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Is the built environment putting profit over principles?

RICS’ 2023 Sustainability Report shows demand for green buildings is slowing and the initial cost of sustainable property is commonly cited as a barrier to investment

Author:

  • Mark Williams

11 January 2024

Looking up at green glass cylinders hanging from the glass ceiling

The built environment’s “focus on profit over principles is increasingly out-of-step with the commitments of other sectors, governments and societies,” says RICS President Tina Paillet, in a foreword to RICS’ 2023 Sustainability Report that pulls no punches.

Paillet says the report “is a wake-up call to our industry” and “if we do not volunteer to do more and faster, we may find ourselves forced – with less choice about the steps we take.” These comments are made in response to the finding that cost and return on investment (ROI) are among the principal barriers to change when it comes to achieving net zero by 2050.

However, she also draws attention to the fact that green building certifications such as BREEAM continue to be highly valued and demand for greener buildings among investors and occupiers is rising in every world region that was surveyed.

Demand for sustainable property

 

The graph above shows the net balance of increased demand for green buildings across the regions. “In 2023, the index posted a net balance of 44%, signalling an increase in occupier and investor demand for climate-adapted real estate,” says Kisa Zehra, author of the report and global sustainability lead at RICS.

Yet there is a large disparity between the global regions. The increased demand is highest in Europe, at 73%, and lowest in the Americas at 26%. And while an overall increase in demand is undoubtedly positive, the 44% net balance of global demand is down on the two previous years – it was 55% in 2021 and 48% in 2022. Demand is slowing.

“Focus on profit over principles is increasingly out-of-step with the commitments of other sectors, governments and societies” Tina Paillet FRICS, RICS President

Barriers to green investment

As highlighted by Paillet’s foreword to the Sustainability Report, initial cost is seen as the biggest barrier to investing in green or sustainable buildings. Nearly 57% of respondents cited this as a “principal barrier” when asked to choose up to three reasons for not acquiring green buildings.

 

The second biggest barrier was ‘Lack of evidence of a return on investment or uncertainty/lack of data around the benefits of acquiring green buildings’, which was cited by 38% of respondents.

At the other end of the scale, ‘lack of interest from stakeholders/partners’ was only chosen by 10% of respondents globally (and only 5% in Europe), which suggests the desire for greener buildings is certainly there.

Elsewhere in the report is the encouraging statistic that 94% of people believe sustainability features raise the rental and capital value of a property. This shows that while there is an initial short-term cost to investing in greener buildings, there is a financial gain in the long-term.

Which raises the question: what kind of data on the value of acquiring greener buildings do investors need to see to be convinced? Zehra says: “Data shows there is a ‘green premium’ linked to green or sustainable buildings. The 2022 report also showed that a substantial share of professionals globally saw the presence of a ‘brown discount’ linked to buildings that were not classed as sustainable. The growth of the green premium/brown discount concept could help persuade investors to acquire sustainable buildings.”

Reusable building materials

Half of respondents globally said that demand for reusable or recyclable materials has ‘risen modestly’ or ‘risen significantly’ and a further 48% said there had been no change in demand – meaning very few people reported seeing a fall in demand.

This is part of what Paillet refers to as “joined-up action to cut whole life emissions and embed sustainability from the first designs to the final operations.”

Paillet adds that the increased interest in reusable building materials “suggests that pioneering professionals are taking steps to think through the building lifecycle and are moving towards a circular economy.

“With other RICS surveys flagging concerns over materials shortages in some regions, there is a real opportunity to reduce waste, increase reuse and recycling, and make more efficient use of available materials to the benefit of the bottom line as much as the environment,” says Paillet.

94% believe sustainability features raise the rental and capital value of a property

 

A continuing theme from the 2022 Sustainability Report is that progress remains slow on measuring and mitigating carbon emissions. A large number of construction professionals say that they do no measure carbon emissions on projects.

“It seems that what the industry needs is a ‘decarbonisation toolkit’ with global standards, data, tools and guidance on measuring carbon,” says Zehra. “This would provide some direction for the sector and help to enable the measurement and reporting of carbon to become the norm in the construction lifecycle.

“There already has been significant progress in this area. The RICS Whole Life Carbon Assessment can help professionals estimate and reduce emissions over the lifecycle of a building.”

“Data shows there is a ‘green premium’ linked to green or sustainable buildings” Kisa Zehra, global sustainability lead at RICS

Ending on a hopeful note in its conclusion, the report states that decarbonisation remains the top priority for the sector and adoption of global standards could have a significant impact.

The RICS Sustainability Report 2023 was created with the responses of 4,600 professionals working in 36 countries.

 

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