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Dissertation 2010a current attitudes towards sustainability

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Dissertation 2010a current attitudes towards sustainability

  1. 1. Current Attitudes Towards Sustainabilityand its Potential to Impact upon Property Portfolio Values Within the UK SID- Removed – BSc (Hons) Building Surveying
  2. 2. AcknowledgementsThe author of this research work would like to thank the following for theirassistance and input towards the completion of this work:John Bennett BSc (Hons), FRICS – Head of Business Planning and Resources with the Valuation Office AgencyTatiana Bosteels Head of Responsible Property Investment with Hermes Real Estate Investment Management Ltd.James Clifton-Brown Chief Investment Officer UK with CB Richard Ellis InvestorsDonna Harris Director of Legal Services (Property) with AVIVASyed Jamalullail Sustainable Investment Team Analyst with F&C InvestmentsKarina Litvack BA (Hons), MBA – Head of Governance and Sustainable Investment with F&C InvestmentsEsme Lowe Partner: Property Fund Team with Climate Change CapitalLord Mandelson and Claire Brialey (Sustainable Buildings Division) Department Communities and Local Government for provision of Government documentation relating to Commercial PropertyPaul McNamara BSc (Hons) PhD, ASIP, FRSA, OBE – Director and Head of Research with PRUPIMProfessor Gary Pivo BA, MSc, PhD – Senior Fellow, University of ArizonaJonathan Tillson Head of Sustainable Development at DEFRAHRH Prince of Wales and Claudia Holloway of Clarence House, for providing information regarding The Prince’s Charities – Accounting for Sustainability ProjectFinally my thanks to Mr. Stephen Fenton, BSc, FRICS, PGCE, FHEA, for hiscontinued guidance and supervision throughout this dissertation project.
  3. 3. AbstractResponsible Property Investment is simply one area of sustainability that ispresent within the built environment. Sustainability as a whole is fastbecoming one of the main concerns within industry, with those managingproperty portfolios equally susceptible to its effects as those on theconstruction side. This report focuses on current opinions and attitudestowards the field, and how these can have a knock-on effect to propertyvalues.Initially the question was do investors care? - If an asset was capable ofgenerating favourable returns, then what did it matter if it was highly inefficientor only useable over a short term? The purpose was then to ascertainwhether a change in overall opinion and the “valuing” of sustainabilityamongst the industry would change investment trends.This paper then looks at the existing considerations given to sustainabilitywithin real estate investment, whilst looking ahead to what is being done toincentivise further action within the area. In order to do this, current industryprofessionals were approached with questionnaires and for formal interview,in order to provide data giving a qualitative overview of current practice andopinion.The findings of the research suggest that, although initially there was little orno interest, sustainability as a consideration during property investment isgrowing. A small number of dedicated funds are emerging specificallytargeting carbon reduction within assets, whilst owners and occupiers areincreasingly looking to reduce costs associated with energy efficiency. Thishas resulted in premiums being attached to sustainable property, both asadditions to a portfolio and commanding higher rent values.
  4. 4. ContentsACKNOWLEDGEMENTS ........................................................................................2ABSTRACT..................................................................................................................3CONTENTS..................................................................................................................41. INTRODUCTION....................................................................................................6 1.1 AIMS AND OBJECTIVES. ........................................................................................8 1.2 LIMITATIONS TO THE RESEARCH ...........................................................................92. CURRENT LITERATURE. .................................................................................10 2.1 OPPORTUNITY AND NEED....................................................................................10 2.2 RESPONSIBLE PROPERTY INVESTMENT (RPI)......................................................10 2.3 VARYING APPROACHES TO RPI...........................................................................11 2.4 INVESTMENT DRIVERS ........................................................................................12 2.5 SUSTAINABILITY DURING ASSET ACQUISITION ...................................................13 2.6 GOVERNMENT STANCE .......................................................................................153. METHODOLOGY ................................................................................................16 3.1 AIM .....................................................................................................................16 3.2 PROJECT LAYOUT................................................................................................16 3.3 LITERATURE REVIEW. .........................................................................................16 3.4 PILOT STUDY ......................................................................................................17 3.5 MAIN SURVEY.....................................................................................................18 3.6 FORMAL INTERVIEWS..........................................................................................184. ETHICS STATEMENT ........................................................................................19 4.1 PROJECT TITLE:...................................................................................................19 4.2 RESEARCH OVERVIEW: .......................................................................................19 4.3 PARTICIPANTS:....................................................................................................19 4.3.1 - Who will they be and how are they selected?...........................................19 4.3.2 - Participants right to withdraw: ................................................................20 4.3.3 - Participant Consent:.................................................................................20 4.4 INCONVENIENCES AND POSSIBLE NEGATIVE OUTCOMES:.....................................20 4.5 INFORMATION SOURCES AND HELP PROVIDED FOR PARTICIPANTS:....................21 4.6 FEEDBACK: .........................................................................................................21 4.7 INTERVIEW GUIDE: .............................................................................................22 4.8 OVERVIEW OF DATA ANALYSIS: .........................................................................225. ANALYSIS OF ACQUIRED DATA....................................................................266. FORMAL INTERVIEW RESPONSES...............................................................41
  5. 5. 7. CONCLUSIONS ....................................................................................................498. FURTHER RESEARCH.......................................................................................53REFERENCES...........................................................................................................55BIBLIOGRAPHY ......................................................................................................58APPENDIX A .............................................................................................................63APPENDIX B .............................................................................................................69APPENDIX C .............................................................................................................70APPENDIX D .............................................................................................................71APPENDIX E .............................................................................................................72APPENDIX F .............................................................................................................73
  6. 6. 1. Introduction“Only business can build a low-carbon economy. Business is all about seeing ideasand growing them. Businesses have the resources, the people, the technical skills tomake things happen…”- Tom Delay, Chief Executive, The Carbon Trust (reported in The Times, 25 March 2008)Climate change is big business. Around the globe, new legislation has beenintroduced, targets set and plans initiated to react to the changes being seenwithin the environment.The built environment accounts for over 8% of the UK’s GDP. This figure isonly the direct relation between construction and wealth produced. All mannerof assets, including property, from a range of international institutions andcorporations’ portfolios create wealth for their respective owners. In fact, only49 of the top 100 largest global economies are countries; the other 51 are allmultinational corporations.(Crossley, 2000)When this is considered alongside the knowledge that 50% of our carbonemissions come from the construction and operation of the built environment,it becomes clear as to how much of a relationship there is between businessand efforts to lower and indeed erase our, “Carbon footprint, “ including theamendments to the Climate Change levy in April of this year.(Carbon Trust, 2009)This is where the notion of sustainability being combined with the responsiblemanagement of assets, can be used to generate and improve value ofproperty portfolios whilst making a difference to the environment.(Sustainable Development Commission, 2009)
  7. 7. Two of the main driving forces of corporate organisations are to achievesuccess through profiting in their business, and encouraging a positive publicperception of that business. The advent of Corporate Social Responsibility(CSR as it is commonly referred to) means that these can be accomplishedsimultaneously. By creating a positive public perception and thereforeencouraging further investment from outside sources, companies can be seento be adhering to their socially pressurized responsibilities, whilst generatingrevenue and succeeding in their business.In 2007 a study was undertaken in the United States where executives withinproperty investment were surveyed to comment on their attitudes towardsResponsible Property Investment (RPI.) Unsurprisingly, their concerns werethat by selecting responsible investments, their overall financial performanceand fiduciary obligation would be affected.Having shown this reluctance to, in their minds at least, put performancelevels in jeopardy in exchange for dealing with the “bigger issue”, it thereforeneeds to be shown that the “risk” is not as is initially perceived. Of thoseexecutives surveyed in the US, 85% agreed that if their risk and return criteriacould be met, then they would increase their level of involvement within thearena of RPI.(Pivo, McNamara 2007)In order to provide a tangible basis for the argument that incorporatingsustainability in asset management can provide profitable results,assessments of industry wide accepted benchmarks need to be made.In terms of indicators for sustainability, research has been conducted and aninitial list of such indicators has been produced. However, these have not yetbeen accepted into wider use within industry, and as such, companies havenot been able to apply them to their assets in order to determine performancecomparatively to those more or less sustainable than their own.(Sayce, S, Ellison, L, 2003) (Eichholtz, P, Kok, N, Quigley, J, 2009)
  8. 8. The literature review that follows has been compiled from current researchwithin the area of sustainability and what impact this is having thus far onasset values. The common perception of the industry however is that there isnot yet sufficient data available for property stock to enable an accurateanalysis of different elements of sustainability on its value.(RICS, 2009)Many of the largest companies and corporations in the world haveSustainability Reports and Corporate Governance Policies that are freelyavailable to view and show their stance on climate change and how they areacting accordingly. The question being addressed therefore is: What are theactual attitudes of the individuals within these companies and those they acton behalf of every day, and what impact does this have upon investmenttrends, property values and overall business performance?1.1 Aims and Objectives.The aim is to establish whether the increase in sustainability as an issuewithin the built environment has made an impact on investment trends andcorporate behaviour, therefore affecting portfolio values and profit returns.In order to ascertain this, there are the following objectives: - 1) Determine any current company policies on sustainability. 2) Investigate relationship between clients’ business needs and asset management strategy. 3) Establish motivation for investing in sustainable assets when adding to a portfolio.
