finance

ADVERTORIAL: Round Table: Industry wants clarity to build better future



THE JOURNEY to net zero carbon is already heralding dramatic changes to our landscape – no more so in the UK and Scotland’s built environment.

With COP26 in Glasgow imminent, Scottish Business Insider and Bank of Scotland hosted a virtual round table to examine the key issues facing the house-building, commercial property and construction industry.

Kenny Kemp opened the session and Darren Flynn officially welcomed the panel.

He explained the background to the Insider round table and said one of Bank of Scotland’s aims was to help Scottish businesses grow and recover after the challenges of the pandemic.

“One of the areas we are really focused on, where we can make a real difference, is assisting in the transition to a low carbon economy.”

He said that the bank’s conversations with clients now increasingly revolve around the ESG [Environmental, Social and Governance] agenda.

The opening remarks were around the key challenges facing each organisation in their race to net zero carbon and environmental sustainability.

Kenny Kemp Acting Editor of Scottish Business Insider.

Darren Flynn Managing Director, Wealth and Asset Managers & Regional Head for Scotland Corporate and Institutional Coverage, Bank of Scotland Commercial Banking.

Alan Brennan Relationship Director, Bank of Scotland Commercial Banking.

Dan Teague Director of Teague Homes (UK) Ltd and S1 Developments.

Nick Ball Principal, Corran Properties.

Clive Wilding Property Director, Artisan Real Estate, Limited.

Professor Philip Greening Director of the Centre for Sustainable Road Freight and the Centre for Logistics and Sustainability, Heriot Watt University.

Samantha Bett Director of Treasury, Wheatley Housing Group.

Kevin Whitaker CEO, CALA Group.

Dan Teague: “As a smaller business, we’ve probably been a little bit slower than most to catch up to net zero targets. But with current planning applications for the next project we will be introducing our first zero gas developments. The main risk of this is investing quite heavily in air-source heat pumps, which for us is an untried technology, and this adds cost to the construction. There is uncertainty into the market we are selling into, because it is new. We have a nervousness around it.”

He said it is the “way we want to go, and have to go, but there is a danger,” and he also said the PVs (photo-voltaic) which they have installed in some developments is not the right solution for Scotland, unless there is a better storage system.

“It’s interesting to see how this agenda lands and how the market receives the whole zero gas in future developments.”

Nick Ball: “We are a consultant development manager in the commercial field and our clients are both property companies, high net worth individuals and pension funds, and each of those have a different view on ESG and sustainability. We are definitely seeing changes in our core sector, which is office development. Like Dan, we’ve moved away in all new developments from gas as an energy source, so all-electric is a necessity. The driver in our industry are accreditations and there are a plethora of accreditations, and they are changing all the time as new one’s come on board.”

He said these standards are the original EPC through to BREEAMs [Building Research Establishment’s Environmental Assessment Method] and a range of new ESG accreditations.

“This drives a lot of our sustainable thinking and what we all mean by net zero carbon.”

Clive Wilding: “We come from a house-building background but more recently mixed-use city-centre regeneration projects, hotels, and offices. The best known in Scotland is New Waverley, but we are getting back to our roots and working with the likes of Wheatley Group, where we are on-site with a fossil-free low carbon development.”

“We are using air-source heat pumps and I share Dan’s concern.”

He says there is an over-lap with fire regulations and the handling of heat pumps.

“There are two other aspects, and I share Nick’s concern, that certification seems to involve so many things and there isn’t one common sense one that the buying public can easily understand. If you’re buying an A-rated washing machine you know what it is. We’ll get to the targets only if our buyer market understands it. The other thing is urban planning. Joined-up planning is required. 22 per cent of the carbon emissions in Edinburgh still comes from people driving into the office and commuting. The council’s now looking at 15-minute neighbourhoods and the silver lining of the pandemic is looking at the way we live and the way we work.”

Samantha Bett: “We’ve been delivering affordable homes and investing in energy-efficiency improvements in existing social housing for many years, alongside the social impacts of supporting homeless and other vulnerable populations, but now we’re having to pay for accreditation to ‘prove’ our ESG credentials. Our whole purpose is the provision of affordable homes. We’ve spent several billion pounds on building and investing in our existing stock. We already own 64,000 homes [with 50,000 built prior to 1984] and now face a retrofit challenge to make them fit for purpose for 2032 standards, which is EESSH2. [Energy Efficiency for Scottish Social Homes].”

