Welcome to ‘The ESG Crunch’ with Tom Allport, a Q&A focused on Sustainability & ESG in the Built Environment.
This Q&A series is an opportunity for our Lead ESG & Sustainability Consultant, Tom Allport to discuss all things Environmental, Social, and Governance (ESG) with some of the leading players and decision-makers in the space. Each week we will ask burning questions centered around the critical role of ESG in shaping business strategies, fostering sustainable innovation, and driving societal impact. This series will provide a platform to share insight into how these leaders are integrating ESG principles into their organisations, navigating challenges, and advice for aspiring entrepreneurs looking to join the ESG & Sustainability industry.
Savills Investment Management (Savills IM) is a real estate investment manager managing over €20 billion on behalf of a global institutional investor base. With an established presence across 13 countries, we offer a balanced global-local perspective and present a diverse range of compelling strategies across asset classes and geographical regions. Our strategies encompass Living, Industrial & Logistics, Debt and Natural Capital, catering to diverse investor requirements. ESG integration is intrinsic to our investment approach, addressing ESG factors holistically and communicating their importance to both our operations and investors.
How did you find yourself working in the ESG & Sustainability space?
My journey into the sustainability space was a natural evolution stemming from my passion for environmental matters and my educational background in architecture and engineering. Throughout my career, I have always been concerned about sustainable practices in architectural design. This led me to pursue postgraduate studies in Green Building technology and Urban Energy, complementing my architectural expertise. As a result I possess a well-rounded professional background, incorporating insights from architectural design, urban energy planning, sustainability consultancy, and environmental engineering. This diverse experience has positioned me well for my current role within the ESG space, an evolving sector having a great impact on our planet and communities.
What does your role at Savills IM entail?
In my capacity as the Net Zero Implementation Lead, I sit in the ESG team and work collaboratively with the different functions. My role encompasses spearheading and overseeing the development, coordination, and execution of sustainability initiatives geared towards achieving net zero emissions and driving restorative outcomes across both our assets under management and our corporate business. This requires me to influence, provide guidance, and offer consultation throughout the investment decision-making processes – as well as monitor progress while ensuring adherence to relevant standards and regulations. A fundamental part of my role is stakeholder engagement, whereby I deliver customised internal training, develop technical guidelines, collaborate with external industry groups, peer review technical works, and contribute to investors’ due diligence questionnaires and pitch presentations.
Could you share some insights into the ESG & Sustainability priorities at Savills IM?
Savills IM has made a firm commitment to halve our Scope 1, 2, and 3 global carbon emissions from the assets under our management (AuM) by 2030, measured against a 2019 baseline. Furthermore, we have set our sights on achieving net zero carbon emissions by 2040. Looking ahead to 2050, our ambition is to become a restorative business, dedicated to giving back to society and the planet more than we take. To achieve this, we have developed impact-focused strategies that can be scaled effectively as well as a ‘Net zero carbon pathway’ setting a clear net zero roadmap. Since Savills IM operates across many jurisdictions and asset classes, our global framework acts as a minimum standard for our funds and mandates to create their own tailored net zero pathway that aligns with Savills IM’s corporate ambitions. The pathway was initially published in 2022 with yearly progress updates planned in future. Across our AuM, the 2022 emissions data showed an 11% reduction compared to the previous year on a like for like basis.
With ESG being so broad across industry and so nuanced within Real Estate, what specific focus do you and your team have?
No one size fits all, so stakeholder engagement is essential. To uphold the principles of responsible investment, we actively collaborate with our investors, occupiers, and supply chain. Our efforts focus on three key areas: climate action, people, and nature. In terms of climate action, we are committed to reaching zero carbon emissions and finding innovative solutions for climate adaptation. Additionally, we aim to enable our clients’ prosperity by fostering thriving communities and empowering our employees. Finally, we are striving to embrace collaboration with nature to create resilient and environmentally friendly spaces.
Real estate is fundamentally about creating better places for people but as we are all aware, we cannot thrive without a thriving planet. Decarbonisation of building portfolios remains our biggest focus with the built environment contributing to more than 40% of global greenhouse gas emissions, and the real estate industry finds itself at a tipping point. We cannot manage what we do not measure; we are leveraging advanced technologies, including smart building automation systems, proptech and data analytics, to monitor, optimise, and manage our emission effectively.
What unique challenges and opportunities do you see with ESG in the UK compared to other global regions?
The UK has established itself as a mature player in this field. In fact, back in 2019, the UK became the first major economy to pass laws aimed at ending its contribution to global warming by 2050. The UK has demonstrated remarkable progress, achieving a 42% reduction in emissions while simultaneously growing its economy by 72% (Gov.uk, 2019). This success has been driven by placing clean growth at the core of the country’s modern Industrial Strategy. However, the current challenge lies in aligning governmental regulations with the net zero commitments made.