  9. 9. 1.2 Limitations to the ResearchThis report does not seek to evaluate sustainability benchmarks for property,neither does it look to show a unique data example of the difference betweena sustainable and non-sustainable property portfolio. Both of these requireseparate study, industry involvement backing and a far-extended researchtime.For a real comparison to be made regarding value of sustainable buildingswould require a long-term project such as has been carried out in the US. Twoportfolios would have to be created, consisting of like-for-like investmentproperties, with sustainability as the variable. The investments would thenhave to be monitored over a period of years in order to ascertain the effect ofthis on the return to investors. Such an undertaking is outside the scope ofthis report.It does, however, look at current opinion of sustainability within propertyinvestment, what impact this could have on future investment and currentportfolio values and how incentives can be introduced to increase participationfrom institutional and private investors alike.
  10. 10. 2. Current Literature.2.1 Opportunity and NeedThe word, “need” when referring to sustainability can be taken in two ways:The first, being that every leading and developing country around the globe ishaving to account for its carbon emissions to combat rising temperatures andsea levels, and the second way in so far as no major business can be seen tobe being left behind in this emerging area. As such, there is a, “need,” tomake things sustainable.There are also however opportunities to be had in terms of investment. Aresearch project by the RICS and the Universities of Maastricht and Californiain 2009, comprising of “green” office buildings in the United States, showedthat higher returns are to be made from those buildings that have high energyratings and are considered sustainable. The results showed a premium of 3%per square foot for the whole sample stock, 6% higher effective rent returnsadjusted for occupancy levels and a significant 16% premium when selling agreen building.(Eichholtz, P, Kok, N, Quigley, J, 2009)2.2 Responsible Property Investment (RPI)The market for Socially Responsible Investments (SRI) has been continuallygrowing over the last decade, with more institutions and individualsdeveloping portfolios with social and environmental considerations. Whilst theUK is currently highly involved in this arena, including working with emergingeconomies such as those in China and India, it is the US that has lead thedrive and research in sustainability and investments.
  11. 11. According to the Social Investment Forum (SIF) in 2003, there was 2.16trillion dollars in SRI’s of all descriptions, including pension funds, mutualfunds and community development financial institutions. These funds were allin investments that are deemed to follow the, “Triple Bottom Line,” whichtakes into consideration their financial, social and ecological impacts.(SIF, 2003)Real estate is a major asset for all investors, whether institutional, individualor occupiers who own their own properties. The advent of RPI means thatinvestors are able to show significant consideration for their social andenvironmental impacts, whilst managing their assets effectively to obtain therequired financial reward.(CFAUK, 2008)2.3 Varying Approaches to RPIDifferent approaches are being taken towards RPI. For example, Sarasin, theSwiss Private Bank, has set up a new property fund that uses the strategy ofbuying shares in property companies most active in CO2 reduction. Thetheory here is that shares are quicker to sell than buildings, therefore allowinginvestors to get their money out quicker.Climate Change Capital (CCC) is a London-based fund that aims to haveraised £120m within six years, on top of the £70m they already have. Part oftheir strategy is they purchase poorly performing buildings and refurbish themto high standards of energy efficiency.The results for these two different approaches is that Sarasin Sustainableoutperformed Standard & Poor’s property index by 2% in its first six weeksand CCC are looking for a 10% higher return on their properties.(Jansen, 2009)
  12. 12. 2.4 Investment DriversInterest regarding sustainability within real estate investors has been growingsince the turn of the millennium. In research by Keeping (2000) it was notedthat investors would sometimes require “Green” features of a building, but notsustainable properties themselves. This was deemed to be due to an initialconfusion in the terms that are now commonly used, and that they had a lackof knowledge over any benefits to sustainable real estate.A review has recently been undertaken of current publications regardinginvestments in sustainable buildings (Schleich, 2009,) which identified thedrivers of investment and their classifications. The research found there to bethree levels regarding these drivers: • Property Level – Affecting individual assets and investments • Corporate Level – A collective impact for institutions • External – Legislative, financial and legal implications (Schleich et al, 2009)
  13. 13. The identification of these drivers had further implications for the methodologyof this research project, due to their perceived implications being integral tothe outcome of the aims and objectives for this study. This is because thoseinvestors that are involved directly in managing their portfolio will need to takeinto account these drivers, thus reflecting their current attitudes towardssustainability and it’s ability to impact on portfolio value, such as those driversidentified at the property level.2.5 Sustainability during Asset AcquisitionAs was found in the section regarding the varying approaches to RPI, retro-fitting poorly performing buildings is one method of approaching sustainabilitywithin real estate. However, for some it seems that this method is consideredfar more costly and creates further challenges.(Tillson, 2009)This difficulty in justifying expenses regarding property deemed as obsoletehas created the necessity for sustainability to be a consideration during theacquisition stages of investments for a portfolio. The British Land CompanyPLC (2008) produced a Sustainability Guide for Property Acquisitionsdetailing the need for this issue to be addressed prior to the board approvinga new acquisition.Studies by Pivo and McNamara (2007) highlighted the concern of investorsregarding their fiduciary obligations, which is another element duringacquisition stages relating to due diligence. When undertaking investmentmanagement responsibilities, due diligence must be shown in order to avoidlegal repercussion, such as in the case of REIT’s (Real Estate InvestmentTrusts) pension funds etc… This is especially the case when justifying newand sustainable investments as an “added-value” class asset to a portfolio.(McMahan, 2006)
  14. 14. This flow chart was taken from the Sustainability Guide for PropertyAcquisitions by The British Land Company PLC. It’s significance is in thedetailing of sustainability as a consideration before the acquisition of an assetis completed, therefore demonstrating due diligence with concern tosustainable investment and intention to add value through portfoliodiversification. (British Land PLC, 2008)
  15. 15. 2.6 Government StanceThe UK Government is taking its commitment to sustainability very seriouslyand is attempting to incorporate it as an issue in all of its undertakings.“Securing the Future” is the name given to the development strategy, whichmakes up part of a shared framework including all four nations of the UnitedKingdom.The Sustainable Development Programme crosses all governmentdepartments as well as other public bodies such as the SustainableDevelopment Commission. This includes targets set out by the governmentincluding the sustainable management of its estate in order to reduce energyconsumption, waste and water use. It also produced a SustainableProcurement Action Plan, which aims to improve standards and marketengagement.(Crown, 2009)The recent meeting in Copenhagen on climate change further demonstrateswhere the UK government intends to make its commitments further from2009. In a telephone interview with Jonathan Tillson, Head of SustainableDevelopment for the government body DEFRA, he made clear that theintention is for the UK and its government to lead by example to furtherencourage developments in sustainability, and that from this point in 2009/10,there is more yet to be done in the coming years.Paul Morrell, former senior partner with Davis Langdon, was made the firstChief Construction Advisor to the Government in November last year. Hemakes a point that the industry’s carbon reduction commitments would be his“immediate priority” and that, “We’re going to need to start counting carbon asseriously as we count money, and accepting that a building is not of value ifthe pound sign looks ok, but the carbon count does not.”(Building, 2009)
  16. 16. 3. Methodology3.1 AimIn keeping with the title of this project, the aim is to use suitable methods ofdata and information gathering in order to create and present a paper on thecurrent state and opinion of sustainability within the built environment and itspotential to impact upon property investment values.This methodology section details how the research was carried out, thejustification for these actions, initial intended structure of the report and therationale for the project as a whole.3.2 Project LayoutThe information in the report will follow in these chapters: - • Abstract/Introduction. • Literature Review • Research Design and Methodology. • Analysis and Discussion of Report Material. • Conclusion and Evaluation. • Suggested further research. • References and Bibliography.3.3 Literature Review.Initial study has shown that work has already been undertaken on theindividual aspects that make up this report, such as investment practice,sustainability and asset management strategies. However, the foundation ofthis work was to analyse the amalgamation of these areas as a whole unit, byhow they relate to each other to form a single purpose within the industry.