Samantha said for new-build projects there is clear guidance in terms of Scottish Government’s requirements for energy efficiency – the Place-Making Agenda and the focus on delivering 15-20 minute neighbourhoods. But how do we address funding the improvements to make our homes energy efficient when at least a third of our tenants are suffering from fuel poverty?”

She said it is a conundrum of how to pay for the massive scale of retrofitting, while, at the same time, keeping rents affordable for tenants who are already facing economic hardship.

“We have to fund the work and service the associated debt, but we are limited on adjusting the income stream.”

Kevin Whitaker: “I think what Sam at Wheatley Group is saying is the real challenge. For people who are doing development we have choices and can put in or try different things. We can look at addressing the fears about the technologies in the supply chain. But sustainability is not a choice in society anymore. People will not buy your product unless you deliver and be sure about what you are doing.”

He says if there’s one thing the pandemic has shown it’s that people’s mental and physical health depends on them having proper living space.

“That’s probably as important, if not more important. Our focus as a business, over and above the technical solutions, is our attitude and approach because what the answer is today, will change next year and in the future. So as long as you have an open attitude and approach we should be able to deliver consistently.”

He does concede this is a big shift to turn around because people have been working on building sites for a long time in a specific way, and now they have to change.

He said the supply chain around air-source heat pumps was non-existent which makes it tough for the whole private house building industry. He said on a no-gas future, the market will need to be educated to what this entails.

He acknowledged that retro-fitting was a bigger challenge than the new-build space.

Alan Brennan: “Kevin’s point is very clear. What we are doing today is not what we will be doing next week and the year after, there is a constant evolution. Accreditation is one of these issues and we have our own in-house sustainability team. There is a plethora of areas and different badges. I think this is one area where there has to be consolidation for the end users to buy into it. From a funding perspective, we’ve been promoting various green solutions, such as green development loans, to clients which are assisting on this journey.”

The round table turned to looking at how the public and private housing can work together to build a sustainable future.

Samantha Bett: “Our new-build programme is funded by a mix of private and public sector finance. Increasingly, we are required to report the green and social impacts of our work to our funders (both private and public) without any material reduction to the cost of our debt. This does add an extra burden of costs for external accreditation and reporting.”

Samantha added there are, understandably, considerable reporting requirements for the Scottish Government and the Social Housing Regulator.

With the introduction of ESG reporting to lenders and investors, on top of our regulatory reporting requirements, we could be creating an industry out of reporting slightly different things to different stakeholders. My objective is to try and harmonise the reporting as much as possible.”

“Private finance solutions, no matter how ‘patient’ will require debt service, and our rental income is constrained. There are issues around affordability given the scale of the required investment.”

Dan Teague: “We hear a lot from clients about the red tape. There are so many acronyms that you are trying to satisfy. If the whole thing was made a bit simpler, everyone could get the streamlining that is needed to hit the targets. It becomes a dark art when you look at Section 6 stuff.”

He said clarity between different local councils would help. He cited developments where electric car-charges were demanded, while on another the same charges were ‘to be considered’. “Why isn’t there a uniformed approach where there is a standard put in place?”

Clive Wilding: “Some of the red tape often conflicts with one another. Some of the fire and building regulations conflict and there is little joined-up thinking at times and this is a problem. The Oxford dictionary defined ‘sustainability’ well in that it says ‘make the best use of what you’ve got’, it’s a simple as that. This is a good analogy from which to start the regulations.”

He said we must use less, in terms of energy, travelling to work and making unnecessary journeys. He also said that integration is the key to building communities where private and social housing live together with share community interests and common space.

Kevin Whitaker: “We are trying to provide housing stock for the nation. I’d challenge anyone to go to some of our sites and work out what are the affordable and private, obviously size might be a slight give away but overall you can’t tell. It’s 2021 and that’s exactly how we should be operating. It’s quite embarrassing for the industry some of the things we did 20-30 years ago.

He said it was important for policy-makers to send out a clear message and direction, whether this is about decarbonising or going all-electric.

“If we are really serious about this and getting rid of carbon, we’ve got to put our foot down on the pedal and get rid of some of the things getting in the way.”

