Building Up

CFOs should spend more time on the green credentials of real estate.

Three years ago, when Roche UK tired of having its 1,100 staff working at four sites just north of London and decided to build new headquarters at the site, it was visionary. The £50m (€63m), three-storey building features timber-framed walling, ground-water cooling from 100-metre-deep boreholes and an ammonia refrigeration plant that is carbon-neutral and ozone-free. “We knew during the design stage that UK building regulations were due to be updated,” says Andres Brabeck-Letmathe, finance director of the UK arm of the Swiss healthcare company. In anticipation, he says, the firm “enhanced the building design to not only meet but, wherever possible, exceed these requirements.”

It used to be bottom line woes that drove CFOs such as Brabeck-Letmathe to scrutinise their real estate assets; soon it’s just as likely to be the growing burden of legislation that draws finance chiefs’ attention to their property management. “I see a growing wave of legislation,” says John Connaughton, head of sustainability advisory at Davis Langdon, a UK consultancy.

Most notable is the EU’s Energy Performance for Buildings Directive. The directive wants to cut the energy usage of the 160m buildings across the region. These buildings use more than 40% of the EU’s energy and create more than 40% of its carbon dioxide emissions. The EU reckons there’s room for cost savings of almost 30%, and is aiming to cut 45m tonnes of emissions by 2010 — contributing to the EU’s Kyoto commitment to slash emissions by 330m tonnes by that time.

The directive was finalised in 2002 and is set to find its way into national legislation by this January. The directive stipulates minimum energy performance for new buildings and requires property owners to provide an Energy Performance Certificate (EPC) when a building is constructed, sold or let. The certificate indicates the energy efficiency of a building and its installed systems such as air conditioning and lighting, and includes recommendations to improve a property’s energy performance. (See “ABCs of EPCs” at the end of this article.) But in time, EU-based companies will be required to measure their buildings’ occupied energy consumption (as opposed to the non-occupied efficiency measured in the EPC). And Brussels is already working on a beefed-up directive, which could require that owners implement energy-saving recommendations made by assessors. Then there’s a raft of national schemes. Just one example is the UK’s Carbon Reduction Commitment, a legally binding emissions allowance scheme, which will be phased in from 2010 for sectors that are not energy intensive but rely heavily on their premises, such as hotel chains and supermarkets.

It’s plain that policy makers are hoping the wave of legislation and regulation will act as a catalyst for change in real estate management — with a sharp focus on energy efficiency. “The purpose [of the legislation] is to transform the real estate market,” says Sarah Ratcliffe, co-head of Upstream, a sustainability practice of property firm Jones Lang LaSalle. Further down the line, it’s likely that companies will be required to report carbon emissions formally — including those from their real estate — adding further momentum to the market shift.

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