  17. 17. The Government Department of the Environment published a work onindicators of sustainable development in 1996, and Sayce, S and Ellison, Llater developed this work initially in 2003. Research has also been done onbest practice within asset management and how property forms part ofbusinesses investment considerations. This also forms part of the study, as itis the basis for how decisions within the investment sector are made.The literature review has the purpose of outlining initial works within the areaof sustainability and RPI, whilst demonstrating that the requirement of thisreport is to asses current opinion in order to establish a motivation forinvestors, as described in the aims and objectives.3.4 Pilot StudyThe pilot study consisted of an initial questionnaire, vetted by industryprofessionals, in order to ascertain its relevance and validity. The importanceof piloting the study was to ensure that the main questionnaire containedrelevant subject matter to those professionals that would be receiving it inorder to contribute to this research.The questionnaire remained unchanged, due to positive confirmation andfeedback from those who responded to the pilot. The main element offeedback regarded the combination of having both multiple choice and open-ended questions. The reason for this was to allow for both a greater depth ofdetail in respondents answers, as well as to gain a wider range of answers tobe analysed, depending on each participant’s individual impression of thequestion.
  18. 18. 3.5 Main SurveyEach question in the survey has its relevance stated individually in theanalysis section of the study. The questionnaire as a whole was designed toallow for a wider range of data from a large base of professional opinion. Asthis is a qualitative study, it was important to ensure that opinion was soughtfrom a variety of practitioners in order to get the most relevant data forpertinent analysis towards the central question of this project.The survey questionnaire sent to 183 people over a variety of professionsreceived 42 responses and can be viewed in Appendix A, along with theoriginal proposal for this dissertation.3.6 Formal InterviewsThe inclusion of formal interviews was an important part of this research, withit being a qualitative study. The professionals selected for interview werechosen due to their high levels of experience, variation in business/careerareas and overall relevance to the central question and research topic. Threeparticipants were selected for comparative viewpoints from a global insuranceand investment provider, a British Government body and an Investment Bankthat specialises in carbon offsetting and cutting ventures.Those contributors to the research from the above institutions are:- • Paul McNamara. PRUPIM Director: Head of Research, BSc (Hons) PhD ASIP FRSA OBE • Jonathan Tillson. Head of Sustainable Development at DEFRA • Esme Lowe Partner: Property Fund Team Climate Change Capital (CCC)
  19. 19. 4. Ethics Statement4.1 Project Title: “Current attitudes towards sustainability and its potential to impact upon property portfolio values within the UK”4.2 Research Overview:This research project involves the gathering of data and studying currentpractice and opinion on matters regarding sustainability. The methods that willbe used for this will be in the form of accessing both publicly availableinformation/reports, sending out a piloted questionnaire and conducting face-to-face interviews.Sustainability is of growing importance within the built environment, with moreand more companies creating Sustainability Profiles as evidence of theirCorporate Responsibility. This research intends to discover the actual extentof interest and involvement within the industry and how value and profitabilityis affected as a result. It is therefore the intention of the aforementioned datagathering methods to be implemented in order to ascertain this.4.3 Participants:4.3.1 - Who will they be and how are they selected?The participants will be from a mixture of professions and business areaswithin the construction/property industry. These include institutional investors,property agents, occupiers, acquisition managers etc… The nature of thesepositions within their respective companies means that the collection of datawill not involve either minors or those considered to be lacking in mentalcapacity as outlined in the Mental Capacity Act 2005 and a CRB check is notrequired.
  20. 20. 4.3.2 - Participants right to withdraw:Those who are approached for interview will be informed of their right towithdraw from the research at first communication when being asked toparticipate. They will also be presented with a “Participant Information Sheet”which details their ability to withdraw at any point from the research along withthe option to have any of their information omitted from the report bycontacting the main researcher.4.3.3 - Participant Consent:Along with the Participant Information Sheet, a Consent Form will also beattached and will be required to be read and signed in order to agree to takingpart in the interview and resulting dissertation paper. A withdrawal form isincluded with this, which can be filled in at any point and sent to theresearcher requesting removal of their contribution.Consent will also be sought for use of a dictation/recording device during theinterview. As part of the consent to this, participants will be ensured that therecording will remain private, securely stored and then destroyed uponresearch completion in keeping with Data Protection Act 1998. It will be madeclear that any and all contributions made can be made anonymous for theindividual concerned and their respective company if required.4.4 Inconveniences and possible negative outcomes:The sharing of private/sensitive material is purely at the participant’sdiscretion. All material is provided under the understanding that it will not bepublished or circulated further by the researcher forming the report and is onlyfor initial informative purposes. No hard copies are made or kept and receivedfiles will be destroyed.
  21. 21. The questionnaires are only completed voluntarily. There is no obligation tocomplete or answer at all, and particular questions can be ignored at thereceiver’s judgement. The questionnaire states at the outset that all replieswill be dealt with confidentially and anonymously.The inclusion of the fields, “Job Title” and “Area of Business” within thequestionnaire are purely to enable the researcher to group respondentsduring the analysis stage of the work. The individuals’ names and that of theircompany/institution will not be divulged at any point unless requested orpermitted directly.The time, date, venue and duration for the interviews will be determined bythe consenting interviewee in order to minimise any disruption orinconveniences. Any perceived negative outcomes from the participant will bedealt with at their request, such as remaining as an anonymous contributor, orby their insisting to withdraw completely from the research.4.5 Information Sources and Help Provided for Participants:The researchers contact details will be provided to all participants in theproject. This will allow for ease of contact should they have any furtherquestions or requests relating to their withdrawal from the research. Details ofthe researchers’ University will also be provided to participants so that contactcan be made with senior faculty members supervising the dissertation projectif they deem this necessary.4.6 Feedback:All participants will have their contributions acknowledged to confirm theintended researcher has received it. They can be provided with furtherinformation if requested, but only relating to their own contribution or thereport as a whole, not of other respondents or interviewees.
  22. 22. 4.7 Interview Guide:A semi-structured interview process will be undertaken, based on previousliterature in the area and specific experience of the individual interviewee.Initially open-ended questions will be used intending to facilitate rapport andcreate a relaxed atmosphere. This will be followed by more specific closedquestions to directly deal with the aims and objectives of the research.4.8 Overview of Data Analysis:Information and opinions collected as part of this qualitative research projectwill be analysed in order to meet the aims and objectives outlined at the startof this dissertation paper.Comparisons will look to be drawn between the different business areas ofthose professionals responding to the questionnaire. Conclusions will then bemade from an interpretation of the responses for each individual questionincluded, intending to suggest an indication of current opinion and practiceregarding sustainability.Any discrepancies between conflicting answers to questions will behighlighted and comment provided based on further analysis and reference tothe literature review. In line with guidance set out by Patton (2002), all rawdata themes will be validated and agreed upon throughout the analysisprocess, in order to produce a valid and accurate representation of emergingthemes.Analysis of interview material will include obtaining consent and confirmationat the time of interview as to whether the information discussed isrepresentative of their individual views or company policy. It will then besubjected to analytical methodology including coding of open-ended questionssuch as is outlined in Naoum (2007)
  23. 23. ANGLIA RUSKIN UNIVERSITY ETHICS REVIEW CHECKLIST FOR RESEARCH WITH HUMAN PARTICIPANTSDate 10.3.09 V1.0Name: SID:Title of Current Attitudes Towards Sustainability and its Potential to Impact uponResearch Property Portfolio Values.Project:Faculty: Science and Technology Supervisor(s): Steve FentonType of research: Undergraduate Taught postgraduate Research degreeTick all that apply Member of staff OtherIf you require this checklist or any of the documentation in an alternativeformat (e.g. Braille, large print, audio or electronically) please contactJulie.Scott@anglia.ac.ukYou need to consider ethics for all research studies. Research is defined in the UREC(Research Ethics Sub Committee) Policy and Code of Practice for the Conduct of Researchwith Human Participants on Page 5. Please refer to:http://www.anglia.ac.uk/ruskin/en/home/central/rds/services/research_office/research_degrees/ethics.htmlPlease complete this mandatory Ethics Review Checklist for all research applications. This isto ensure that you are complying with Anglia Ruskin University Policy and Code of Practicefor the Conduct of Research with Human Participants.All research applications are dealt with in the same way. There is no distinctionbetween undergraduate, taught Masters, research degree students and staff research.For research involving animals, please complete the Animal Ethics Review Checklist todetermine your course of action.This checklist should be completed by the Principal Investigator or the student in consultationwith his/her supervisor.
