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Derwent London: Forging a pathway to net zero
The built environment is a significant contributor to the world’s greenhouse gas emissions, with buildings contributing up to 40% of emissions globally and consuming 36% of the world’s energy, according to the International Energy Agency. Derwent London Plc, the largest London-focused real estate investment trust (REIT) is prioritising reducing its environmental impact.
In February 2020, Derwent London committed to becoming a net-zero carbon business by 2030 and in July 2020 it published a detailed pathway explaining how it planned to achieve this goal.
There are four key pillars to Derwent London’s transition plan, explains the REIT’s Head of Sustainability John Davies. “We are reducing our energy consumption, generating and procuring renewable energy, reducing embodied carbon and offsetting the residual carbon emissions we can’t eliminate,” says John.
The net-zero pathway details how Derwent London plans to reduce the energy used and carbon emissions produced by its portfolio by improving its properties and using all-electric heating and cooling for new developments. It also plans to use renewable electricity and green gas to power its buildings and will generate its own renewable energy from a new solar park on its land holdings in Scotland, where it also has a tree planting programme in place.
John says the big challenge all companies face when they commit to becoming net zero is juggling different priorities. “Sustainability is fundamentally about balancing three priorities that can often be perceived to be in conflict: environmental, social and economic. It's a three-way balancing scale, and one should never be pursued to the detriment of another.”
“If you build buildings, you've got to think how efficiently those buildings are put together, what's the embodied carbon liability of the building, what’s its operational carbon liability and how are you going to manage that?”
John Davies, Head of Sustainability, Derwent London
Image courtesy of Derwent London
Adding value
At Derwent London, which completed its first net zero carbon building in 2020 at 80 Charlotte Street in W1, John says the focus is on “commercialising” the opportunity net zero presents, investing in its assets and ultimately adding genuine value to the business.
“Investing in sustainability is very beneficial to our business because it enhances value,” says John. “I think the trick a lot of people miss is the difference between the cost of something and the value it generates. Investing in sustainability absolutely adds value, but you’ve got to understand how it fits into your business and how to make it commercial. From our perspective, buildings with lower environmental impact let better, attract better covenants and they are more desirable. Overall, they're just a better quality product.”
Retrofitting and upgrading existing buildings, which is considered significantly more environmentally friendly than new build, is at the heart of what Derwent London does and John says the company faces a major challenge bringing some of the older, less efficient properties in its portfolio up to scratch and ensuring they meet the demands of modern occupiers in addition to the government’s stringent 2030 EPC targets. But while he recognises the scale of that challenge, he thinks there is a big opportunity to retrofit existing stock through collaboration and innovation: “We have got some amazing buildings with an amazing bone structure to them, which have got great flexibility, and we should be retaining them and giving them a new lease of life.”
Image courtesy of Derwent London
Derwent London was one of the first UK REITs to put in place a green finance framework, which includes a green revolving credit facility (RCF) and a green bond listing on the London Stock Exchange.
“A lot of green finance instruments in the market can be quite ad hoc — they often aren’t attached to a coherent, robust measurement framework,” says John. “One of the first things we did was put in place our own Green Finance Framework, which is the hub that governs our green debt facilities. So when we’re delivering a project and we want to use one of our green debt facilities, the project is assessed for eligibility against the framework criteria and the expenditure analysed and tracked throughout and we then report on the impact it has made.”
Whether the developer is seeking advice on green finance products or on construction contracts, John adds that it is vitally important Derwent’s advisers understand the ESG issues that are material. "Net zero is a key strategic and commercial priority," he explains. "Our advisers must understand its value to Derwent, be fluent in the concepts and language and be able to embed it in how they advise and represent the business."
“We are very proud to work with such a sustainability leader and, in particular, to work with Derwent London on its first net-zero carbon building, 80 Charlotte Street. We are excited about Derwent London’s future projects which we have no doubt will continue to drive the sustainability agenda.”
Fiona Edmond, Construction and Deputy Senior Partner, Charles Russell Speechlys
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