Laura Jockers joined M&G Real Estate last autumn, as global head of ESG, tasked with guiding the UK-based investment manager, which has close to £40 billion ($49 billion) of assets under management in Europe and Asia Pacific, towards its 2050 net zero target. She joined from the Howard de Walden Estate, a London property estate and has more than 15 years’ sustainability experience. Sustain spoke to Laura, about her priorities and challenges in the new role.
There was already a lot of work happening in M&G when I arrived, as we manage a vast global portfolio, so we need to think carefully about where we put our effort so that it pays off. And you can't really make those decisions without good data. So we have been working on a major drive to improve our data across all our geographies, particularly through performance benchmarks, like GRESB.
Our net zero programme depends on really good quality utility data, particularly with regard to tenant energy use, which is around 90% of our carbon footprint. While we are doing exceptionally well - in some portfolios we have 80% data coverage -, the time and effort it takes to get that data is exorbitant. What struck me as the most urgent challenge is, how do we automate this process and streamline those data flows. So, we are rolling out smart meters across our portfolio and working with providers of innovative and highly intelligent building solutions which utilise third party integrators and direct connections to automate utility data uploads.
It is really quite boring stuff, but it's the foundation of everything! We are now seeking the right partners across all our regions to introduce automated data systems so we can harvest tenant data in a more efficient way.
The backbone of our refurbishment and new development schemes is our sustainable development and refurbishment framework, which we're working with technical consultants to refresh at the moment because the standards are evolving all the time. That sets out our minimum expectations for any works or development carried out and also aspirational targets across all environmental themes including net zero.
For standing investments, we work really closely with the asset managers to understand which assets, over the next five years are likely to be core, which are secondary, and which need to be redeveloped, so that we can really be mindful in terms of the ESG goals we're setting. We have established long-term goals but now we are working on the granularity. Practical measures we are undertaking include solar PV feasibility studies for our UK retail and industrial portfolio and looking at operating partners to help commercialise that, which is quite an undertaking.
There's nothing uniformly easy in any country. In some, solar is a more obvious opportunity, in other data collection is easier. We definitely see regional variations. What I think is complex in, for example, the Asia Pacific markets is the regulation around things like the adoption of solar PV, which many studies have suggested is hampering that market. In the UK, the regulatory framework is there, but it's still a lengthy process to find the right operating partners.
Legislation is absolutely converging if nothing else because occupier demand for ESG-compliant buildings is on the rise globally. However, regulation, even when it's well intended, does not always fix the problem. So it's definitely a long-term game. But for us, it's identifying the right opportunities at the right time. So we move forward regardless.
If you look at valuation data and rental values, we're at a point where it is indisputable that green buildings carry a rental premium and a capital value premium. That's coming through in the data for the first time. In the past year, there’s been a number of studies pointing to the same sort of uplift; in some markets, you're seeing 20-25% gains.
So the conversation isn’t around the business case but more about how we concentrate our efforts given that we have a global portfolio and the potential to reduce carbon is not equal at every building. So we need to work out how to reduce the greatest amount of carbon for the least amount of cost. To do this we are working with the fund and asset managers to get a greater understanding of the portfolios and the potential for carbon reduction.
As we manage a wide variety of asset types, there is a wide variety of initiatives. For example on the residential side, we are working with social impact consultants The Good Economy, to help our residential funds understand where they can have an even greater social impact. As well as producing good homes and being a good landlord, we also contribute through community events, recycling facilities, clothing and food banks. We also do a lot of events and community work in the retail sector, which gives us a lot of opportunities to link with the community and support local charities.
We also work to have a social impact with industrial developments. For example, at the Brackmills Industrial Estate in Northampton (above), we went well above the planning requirements, to ensure that local businesses were supported and jobs created. As part of our approach to social impact we also seek to support the wellbeing of customers within our buildings through good design. For example, our 40 Leadenhall office scheme will provide best-in-class health and wellbeing amenities including fitness studios, an auditorium, a gym and spa, as well end of journey facilities and multiple terraces.
Green leases are a frequent topic of conversation in the industry but the frameworks for what constitutes a green lease are a bit ropey. Last year, we undertook a project to establish which clauses would go into a green lease and how they would be rolled out across the different geographies. So the priorities are data sharing, so that we can work with tenants to improve the energy performance of our buildings and check in to make sure that nothing is being done to reduce the performance of our buildings.
When I look at the marketplace, it's still an area that I think perhaps, is talked about, but the nuances around it are quite challenging and the frameworks difficult to apply globally. As well as looking at provisions within the lease, we can also encourage collaboration on ESG in different and softer ways. For example, in the UK any new residential customers or those that have renewed their lease receive a Green Lease Charter. This aims to encourage customers to better manage their energy use and make greener choices. The Charter is not binding but seeks to reinforce ‘environmentally aware’ behaviour at our assets and provides tips and information to residents.
Real estate needs a new model for green leases, JLL claims.
In its Green Leasing 2.0: Bridging the owner-occupier divide report, the broker said integrating an extended vision for decarbonisation through the full life cycle of a lease, with an emphasis on collaboration and communication, will help both occupiers and owners meet sustainability goals.
JLL research found 42% of investors and 34% of occupiers already implement green clauses in their current leases, and implementation is set to double with an additional 37% of investors and 40% of occupiers planning to enact green lease clauses by 2025.
However, Guy Grainger, global head of sustainability services and ESG at JLL, said: “Amid the current energy crisis and with increased pressure to meet sustainability goals, collaboration between the owner and occupier at an asset level to incorporate energy efficient solutions is critical. Existing leases, both green and non-green, do not allow this and a new model is needed with increased transparency and data sharing.”
The US market could reap $3.3 billion in annual cost savings if every leased office building implemented green leases, the Institute for Market Transformation (IMT) estimates.
JLL suggests a number of priorities for the industry to develop “green leasing 2.0”. These include:
“JLL has embarked on a transformative approach to integrate sustainability into our corporate real estate strategy,” said Grainger. “Green leases are an important tool to help us meet our ESG goals with the added bonus of driving efficiency. Our office fit-outs use 15% less energy than a standard code design for example, representing annual cost savings of more than $2 million across our portfolio.”
Hines has agreed a 10 year green lease for a German office tenant.
The Fraunhofer Institute for Open Communication Systems FOKUS has signed the lease for nine floors totalling 16,000 sq m at its existing headquarters Atrium Charlottenburg, in Berlin, which is owned by Hines European Value Fund (HEVF 1).
Through the green lease, both the occupier and landlord will be required to use or manage the space in a particularly sustainable manner, including the collection and exchange of consumption data, promotion of sustainable energy sources, and consumption reduction. The goal is to "achieve the most sustainable, resource-conserving, and ecologically efficient property as possible".
Paul White, fund manager for the HEVF Series, said: “For us, green leases are a key driver in making real estate investments and rental use sustainable. This way, we are not only adding value to individual properties, but also implementing concrete measures to address the pressing challenge of climate change.”