  24. 24. YES NO1. Does your research involve human participants?(including observation only)2. Does your research involve accessing personal, sensitive or confidential data?3. Does your research involve ‘relevant material’ as defined by theHuman Tissue Act (2004)?4. Does your research involve participants who are 16 years andover who lack capacity to consent and therefore fall under theMental Capacity Act (2005)?5. Will the study involve NHS patients, staff or premises or SocialServices users, staff or premises?If you have answered NO to all the above questions, you do not need formal ethicsapproval. You do, however, need to submit this checklist signed and dated to therelevant Faculty Research Ethics Panel (FREP) Administrator prior to starting yourresearch.If you have answered YES to either or both Questions 1 and 2, you need to submitan application, including this checklist, to your FREP.If you have answered YES to Question 3, you need either to submit your applicationto your FREP or an NHS Research Ethics Committee (REC), even if the study doesnot involve the NHS. Please seek further advice if you are unsure about whichcommittee it needs to be submitted to.If you have answered YES to Question 4, you need to seek approval from an NHSREC, even if your study does not involve the NHS.If you have answered YES to Question 5, you need to obtain approval from:a. Both an NHS REC and the NHS Trust(s) where you are carrying the researchout (R&D Management Approval) orb. The Local Research Governance Group (Social Services).Please note that you must send a copy of the final approval letter(s) to:Beverley Pascoe, RESC Secretary, Research, Development and CommercialServices.Additional information:Applicant’s signature: Date:Supervisor’s signature: Date:
  25. 25. (Axa-IM, 2009)
  26. 26. 5. Analysis of Acquired DataEach question included that was sent out to obtain data for this research willinitially be dealt with separately, followed by an analysis with reference to howit relates to others within the questionnaire and the opinions expressed duringthe formal interviews.The sample of data comes from 42 respondents of 183 initially contacted viae-mail or telephone. The response rate reflects that no obligation was placedon those contacted to reply, conforming to the ethical requirements of thiswork.The demographic and number of those respondents is as follows. Theyconsist of both public and private sector individuals: • Fund Manager 5 • Investment Analyst 14 • Property Agent 7 • Surveyor 4 • Company Director 7 • Acquisitions Manager 5
  27. 27. Q1. How relevant is sustainability to your companies core business?a) Essentialb) Highlyc) Moderatelyd) Partiallye) Not at All.This question was included in order to establish a benchmark for theremaining answers supplied by that individual, closely linked to the followingquestion relating to client interest. It allows for an initial indication of adiscrepancy between their own perceived level of relevance to sustainability,compared to that of their clients.On an individual basis there were occasions where respondents indicatedsustainability had a low level of relevance to them or their business ( i.e“partially” or “moderately”) yet stated in the very next question that between75-100% of their clients expressed interests in the area. These anomalieswere few however, and the majority of those confirmed sustainability as anissue affecting their business to some significant degree. How Relevant is Sustainability to your Core Business? 0 Not at All 1 Partially 7 Moderately 23 Highly 11 Essential 0 5 10 15 20 25 Respondents
  28. 28. Q2. What % of your clients express an interest in sustainability?a) 0-10%b) 10-25%c) 25-50%d) 50-75%e) 75-100%As mentioned on the previous page, this question allowed for both anindividual impression from the respondents, as well as a rudimentary way ofgauging a wider opinion base; that of the respective clients of each businessof those who replied. The graph shows the anticipated reflection of theprevious question; that is, respondents who previously indicated sustainabilitybeing of high significance to their business, demonstrated a consistencythrough the interests of their wider client base.A point of interest includes the four participants who answered a 0-10% rangeof their clients showing interest in sustainability. The level of comment on thearea in professional journals and publications suggests that there is, or atleast is expected to be, enough interest from client bases for business to beactive and able to respond to sustainable demands. What % of your Clients Express an Interest in Sustainability? 7 75-100% 17 50-75% 14 25-50% 0 10-25% 4 0-10% 0 2 4 6 8 10 12 14 16 18 Respondents
  29. 29. Q3. What areas are of most concern to your clients? Please could youplace a number next to the answers to indicate the top three, 1 being themost important.a) Energy efficiency / Performance Ratingb) Waste / Water Consumptionc) Building Functionality / Flexibilityd) Location / Transport Easee) Rent Value / Void PeriodThis question demonstrated which areas were of greatest importance to eachof the respondents. Participants were asked to number from 1 to 3, in orderof priority, those areas that are of greatest concern to their clients. Thesignificance of this is that, due to the nature of sustainability regarding energyefficiency, one would expect a higher number of “votes” for this aspect, butthis was not to be the case.Whilst building functionality and location/transport ease are factors insustainability and RPI, (as highlighted in Prof. Pivo’s and Jeffery Fisher’sstudy, “Effects of Walkability on Property Values and Investment Returns”,2009) energy efficiency is still the most widely understood aspect ofsustainability. Therefore, it was expected for those contributing to this study tohave placed more emphasis on this area.The fields highlighted in bold below, show the most consistently voted areas.83% (35 of 42) placed rent value and void period as the most important, 76%put location/ transport at second highest (32 of 42) and building functionalityof third most concern to their clients, with 90% (38 of 42) positioning it there.Energy efficiency / Performance rating and Waste Water Consumption werethe least concern of respondents clients, with only 9.4% of the total vote.Attributes Respondents Voted Importance Level (1 High, 3 Low) 1 2 3Energy Efficiency / Performance Rating 7.1% 0 0Waste / Water Consumption 0 2.3% 0Building Functionality / Flexibility 4.7% 4.7% 90.4%Location / Transport Ease 16.6% 76.1% 7.1%Rent Value / Void Period 83.3% 4.7% 2.3%
  30. 30. Q4. Are your clients prepared to pay a premium for sustainable assets,either to purchase, invest or occupy, or do higher prices make thisinhibitive.a) Yes, they are prepared to pay more.b) No, higher prices are preventative.c) Other (Please Comment)The next element to the questionnaire was intended to assess currentdemand from investors and occupiers regarding sustainable real estate.Interestingly, the previous questions responses would indicate that profit takesprecedence over other sustainable considerations, yet the findings for thisquestion suggest that many are willing to accept a greater initial expense inorder to acquire a sustainable asset.The significance of the 45% positive response to paying a premium indicatesthat those involved with the acquisition, investment and management of realestate assets, see a positive economic impact from climate change adaptiveproperty sufficient to their respective portfolios to warrant higher purchaseprice. Are Your Clients Prepared to Pay a Premium for Sustainable Assets? 8 Other 15 No 19 Yes 0 5 10 15 20 Respondents
  31. 31. Of those who chose “Other” in response to this question, there were twothemes in the comments provided. The first was that it related to the risk ofthe asset. It is common understanding that once money is invested, it is thenat risk, whereas if it is not invested then it remains safe. The elements of riskwithin sustainable real estate forms a dichotomy in the view that it is either ofless risk, as it is adaptive regarding climate change and future legislation, orthat it is of higher risk due to little empirical evidence to suggest a greaterinvestment yield after initial premium purchase cost.With this in mind, some respondents indicated that it was their practice torequire a discount on an, “at-risk” asset, rather than paying a premium forthose that are already deemed and being marketed to be sustainable.The second theme amongst the comments concerned the individual SRI(Sustainable and Responsible Investment) Policy of each respondent’s clientbase. As highlighted in the literature review of this study, differentorganisations within the area of RPI have differing approaches towards it andthe management of their portfolios.Q5. Are you involved with "Green Leases" and if so, how?This open ended question was included at this point in order to determine anidea at the level of use and understanding regarding this recent undertaking.7 people commented on this question relating to a non-direct involvement, i.e.that (depending on their core business) they did not have requirementsthemselves for green leases, yet client companies did have involvement fromtheir investors or occupying clients.Hermes, Aviva and Land Securities are a few of the companies directlyinvolved in specifying sustainable commitments and requirements as part ofthe lease contract to the tenants.