Nick Ball: “There needs to be a levelling-up of knowledge across the public and private sector and an understanding of what it is we’re all trying to achieve. In office development, the sustainability agenda is coming from three directions: the big stick from high from central government, and from local government, which has translated into occupier sentiment, particularly in the corporate world needing to be seen to occupying the best performing assets.

Simultaneously, the landlord market, which includes the institutional pension fund market, gets that and has their own ESG targets, but when it comes to building control and local regulations, I don’t think they recognise the implications of the big targets on decarbonising and net zero, especially in Edinburgh city centre by 2030. Exactly what does that mean, and what does that mean in terms of design of building?”

He said ticking the boxes to meet the BREEAM regulations are changing the building design and visual appearance of property assets.

“I’m not sure the planning system and decision-making at council level has quite caught up with that.”

The discussion moved on to how the supply chains can move towards eliminating carbon with an academic and research input.

Philip Greening: “There is an important differentiation to be made between sustainability and decarbonisation and net zero. For me, net zero is a priority, that’s what the shortest fuse is on. Unless we do something radical about it in the next eight years, we’re stuffed. This has happened because of the inaction. This was completely avoidable if governments had got their act together earlier. What that means is the energy landscape is going to change. The inputs for the construction of new buildings has to be decarbonised, so we have to be generating electricity using renewable sources and we have to move away from the carbon-based fuels for a lot of the manufacturing and raw materials.”

He says there are changes being demanded to the supply chain but they are not aggressive enough.

“It will require us to electrify as much as we can in the production and transport processes. One of the problems is you require storage for electricity and the built environment has to accommodate that storage if it is going to equip itself to be net zero.” Carbon emissions for the average household is split 50-50 between space heating and transport.

“If you take an occupancy perspective on carbon emissions you need to integrate these two things to get net zero. The boundaries are getting further away so you have to embrace a more complex landscape and it’s certainly true that regulators haven’t caught up with that”.

The practical challenges on a construction site are now being felt, including various shortages of critical commodities.

Dan Teague: “There are problems with shortages. The main issue at the moment is that you can’t get concrete to a site in a sustainable way. What you are trying to do is find the concrete and get it from wherever you can. Your focus is on the practicality and that’s a bad starting point in terms of reaching net zero.”

He says the solution is that more and more elements are built off-set, with pre-formed bathroom and kitchen pods. He would also welcome more modular construction products in Scotland, as it is all focused on south-east of England.

Kevin Whittaker: “We’ve got to change how and where we build houses. Until we get into that mindset, we’re still dragging anchors. We need to make it easier on site. The workforce isn’t getting any younger, so there are big steps to be had there. However, we’re not naïve, there’s a lot of money invested in the British housebuilding market by a lot of clever people, and it’s always been a challenge.”

He said there will be big steps because “it is not a choice anymore, so we can’t keep doing what we’re doing.”

Darren Flynn: “The consumers are looking to buy houses but are they prepared to stand the extra costs required?” This prompted discussion on incentives and land values and that in construction there is a ‘perfect storm’. Again there were the issues of regulation, silos and the need for joined-up thinking.

Clive Wilding: “There is a lot of green space on the roof or at garden and balcony levels in housing and the consumer is well-ready for using this more actively. This comes through very strongly in all of our marketing.”

Philip Greening: “On the cost dynamic, it’s important to realise the cost of environmentally-unfriendly construction is not passed on. It is one that society bears, not consumers. And until you change that equation so individuals feel the burden, then attitudes are unlikely to change. Here’s a very harsh reality check, we don’t have time for the market to work anymore. That’s the reality. We’re in and the government will have to regulate, because there simply isn’t enough time to work this out.”

The round-table discussion turned to the energy options required including district heat systems, exemplified by Wheatley’s scheme in Maryhill in Glasgow, the merits and otherwise of both ground heat pumps for use in older properties where better insulation is also required, green, blue and grey hydrogen and the need for better storage for solar panel energy.

In looking at the wider picture, Philip Greening summed up: “In essence, we need to be thinking of the integrated built environment and a combination of many net zero applications.”

The event concluded with Darren Flynn thanking the participants for a most informative and eye-opening session.

For more information on how Bank of Scotland can help your business build back better, visit bankofscotland.co.uk/business



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