Recent push-back on these targets threatens to slow the momentum and puts the UK at risk of missing out on opportunities in sustainable investments. In terms of global standings, the UK maintains an advantage in certain areas such as social value and biodiversity. However, it is experiencing a decline in its market leadership, particularly in relation to decarbonisation. One key area for improvement is a strategy around retrofitting at scale, considering the substantial number of existing buildings that require action – and given that more than 80% of the buildings that will exist in 2050 already exist today.
Governments around the world are enacting stricter (but inconsistent) energy-efficiency standards, emissions reduction targets, and building codes that incentivise sustainable practices. The opportunity for other regions lies in leveraging the lessons learned from leading countries and cross-pollinating efforts globally and consistently. This collaboration and knowledge sharing can lead to significant advancements in the field of ESG.
Globally there is a skills talent gap in the ESG & Sustainability Real Estate sector, what skills are particularly important when developing and implementing the Savills IM ESG Strategy?
The ongoing evolution of ESG practices is causing disruption across various industries and job roles. In response to this transformation, there is a growing trend towards skills-based hiring practices, with a willingness to invest in upskilling new hires in specialised areas as needed for their roles. At our organization, we recognise the importance of this change and have made it a priority to provide training and upskilling opportunities for all employees in the realm of ESG. This includes mandatory learning modules on topics such as net zero carbon, greenwashing, nature-based solutions and regulatory requirements. Additionally, we develop reference materials to enhance knowledge sharing within the company and facilitate the integration of these learnings into day-to-day practices. With a growing ESG team of eight, we aim to bridge the talent gap and effectively drive our ESG strategy forward, contributing to sustainable and responsible real estate practices globally.
How have your client’s / investors ESG & Sustainability needs and priorities changed in the last 12-18 months?
It is not only regulators and government bodies that are interested in companies’ holistic impact on the world. Industry innovation, investors, and occupiers are increasingly driving demand for sustainability integration. In the market, institutional investors are particularly focused on funds that prioritise climate resilience and offer practical decarbonization pathways. There is also a growing emphasis on biodiversity and social factors, such as diversity and inclusion, affordability, community engagement, and health and wellbeing in real estate investments. This emphasis on sustainability is becoming a gateway to entry for companies seeking investment.
The Global Impact Investment Network estimates that USD 1.164 trillion is currently invested into impact products That said, global real estate is worth c. $379 trillion, with less than 1% invested currently into impact products, real estate needs to catch up. There is a significant psychological milestone for an industry still maturing and growing in sophistication. We are seeing more and more that capital is being directed towards impact strategies with very specific sustainable development outcomes such as natural capital, affordable homes and blue bonds.
What challenges and opportunities does Savills IM have with ESG & Sustainability?
One significant challenge is the proliferation of reporting standards, both voluntary and mandatory, which can be difficult to manage. To address this, we have started recommending clients shift their focus from real estate sustainability benchmarking towards producing high-quality, independently audited impact reporting. This approach ensures transparency and credibility in assessing the environmental and social impact of real estate investments.
Another challenge in the industry has been the perception of transition assets. Until recently, funds with assets requiring retrofitting were not considered as impactful, primarily due to disclosure regulations like SFDR (i.e., The Sustainable Finance Disclosure Regulation) that emphasised the sustainability of already “new and shiny” buildings. This has hindered the flow of capital into crucial transition activities such as retrofitting, which is essential for addressing environmental and social needs. However, it is important to recognise transition assets as presenting significant opportunities for impact and this needs to be cherished in the regulatory landscape. As countries strive to decarbonise residential properties and mitigate the effects of the climate crisis, affordable housing and natural capital emerge as promising areas for investment, addressing environmental challenges while also meeting social needs. This aligns with the growing global emphasis on sustainability and provides opportunities for long-term growth and positive impact within the industry.
How have you found the market in 2023?
The market for real estate investment in 2023 has shown resilience despite the challenges posed by the global economy. We are seeing a lot more legislation around nature, seeing mandatory reporting standards and voluntary reporting coming through strongly, and all these are market drivers. Investors are increasingly seeking assets with strong ESG profiles, recognising the long-term value and risk management benefits of sustainable investments.
Significant numbers of investors and occupiers now consider certain sustainability features as standard and are not willing to pay market price when they are absent from a building. This reflects the shift away from what is called ‘mono-capitalism’, focused solely on financial gains to a ‘multi-capitalism’ approach that values not only money but also environmental, social and governance issues.
Finally, what advice would you give to aspiring ESG & Sustainability talent in today’s market?
For aspiring sustainability professionals in today’s market, I would offer the following advice:
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