  32. 32. Q6. Are shareholders consulted or directly informed of mattersregarding sustainability?a) Yesb) Noc) Dont knowSustainability as a general issue, particularly in terms of real estate portfolioinvestments, is very much the domain of the larger international companies inthe current climate. As such, the majority of these produce CSR (CorporateSocial Responsibility) Reports and publish continually on Governance issues.If sustainability is to get into the wider knowledge from those outside thesecompanies, and seen as an ever-increasingly important consideration, it hasbeen noted that shareholders need to be informed of a companies efforts inthis arena (BRE, 2000.)The results show that a large portion of those questioned are following thisand do indeed consult and inform their shareholders regarding sustainability.The two, “No” responses came from public sector individuals, therefore nothaving shareholders. Are Shareholders Consulted or Informed of Matters Regarding Sustainability? 12 Dont Know 2 No 28 Yes 0 5 10 15 20 25 30 Respondents
  33. 33. Q7. Is your company eligible or a member of the FTSE4Good or DJGSIIndexes?a) Yesb) Noc) Dont knowThe Financial Times Stock Exchanges FTSE4GOOD and Dow JonesSustainability Index (DJSI) indexes are specific only to those companies thatare eligible through sufficient performance in sustainability matters.The importance of this question was to ascertain the awareness of theseindexes and their level of involvement within the relevant real estatecompanies. A high positive response would indicate commitment withinproperty related sectors, with the option of then analysing the performance ofthose within the index against those who don’t qualify to highlight anyimprovement. Is Your Company Eligible or a Member of the FTSE4GOOD or DJSI Indexes? 36 Dont Know 4 No 2 Yes 0 5 10 15 20 25 30 35 40 Respondents
  34. 34. Part of the reason for the creation of the FTSE4GOOD index was in order toincentivise larger companies to become more involved with sustainabilityissues in order to qualify for the index.The results show that there is a sizeable lack in knowledge regarding thesetwo particular indexes. The six companies that are aware of their position (2are members/eligible, 4 are not) are almost negligible when compared to thefact that 85% of those that responded were unaware if they were suitable forinclusion, or indeed a member of the index.
  35. 35. 8. How would you consider an investors attitude to be affected by aportfolio of sustainable assets?a) Considerably Positiveb) Marginally Positivec) No differenced) Marginally negativee) Considerably NegativeFrom the thirteen questions sent out for this report, this is the most directlyrelated to opinion towards sustainability having an affect on property portfoliovalues.All the participants answered this question, with 100% positive results towardssustainable assets, with 60% of those (25 respondents) indicating investors’attitudes to be “Considerably Positive” with regards to sustainable real estateinvestments.Although this may appear to be the natural reaction, some investors, echoingthe opinion of Valuers, subscribe to the notion that sustainable real estate is aliability that does not necessarily reflect the money put into it. (RICS, 2008) Respondents Perceived Attitudes of Investors Towards Sustainable Assets 0 Considerably Negative 0 Marginally Negative 0 No Difference 17 Marginally Positive 25 Considerably Positive 0 5 10 15 20 25 Respondents
  36. 36. Q9. Would you be in favour of a government tax incentive regardingsustainability?a) Yesb) Noc) No Preference.Although not all participants completed this question (31 answered out of 42)it produced an unexpected result nonetheless.With sustainability being a major issue within the built environment at present,and it generally being viewed as a positive aspect, it was expected that thestand-out answer would be in favour of a Government-led incentive towardssustainability. However, only a quarter were found to be in favour of such amove and 48% were against.This finding would suggest that although many of the respondents wereactively involved with sustainability relating to their assets and propertyinvestments, both directly and through their clients, they would prefer to retainindividual control over their involvement and requirements imposed. Would you be in Favour of a Government Tax Incentive Regarding Sustainability? (From sample of 31 who answered) 8 No Preference 15 No 8 Yes 0 2 4 6 8 10 12 14 16 Respondents
  37. 37. Q10. What strategies do you have in place to attract sustainableinvestment?As stated in the aims and objectives section and when outlining the purposeof this work, it was stated the intention to establish motivation and anyincentives for investment in sustainable funds and property assets, as well asinvestigate the current practice by firms involved in the area.This question was therefore included in order to obtain a variety of responsesfrom those participating in the study, and as such was deliberately left open.However, only 7 of the 42 respondents completed this question. The reasonfor this could be attributed to the general aversion to open questions due totheir perceived requirement of additional time to complete, or other factorsincluding the respondent not being in a position to be aware of their companystrategy, it being a confidential matter, or simply that there was no specificstrategy attached to obtaining further sustainable investment.Among those who did complete this question, the responses covered thesame areas. There was not a sufficient volume to warrant coding in order todemonstrate significance. The strategies highlighted in the responses were: 1. Direct contact and advisory reports on Governance. 2. Client-led and 3rd party funds. 3. Separate Sustainable-Specific Funds. 4. Presentations on Corporate Level Drivers.Despite the response to this individual question being a small section of thosewho participated overall, it provided for a critical addition to the analyses forthis report. The lack of responses demonstrates, as could also be deducedfrom the obtained replies, that there appears to be a lack of a strongly definedstrategic approach to attract potential clients towards sustainable investments.
  38. 38. The first area, direct contact of clients and provision of reports pertaining toGovernance, could be considered a mandatory undertaking for thetransparency of the client and as such is not a direct strategy for attractinginvestment. It may encourage clients to invest in sustainable assets, but onlythrough insinuation that it’s necessary rather than beneficial in its own right.Client-led funds can attract investment in so far as the investors have greatercontrol over the equity placed into the fund. However, the initial investmentstill has to be the decision of the client rather than the organization activelydrawing in the investors. It is clearly the case that investment managers wouldlook to encourage investors to use such a fund, but this was notcommunicated through the response to the questionnaire and so could be putdown to one of the reasons mentioned above.A similar case can be applied to the third area, that of separate and dedicatedsustainable-specific funds. The availability of such a fund to invest in does nothowever necessarily constitute a strategy for investing. Whilst it is clear thatyou cannot gain sustainable investment without a relevant fund, the lack ofempirical evidence relating to higher yields on sustainable property meansthat greater work needs to be done to acquire further investment. As such,simply having provision of such a fund cannot guarantee investment in it.The fourth point relates to the drivers for sustainable investment on acorporate level. As previously demonstrated earlier in this report, it wasidentified (Schleich, 2009) that “Image” was the sole driver at corporate level.Whilst personal presentations, going out and meeting potential investors, canbe considered a strategy for attracting sustainable investment, it is basic andnot descriptive as to the methods used. In fact, as an illustration, a responseto this question consisted of: “We convince our clients that on the long run, it is a good idea to invest in sustainable buildings.”
  39. 39. Following a letter sent to Lord Mandelson for this dissertation in connectionwith his involvement with sustainability and setting up the Low CarbonConstruction Innovation and Growth Team, the reply from the Department forCommunities and Local Government also could not indicate clear andeffective incentives (See Appendix B)In response to the enquiry about incentives for commercial property ownersand large corporations, among the measures that were quoted to, “encouragecompanies and investors to be sustainable” included: - • Building Regulations • Planning Policy • EPC’s (Energy Performance Certificates) • DEC’s (Display Energy Certificates) • The Code for Sustainable HomesThe inclusion of building regulations and planning policy cannot be consideredincentives, as these are mandatory and therefore are upheld regardless of theintention of those involved. The Code for Sustainable Homes is also notrelevant to the type of real estate and portfolio asset considered in this work.As for energy certification, many within industry only find DEC’s to be a validelement. This view is echoed by an interviewee for this project, Mr EsmeLowe of Climate Change Capital who says, “many in the industry considerEPC’s to be de-merited tool, because it’s based on theoretical consumption ofenergy as opposed to focusing on absolute operational consumption over aperiod of time. As a result, given a choice over an EPC and a Display EnergyCertificate, the DEC should win every day and that’s the one that should bemade mandatory in the UK market. “
  40. 40. Q11. In the last financial year, what percentage of your transactionsinvolved sustainable properties?Not all of the respondents were able to provide comment on this and so thesample for this question consists of 24 participants.The question was included in order to provide an idea of the current marketfor climate change adaptive real estate and to give an indication of theamount of sustainable properties moving within portfolios.All of the replies to this question quoted figures of either 5% or 10% exactly.The question was deliberately open and non-specific in order to encouragethis type of response. The reason for this was that many of the respondentsmay not have exact numbers available to them, or if they did may not beinclined to find the details for provision in this questionnaire. As such, thebroad and basic answers better reflected the percentage proportions of thesetransactions.The low number of 5-10% was expected, but for different reasons. The first ofthese is that this sort of fund and asset portfolio is still relatively new, indeedsome of the respondents cited in their answers that they were unable toprovide details as their portfolio or fund specific to sustainability was not setup in the previous year.The second potential reason for this reflects the reluctance in investors tocommit to property assets that may initially command a higher price yet do nothave sufficient evidence to suggest a greater return will be gained yet. This inturn links in with the possibility that many of the companies that claim to beinvolved with sustainability are only doing so on a small scale in order to fulfillany perceived social pressure to be showing environmental awareness.
