Is ESG over?

The UK's green economy booms, but will it continue?

The UK's Green Economy is thriving whilst the rest of the economy limps along. The UK's net zero economy grew by 9% in 2023 compared to UK GDP's 0.1%, according to a new report by the Energy and Climate Intelligence Unit (ECIU), with analysis provided by CBI Economics and The Data City. But, not to get complacent, CBI Economics warns that "without further investment and policy stability, the strength of future growth is in jeopardy as the US and EU compete to attract and develop clean industries."

This comes as net zero policies come into political focus. Calls started in early February for the government to be clear on the UK's net zero plans , on the same day that they rowed back on their heat pump policy . The policy is perhaps an example of something that would work well if infrastructure, education, and funding were aligned.

Last week's Budget did not add any clear direction or intention from the government regarding greening our buildings. One thing we have repeatedly called on is clarification over Minimum Energy Efficiency Standards for non-domestic buildings following a consultation in 2021. Last year, the government indicated that the timeline may shift from the originally proposed EPC B by 2030, yet again there has been no mention. In addition, many had hoped for incentives, such as the removal of VAT on energy efficiency works, to spur on the retrofit of commercial property, the rate of which would need to quadruple if the original 2030 deadline were to be brought in, yet this did not enter the chancellor's plans.

As the general election looms, it’s also worth noting that the Labour Party announced plans to scale back their ￡28 billion green investment plan to ￡15 billion a year, due to pressures around the public purse. The greatest scale back is in home insulation, where having previously promised up to ￡6 billion a year to insulate 19 million homes over a decade, the revised plans see this cut to ￡6.6 billion over the parliament – an average of ￡1.3 billion a year. On home retrofit, the UK GBC has helpfully launched a tool on how much the government should invest in improving the nation’s housing stock.

Let’s stick with our homes. I spoke last month about the resilience of buildings being a key theme for 2024 and the recent government report on overheating highlights how our homes are not good at withstanding heat . More than 4.6 million English homes experience summertime overheating, according to Loughborough University research. Meanwhile, consultants Arup reckon that 90% of existing homes will overheat under a 2°C global warming scenario. Some ￡24 billion could be cut from energy bills with 'basic upgrades to our 13 million least-efficient homes', according to the Citizens Advice Bureau. It would also save 6,000 lives and ￡2 billion for the NHS by curbing respiratory illnesses.

A new framework

Everything Everywhere All at Once, both the title of 2023’s Best Movie Oscar winner and a neat summary of the current state of ESG. Broad enough to mean just about anything to anyone.

Coming from the hottest year on record, the implications of this lack of focus have never been clearer. I have previously written about how, at the same time, the phrase has garnered all the wrong attention – being increasingly politicised, with some lawmakers in the US banning ESG as an investment screener and one of the early proponents, Larry Fink, stating he will no longer use the phrase.

Despite the rhetoric, a recent global survey by KPMG found that 90% of business leaders plan to increase their ESG investment over the next three years with dedicated ESG personnel, ESG-specific software and employee training and education as the top three areas.

Perhaps it's all about messaging and a clear definition of outcomes. I recently read a paper by Alex Edmans London Business School, putting forward that ESG should be redefined as 'Rational Sustainability' , which focuses on long-term value creation over political discourse.

In a new instalment of our Sustainability Series , we offer a more focused way to view ESG and real estate to reinvigorate decisions - our Five REs

1. REduce consumption
2. REnewable energy generation
3. REusing resources
4. REstore nature
5. REengage stakeholders

Emissions reduction is the common thread through all five, but ultimately, most legislation and ESG action boil down to one or more of the five areas and regulation is often aimed at transparency to drive these. Read the report here for what each of these means in turn for real estate.

Sustainable luxury?

The report spurred on from articles penned for The Wealth Report 2024 , which was released last week. Understanding the attitudes and behaviours of wealthy individuals is critical to understanding markets. But something mused in last year's report is whether luxury lifestyles can be sustainable.

A new fascination has taken off, tracking private jets. Brought to the attention by Myclimate Carbon Tracker, among others, there has been media coverage such as “Private jets belonging to 200 celebrities, CEOs, oligarchs and billionaires have spent a combined total of 11 years in the air since the start of 2022” from The Guardian, highlighting growing noise around the wealth carbon footprint gap. This is best explained by a report by Oxfam and the Stockholm Environment Institute, which states that the wealthiest 1% of the global population is responsible for more emissions than the poorest 66%.

According to our Wealth Report 2024 Attitudes Survey, this focus and attention are inciting lifestyle changes, with almost two-thirds of UHNWIs attempting to reduce their carbon footprint, while a fifth are trying to measure it. Some 40% of UHNWIs are switching to electric vehicles (EVs), and this rapid adoption will affect property owners and investors as charging facilities are increasingly sought in homes, offices, and retail locations.

But not all transport is made equal: just 10% of UHNWIs plan to reduce air travel, while 14% intend to cut down on private jet use. The aviation industry is often cited as a quandary to emission, and last month, Singapore, a forward thinker in sustainability, announced steps to force the aviation sector into a 'greener' future with all departing flights required to use sustainable aviation fuel (SAF), beginning at 1% from 2026, and expected to increase in following years.

Property has a big role to play here, too. Two of the top three actions for reducing emissions were improving the energy efficiency of homes and investment property. More broadly, UHNWIs are increasingly looking towards renewable energy investment (27%) and implementing ESG screeners within their broader (24%) and property investment decisions, which we examine how this differs from other market actors in the report.

Looking ahead, we can expect more attention to be paid to lifestyle externalities and investment decisions regarding sustainability, particularly as the 'Next Generation' of wealth have a greater focus on sustainability, as Liam Bailey points out with our Next Gen Survey results in the report.

What else I am reading

The Wealth Report 2024 offers an insight into how global farmland fits into sustainability goals and a wider discussion on UHNWI attitudes to nature-based solutions. There is so much beyond the sustainability arena on what happened to wealth numbers and forecasts, a look around emerging wealth hubs globally, prime residential property and private capital's importance to commercial real estate markets . For a fuller picture of how private capital will fit into the broader commercial investment picture in 2024, also released recently, was the latest instalment of Active Capital . The first insight of the 2024 series showcases our forecasts for cross-border investment in 2024 and a specific focus on US capital.

The SEC approves scaled-back climate disclosure rules , the Net Zero Industry Act in Europe calls for 40% domestic production of green technologies by 2030; could this mean a greater level of investment in facilities to support across the continent? Also passed the Nature Restoration Law , on nature, big banks turn to biodiversity opportunities , M&S wins Oxford Street battle , crypto firms to report energy use in the US , Australian firm doing Earth's work , Barcelona using tourist tax for heat pumps , and will we see more uninsurable real estate ?

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