream to solve funding problems where retrofitting is possible.

This would encompass a larger coordinated strategy including disposal, redevelopment, medium-term fabric-first plans and whole-house retrofitting. Disposal and redevelopment will not always be the answer, though, as these may privilege monetary over social value, a position contrary to the vision of social landlords.

We work with a number of organisations that include engagement strategies in their programming. Clarion's head of asset management Paul Norman and his team have developed an engagement framework as part of their long-term strategy, for instance.

This framework identifies the activities, engagement points and desired experience at different phases, such as before works and during monitoring. Having a framework in place for communication ensures residents are informed and enables meaningful discussion around the aims of the retrofit and the practical benefits. This in turn helps the resident become an advocate for the process, thanks to the good experience and trust developed.

Another point to consider is whether the retrofit of homes should be optional. If local and national government are serious about the declaration of climate emergency, and the UK's homes account for 17% of the country's total carbon emissions, there is an argument that refusal should not be an option.

The quality of data informs the accuracy of the programmed works, and is therefore a sound basis to engage with stakeholders; there is an opportunity to explain the strategy and understand the objectives of each party, leaving good time to establish desired outcomes.

There is no single approach to retrofit or asset management. So long as the plan is based on data, coordinated common goals and engagement, the strategy can start to be structured.