  41. 41. 6. Formal Interview ResponsesThe interviews for this paper were undertaken to supplement to thequestionnaire above, with the participants being chosen for their in-depthknowledge of the subject matter, being members of varying organizations withdifferent approaches to sustainability and working at the top of their respectiveprofessions.The interviews were semi-structured, that is, there were certain subject areasthat were intended to be explored and were common to all interviewees,whilst allowing for open discussion and opinion to be expressed based oneach individual area of expertise and knowledge within their own fields.6.1 Paul McNamara: BSc (Hons) PhD ASIP FRSA OBEPRUPIM – Prudential Property Investment Managers.Director: Head of Research.Mr McNamara chairs the Institutional Investors Group on Climate Change(property) and co-chairs the United Nations Environment Programme FinanceInitiative (UNEP FI.)PRUPIM’s involvement in sustainability came about as a result of PrudentialPortfolio Managers Worldwide (a predecessor to M&G investments) launchinggreen equity funds, as well as development surveyors and fund managerswithin PRUPIM reacting to activity from property companies involvingcorporate responsibility reports.As lead author of the first sustainability report, gathering data and researchingdevelopments in the area of sustainability, it was found that there wereimplications relating to investment. Mr McNamara commented, “…if this newphenomenon was going to impact value, and asset performance, we neededto understand it…by understanding it you should be able to exploit thatknowledge.”
  42. 42. The awareness of sustainability as an impact on investment returns is notsimply a method to ensure profitable yields. As highlighted in a report tochurch investors, he goes on to say that, “understanding that does not makeyou a responsible investor, it makes you an intelligent investor, because youknow that accelerated depreciation, increased risk premium leads you to ahigher capitalization rate and to a lower value.” (See Appendix C)PRUPIM have introduced compulsory initiatives in order to embed thepractice and understanding of sustainability within their company andoutwards to their clients. They currently have around £14bn in assets, ofwhich those stakeholders and clients involved are required to respond to a setof questions in order for PRUPIM to, “… assess the extent to which the assetsare “future-proofed” against a changing environmental context, with theunderstanding that a property may suffer increased risk or accelerateddepreciation.”When questioned about the change in attitudes towards sustainability,particularly from a business perspective, Mr McNamara is confident that it isbecoming an increasing consideration. He says, “My observation of how theindustry has responded to this issue over the [past] 10 years is that they haveas a generality gone from not believing that there is an issue at all to…realising the regulatory structure policies are coming in, a risk of raisingminimum standards and some investors and tenants prefer greenerbuildings.”Another important role is that of the client seeking sustainable options fromproviders such as PRUPIM. This brought up the impact of the FTSE4GOOD /GJSI Indices, as well as client organisations and watchdogs surveying thoseestablished in the industry. Initially when results were being published, largeorganisations were finding themselves left out completely or low down in thetables. This effect on corporate level drivers (i.e. Image) for these companiesproduced an important reaction.
  43. 43. Mr McNamara commented, “Nothing exercises the board of a majorresponsible company [more than] to find yourself in the bottom quartile ofanything… If you can start getting potential sources of capital saying, ‘Wheredid you come in the survey?’… then that really starts to have an impact.”The area of sustainability has been developing in understanding in varyingprofessions within the industry. Fund managers did not initially see therelevance of it to themselves, considering it to be an area specific to theconstruction side. However, as Mr McNamara points out, only 2% is new-build, the other 98% is existing stock, which is why the implications of climatechange adaptive property affects current portfolio values.A pertinent point raised during the interview related to incentives to act andinvest in a sustainable manner. Known as the “Split incentives issue, “ itpresents a practical barrier to both investor and occupier. The example givenwas a shopping centre, where some parts are common, others individuallyoccupied:-“If PRUPIM goes in and does some work to the common parts, that’s cost usmoney; where do we get the return back? It might be electricity usage isreduced, so the service charge is lower, can we convert that reduction inservice charge to an increase in rent if the occupiers have a certain amountavailable for occupation costs?”“The tenant has exactly the same problem; [if they spend money on theimprovements] then at the end of the lease that benefit reverts to the landlord,so what’s their incentive? There’s some really creative thinking that needs togo on somehow about how to holistically manage buildings in a way thatbrings those interests together.”
  44. 44. 6.2 Jonathan Tillson:DEFRA – Department for the Environment, Food and Rural Affairs.Head of Sustainable Development.As head of the Sustainable Development Unit at DEFRA, Mr Tillson isresponsible for the UK’s Sustainable Development Strategy and overseeing ofits domestic implementation. This includes helping to achieve sustainablecommunities, building and construction.With DEFRA being part of Government, Mr Tillson was keen to demonstrateboth innovation and agreement with the private sector. In terms of how theyincentivise sustainable behaviour, he replied, “Leading by example… It’s nogood for Government to preach at people about becoming sustainable if wedon’t try to do it ourselves.”In contrast to the average questionnaire results which indicated rent value /void period and building location as the most important aspects, Mr Tillsonwas adamant that energy efficiency, waste and water were of top priority. Thiswas because he saw these as the areas of, “…Most opportunity, but alsomost need.”He went further, adding, “There are good business reasons for it. We’vesaved quite a bit of money through installing efficient ways of regulatingelectricity. There are strong business reasons, [it’s] not just to show strongleadership.” This view is echoed by those in the private sector, including thoseof the other interviewee’s for this report, indicating that despite an overall lackof availability of empirical evidence, there is money to be saved, and made,from acting sustainably.In terms of sustainable construction, DEFRA hold to their intention to lead byexample: Nobel House is their flagship office and was redeveloped with apurposefully sustainable focus.
  45. 45. The aim was to achieve a BREEAMexcellent rating. It went on to gain thehighest ever BREEAM rating for aproject of its type, was namedSustainable Building of the Year bythe RICS in 2006 and achieved a70% recycling waste level and 40%higher water efficiency level thannormal. It was also a learning curvefor the department in terms ofrealising the work needed to producesuch a building.The undertaking of the refurbishment of this building allowed for a first-handunderstanding of the practices being done and issues regarding sustainableconstruction. Mr Tillson added, “You can raise standards of new buildingsrelatively easily, but when it comes to refurbishing or retro-fitting, it’s thatmuch more challenging.”When questioned about the ability that government has to change opinion anddrive sustainability, Mr Tillson explained, “There are ways the Governmentcan help; by raising awareness, encouragement, exemplifying and sharingpractical experience and enabling others to make change. Possibly usingenvironmental controls or taxes.”“There are a spectrum of controls but it’s important to try and understand themotivations of those it’s trying to influence, and respond accordingly ratherthan trying to adapt a, ‘One size fits all’ approach.”This sentiment aptly demonstrates the recurring challenge that has emergedin this area. That is, the scope of the issue is so vast, and affects such ademographic, that it seems that at present there cannot be, or is not, aconsolidated action to the benefit of all those involved.
  46. 46. 6.3 Esme Lowe:Climate Change Capital (CCC) Property FundPartner.Mr Lowe is a founding partner (along with Tim Mockett) of Climate ChangeCapital’s Property Fund, which raises and invests equity into sustainable realestate. Prior to approaching CCC to start their property fund, Mr Lowe wasHead of European Real Estate with Capital Trust Ltd where he managed £300million of funds and 1 million square feet of property assets.The fund started by Mr Lowe is one of a handful of ventures (including othersby Sarasin and Credit Suisse) in “Green Equity” funds, with CCC’s beinglaunched in 2008. Climate Change Capital, the property fund included, wereresponding to the movements in opinion within the markets, seeing anopportunity in the low carbon economy.Mr Lowe said, “It recognized the change from high energy - low carbon, to lowcarbon high energy costs, i.e. the transition to low carbon will necessitate theprivate sector to make it happen, therefore there is a unique opportunity androle to build a business as part of that process.”In accordance with typical portfolio management practice, CCC have a spreadrisk over different asset classes, with 50% retro-fit, 25% pre-let developmentand 25% “standing investments”, that is, existing energy compliant buildings.The advantage and theory behind this method, as opposed to low carboncompany share buying, is that a discount can be sought on the initial propertyacquisition before refurbishing for a higher additional value to the portfolio.As Mr Lowe explained, “Putting it simply from our point of view, we might beable to buy a very good refurbishment opportunity at 10% net initial yield, andonce we’ve done the work, made it a high C or B energy rating and it’s fully letand mature, that might be worth 7% or 6.5%, so its an attractive area forgenerating above average risk returns.”
  47. 47. When questioned about social pressure to act sustainably, and motivations fora variety of organisations to behave the way they do within the arena ofsustainability, Mr Lowe acknowledged that there is no single, clearly definedmindset between institutions. He commented; -“There’s no black and white answer… Some market leading companies thatare focused on corporate social responsibility just think it’s the right thing todo. At the other end of the spectrum there might be global financialcompanies who will only do it if they believe that it’s the right thing to dofinancially, because they have a lower operating cost and make more profits.”He went on to add, “The regulatory framework is there… there are existingEuropean laws that require compliance to certain standards specifically withinthe built environment, you’ve got shareholder and stakeholder demand, a HRcomponent and actually you can save operating costs and make money, sowhen you put all those bits of the jigsaw together, ‘why wouldn’t you?’ wouldbe the question.”Despite it being early days in terms of the property fund managed by Mr Loweat CCC, he is confident that there are already signs of a financial advantageto the new portfolio… “…I don’t think we have any doubt about that at all. Bothour assets are in top quartile energy performance, we think that will makethem more attractive to potential occupiers and they should trade at a betterprice. Our investment thesis is around collecting a number of assets that havethose features so we think we should get a portfolio premium in addition.”What about the reaction from the occupiers? Do they think it’s worth it andhow have they responded to the sustainable property? “Very supportive, veryfocused and willing. We’ve achieved significant improvements in thebuilding… They’ve been extremely focused on that we’ve been doing. Wemanaged to secure a £400,000 sterling rebate… and that’s put us in a verygood position with them to achieve objectives.” (Appendix D)
  48. 48. How do see property values being affected within the next 5 –10 years andhow do you feel the fund will perform?“We will always aim to out-perform the market. In the medium to long term,real estate will do reasonably well as an asset class… We think ourinvestment philosophy is the right one, because it’s based on working withoccupiers to produce a product that is future-proofed and will therefore, on abalance of probability, outperform the market over a period of time.”“…I think now most people understand that actually it would make sense thatyou try and look after your resources better. The argument is not now aboutthe science, it’s about the mitigation and the adaptation. I think in the mediumto long-term I’m pretty encouraged by the focus and adoption of these issues.”Shortly after the completion of this interview, Climate Change Capital PropertyFund made its close on the 8th February 2010 with £69 million in equity.In a press release, Mr Lowe’s co-founding Partner, Mr Tim Mockett said,“Investors are becoming increasingly aware of how the future regulatorylandscape will look and are acting accordingly. The trend to more energyefficient buildings, driven by legislation and the wishes of occupiers andinvestors, is irreversible."(CCC ltd, 2010)
  49. 49. 7. ConclusionsThe process of this dissertation was aimed at establishing whether theincrease in sustainability as an issue within the built environment has madean impact on investment trends and corporate behaviour, therefore affectingportfolio values and profit returns.In order to ascertain this, there were the following objectives: - • Determine any current company policies on sustainability. • Investigate relationship between clients’ business needs and asset management strategy. • Establish motivation for investing in sustainable assets when adding to a portfolio.This investigation found that there are an increasing number of companiesand organisations that include sustainability within their policies, particularly inthe last two years. Corporate Social Responsibility is currently an importantarea within larger companies, with sustainability gaining an increasing focusand dedicated reports being produced on the subject.Following a letter to HRH the Prince of Wales regarding his early andcontinued involvement in the area of sustainability for this report, the“Accounting for Sustainability” document and case study examples providedby the Prince’s Charities show how policies and practices are beingimplemented, which was the intention of the first objective. (Appendix E)The “Connected Reporting Framework” (CRF) was developed to allowcompanies to provide consistent and comparable information that isstrategically important to businesses. Aviva, Carillion, Generation InvestmentManagement LLP, HSBC, Marks and Spencer Plc and many other leading
  50. 50. names have been involved in the project and in producing reports using actualdata. The aim of the framework is to encourage further involvement in thearea, using existing participants to lead by example, and shows howsustainability policies are becoming more commonplace.Confidential information provided by other contributors to this paper alsodemonstrates how company policies regarding sustainability are beingadhered to and impacting upon client organisations. This ranged from privateinvestors withdrawing from individual UK assets, to companies requestingactions from high-awareness clients in global markets such as China and theFar East.Relating to the second objective, the practice of asset management hasbegun to incorporate sustainability as part of its necessity to provide the bestservice to and from the client through their assets. This would appear to be indirect correlation with the current attitudes found in the questionnaireresponses to this report.With sustainable assets being more desirable in a market where carbon costs,portfolios are being adjusted accordingly. Across all fields, private and publicsector, sustainable assets are being acquired, and those less so are beingreleased, in order to lower operating costs, provide better transport options,drive up overall portfolio values and improve corporate image.As described in the interview with Paul McNamara, clients are nowapproaching their providers, often with sustainability being the first question.Companies providing funds like that of Esme Lowe’s at Climate ChangeCapital exist because there is a market with investors aiming to beresponsible and see returns from that.The link then between asset management and client requirements involvingsustainability, although a small part of a much larger field, is clear andseemingly continuing to grow.
  51. 51. The final objective of establishing motivations for investing in sustainableassets has proved the most complex. The apparent, “worth” of sustainability isopen to interpretation and varies tremendously depending on to whom youare talking and their own individual outlook and involvement in the industry.In relation to new builds, for those in a position to do so, the opinion verymuch appears to be, “Why wouldn’t you make it sustainable?” As found by MrTillson at DEFRA and Mr McNamara at PRUPIM, new constructions are mucheasier than retro-fitting, and with 98% of the UK stock already in existence,new builds are only a small part of a bigger problem in terms of sustainability.There is the motivation in some cases, often by individuals but now appearingin larger organizations, that it’s just, “the right thing to do.” This may well bethe case, and indeed is also enough of a motivation for people of this outlookto get involved and commit to an investment. However, the difficulty lays inhow to incentivise the sceptics as opposed to the already converted.For many, this is where the valuer plays a large role. Understandably, valuersare not keen to put a higher price on a sustainable asset with the current lackof empirical evidence and benchmarks to make comparisons. Althoughstudies such as those by Eichholtz et.al (2009) go some way to showing thedifference in values of sustainable real estate, some criticisms have beenmade, suggesting that there were any number of variables that could haveimproved individual asset values.Because of this lack in definitive “evidence” as of yet, valuers generallyremain firm in predicting or making higher valuations. The problem is that as itis still an emerging market, there exists the dichotomy between the valuerswho look retrospectively and the fund managers and investors who arealready looking forwards in hopeful anticipation of being proven correct.
  52. 52. Despite this need for a definitive answer on a macro scale, there are alreadysigns of clear incentives and motivation in sustainable assets. These includethe savings on occupying costs such as energy bills, as well as the overallperception of sustainability and its positive impact on corporate image.As indicated in question four of the survey for this paper, sustainableproperties already generally involve a premium over those that are not, apremium which almost divides equally between those who are willing to pay itand those who will not.The issue is not whether they cost more, but if they are worth more, whichbrings up further implications, or can be simply put down to the adage thatsomething is worth whatever someone is willing to pay for it. The markets willdictate this fact at any given time, but for now at least, it seems thatsustainability commands a premium and demand is still on the up.
  53. 53. 8. Further ResearchAs stated during the limitations to this work, there is more that needs to bedone in this field that was not within the scope of this report and its timeconstraints.The paper, “Doing Well by Doing Good,” (Eichholtz et.al, 2009) wasinstrumental in providing relevant data from a meaningful sample on thedifference in values of sustainable assets, despite the criticisms of it. A furtherstudy of this kind on UK stock would provide for a useful benchmark for theUK market.Another area with relevance to the valuation of sustainable property would bethe agreement of an industry-wide set of indicators in order to formmeaningful comparisons between properties. With an agreed list of areas andelements, complete with a form of pointing system, occupiers and investorswould be able to actively compare and consider each individual asset.Further research in these areas would allow for a more comprehensive andquantitative study to be completed. The Investment Property Databank (IPD)already compiles and publishes performance analysis information for use byprofessionals and stakeholders in real estate. As such, developments in thesuggested areas would be of great value to both a variety of industry areasand academics alike.Another area that would benefit from further research is creation of a methodfor a holistic benefit to stakeholders of sustainable property. Any work done toa property in order to make it more sustainable and efficient usually results ina cost from one party, with the benefit shared by another, or undertakenpurely for self benefit with potential for conflict between landlords and tenants.
  54. 54. For example, the benefit of lower operational costs would initially benefit thetenant, but should the landlord benefit from the changes, especially if theypaid for the alterations? Some may view it that by owning a building with loweroccupancy cost, they are already benefiting through potentially being able torent the property more easily. Landlords, however, may only view fiscalreward as suitable benefit for improving the asset. This may not work though ifthe tenants pay for the work in order to lower their occupancy costs.As such, research undertaken to find common requirements from both thelandlord and tenant side would provide for a mutual beneficiary method. Inturn, the possibility is that more individuals, from both sides, would potentiallybe more open to providing for or funding sustainable improvements to theirproperties, which would not be unique or restricted to any one market or assetclass.As highlighted by this work, there is also a need for clear, defined incentivestowards sustainable investment. The identification of mutual benefits (asoutlined above) would be an aspect of this, but there is also work required onhow to incentivise groups such as institutional investors across wholeportfolios, not just single assets. Research of this type would require a largeamount of co-operation from industry, with potential for a substantial testperiod of any method agreed upon by contributors.Future research of a quantitative nature would be highly beneficial. Althoughthis will require some time, particularly for figures to be comparable outside ofa recession period, the ability to source meaningful data for use in valuation,acquisition, marketing and investing, would in itself be a valuable addition tothe current information pool available to those in the industry.
  55. 55. ReferencesSustainable Construction Task Group, 2000, Reputation, Risk and Reward:The Business Case for Sustainability in the UK Property Sector, Watford, UK,Building Research Establishment.Eichholtz, P, Kok, K, Quigley, J, 2009, Maastricht University and University ofCalifornia, Berkeley, RICS Research, Doing Well by Doing Good; An Analysisof the Financial Performance of Green Office Buildings in the USASustainable Development Commission, 2009, Built Environment, Available athttp://www.sd-commission.org.uk/pages/built-environment.html[Accessed 17 October 2009]Pivo, G, 2007, Corporate Social Responsibility and EnvironmentalManagement, Exploring Responsible Property Investing: a Survey ofAmerican Executives, John Wiley and Sons Ltd and ERP Environment.Available at http://www.u.arizona.edu/~gpivo/Pivo%20CSREM.pdf[Accessed 18 October 2009]Sayce, S, Ellison, L, 2003, Towards Sustainability Indicators for CommercialProperty Occupiers and Investors, Kingston University Press, UK.The Carbon Trust, 2009, Insights: The Climate Change Levy, The CarbonTrust, Available athttp://www.carbontrust.co.uk/climatechange/policy/ccl.htm[Accessed 18 October 2009]Symes-Thompson, J, RICS, 2009, Two Sides to Every Story: Valuers’ andInvestors’ Attitudes, CB Richard Ellis Ltd, RICS Commercial Property Journal,November-December 09, Pages 18-19
  56. 56. Social Investment Forum, 2003, Report on Socially Responsible InvestmentTrends in the United States, Washington D.C, Social Investment Forum.CFAUK, McNamara, P, 2008, Will Greener Buildings Bring Bigger Profits?,Professional Investor Real Estate Feature, pp.41-43.Jansen, M, 2009, Building Sustainable Design: Do Green Funds Stack Up?,November 2009, [Online] Available athttp://www.bsdlive.co.uk/story.asp?storycode=3151293 [Accessed 17December 2009]Crown, 2009, Sustainable Development, Sustainable Operations on theGovernment Estate, [Online] Available athttp://www.defra.gov.uk/sustainable/government/gov/estates/index.htm#whatmakes [Accessed 17 December 2009]Keeping, M, 2000, What about the demand? Do Investors want SustainableBuildings’? RICS Research Foundation, The Cutting Edge 2000. ISBN [OnlineAvailable at ]http://www.rics.org/NR/rdonlyres/B10EB127AB3A 41B9 BA35 2416B057AC63/0/what_about_the_demand_20000101.[Accessed 15 January 2010]Schleich, H, Lindholm, A-L, Falkenbach, H, 2009, EnvironmentalSustainability – Drivers for the Real Estate Investor, Helsinki University ofTechnology and University of Regensburg, [Online] Available athttp://www.eres2009.com/papers/1A_Schleich.pdf [Accessed 15 January2010]Axa Investment Managers, 2009, The Real Estate Market: Down the RedBrick Road, [Online] Available at http://www.axa-im.com/index.cfm?pagepath=research&CFNoCache=TRUE&servedoc=7251820D-1708-7D7E-1B860E7892B77A50 [Accessed 15 January 2010]
  57. 57. McMahan, J, 2006, The Handbook of Commercial Real Estate Investing,McGraw-Hill Publishing, New York.Patton, M.Q, 2002. Qualitative research and evaluation methods, 3rd Edition,Beverly Hills, CA: SageNaoum, S, G, 2007, Dissertation Research and Writing For ConstructionStudents, 2nd Edition, Butterworth-Heinemann, Elsevier, Oxford.Pivo, G, Fisher, D. J, 2009, Working Paper: Effects of Walkability on PropertyValues and Investment Returns, [online] Available athttp://www.u.arizona.edu/~gpivo/Walkability%20Paper%208_4%20draft.pdf [Accessed 4 February 2010]Centre for Sustainable Construction, 2000, Sustainable Construction – TheData, Watford, UK, Building Research Establishment (BRE)RICS, 2008, Sustainable Property Investment and Management: Key Issuesand Major Challenges, [Online] Available athttp://www.rics.org/site/scripts/download_info.aspx?fileID=5227&categoryID=450 [Accessed 4 February 2010]RICS, 2009, “two Sides to Every Story” RICS Commercial Property Journal,November-December ’09, pages 18 and 19Building, 2009, Morrell Takes the Stage with a Warning to the Government,Building Magazine, Pg 10-11, Friday, 27/11/2009Climate Change Capital, 2010, Press Releases, Climate Change CapitalProperty Fund Raises £69m, [Online] Available athttp://www.climatechangecapital.com/news-and-events/press-releases/climate-change-capitals-property-fund-raises-£69m.aspx [Accessed3 March 2010]
  58. 58. BibliographyAxa Investment Managers, 2009, The Real Estate Market: Down the RedBrick Road, [Online] Available at http://www.axa-im.com/index.cfm?pagepath=research&CFNoCache=TRUE&servedoc=7251820D-1708-7D7E-1B860E7892B77A50 [Accessed 15 January 2010]BRE, 2009, Constructing the Future; Autumn Issue 41, The Business Benefitsof Low carbon Buildings, BRE Group, UKBritish Land Company PLC, 2009, Sustainability Guide for PropertyAcquisition. London, UKBuilding, 2010, The Carbon Reduction Commitment energy trading Scheme;Are you Ready to Commit?, Friday 8/1/10Carbon Trust, 2009, Insights: The Climate Change Levy, The Carbon Trust,Available at http://www.carbontrust.co.uk/climatechange/policy/ccl.htm[Accessed 18 October 2009]Carbon Trust, 2009, In the Bricks Research Summary; The Business Benefitsof Low Carbon Buildings, BRE GlobalCBRE, 2009, EMEA Research, Who Pays for Green? The Economics ofSustainable Buildings, CB Richard Ellis, London, UKCentre for Sustainable Construction, 2000, Sustainable Construction – TheData, Watford, UK, Building Research Establishment (BRE)CFAUK, McNamara, P, 2008, Will Greener Buildings Bring Bigger Profits?,Professional Investor Real Estate Feature, pp.41-43.
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  63. 63. Appendix A Questionnaire sent to Research Participants and Original Dissertation ProposalYour Job Title:Area of Business:1. How relevant is sustainability to your companies core business?a) Essentialb) Highlyc) Moderatelyd) Partiallye) Not at All.2. What % of your clients express an interest in sustainability?a) 0-10%b) 10-25%c) 25-50%d) 50-75%e) 75-100%3. What areas are of most concern to your clients? Please could youplace a number next to the answers to indicate the top three, 1 being themost important.a) Energy efficiency / Performance Ratingb) Waste / Water Consumptionc) Building Functionality / Flexibilityd) Location / Transport Easee) Rent Value / Void Period4. Are your clients prepared to pay a premium for sustainable assets,either to purchase, invest or occupy, or do higher prices make thisinhibitive.a) Yes, they are prepared to pay more.b) No, higher prices are preventative.c) Other (Please Comment)5. Are you involved with "Green Leases" and if so, how?
  64. 64. 6. Are shareholders consulted or directly informed of matters regardingsustainability?a) Yesb) Noc) Dont know7. Is your company eligible or a member of the FTSE4Good or DJGSIIndexes?a) Yesb) Noc) Dont know8. How would you consider an investors attitude to be affected by aportfolio of sustainable assets?a) Considerably Positiveb) Marginally Positivec) No differenced) Marginally negativee) Considerably Negative9. Would you be in favour of a government tax incentive regardingsustainability?a) Yesb) Noc) No Preference.Please comment further: 10. What strategies do you have in place to attract sustainableinvestment?11. In the last financial year, what percentage of your transactionsinvolved sustainable properties?12. In your opinion, what aspect/s of sustainability are most important?13. On a scale of 1 - 10, ten being the most positive, how satisfied areyou with your own office building / workplace?

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