There’s a very clear green premium for new operationally net zero carbon buildings, says Tom Walker, co-head of global listed real assets at Schroder Property Investment. With buildings accounting for 40% of global emissions, real estate is under pressure to stay ahead of environmental legislation. In this episode of Bloomberg Intelligence’s ESG Currents podcast, BI analyst Grace Osborne is joined by Walker and Vincent Van Bijleveld, the director of the Global Real Estate Engagement Network, to discuss the role of technology, relationships and capital spending in building a net zero world.
This conversation was recorded on July 2.
ESG has become established as a key business theme as companies and investors seek to navigate the climate crisis, energy transition, social mega trends, mounting regulatory attention and pressure from other stakeholders. The rapidly evolving landscape has become inundated with acronyms, buzzwords and lingo, and we aim to break these down with industry experts. Welcome to ESG Currents, your guide to navigating the evolving ESG space, one topic at a time, Brought to you by Bloomberg Intelligence, part of Bloomberg's research department, with five hundred analysts and strateusts working across all major world markets. Our coverage includes two thousand ecuties and credits, as well as outlooks on more than ninety industries and one hundred market industries, currencies and commodities. I am Grace Osborne, the ESG integration analyst FROMMER, and your host for today's episode. Today, we'll be diving into ESG in the real estate sector with Tom Walker, the co head of Global listed real Assets at Schroder's Investment Management, and Vincent van Beilevelt, the director of Global real Estate Engagement Network and managing consultant and Sustainable Investing at Finance Ideas. We'll be discussing the multifaceted transitional and physical challenges the sector is having to navigate and the financial implications from risks of stranded assets through to the potential property premiums. Lundon offers space for sustainability certification. BREAM, for example, had an average of twenty point six percent premium to those without, So the race is well and truly on for real estate peers to build a net serial world buildings account for roughly forty percent of global emissions, and there are a lot of exciting opportunities and innovation going on in the space, and really looking forward to this discussion. There is so much to get into. Thanks for joining us, Tom, and.
Vincent, thanks for having us.
So perhaps let's start with you Tom. We're in an industry that has seen an increased amount of environmental legislation globally. We've seen the rise of various green standards from BREAM to EPC, as well as a sector that's really navigating very material physical risks as we see the intensity and frequency of climatic events increase. What issue issues are use really seeing these companies having to navigate and what as an investor are the key metrics that you're looking at.
Yes, So in terms of kind of the key issues for companies, I think that it really involves every part of what they do. So you know, whether you're looking at the buildings that they are bringing to the market, they have got to be you know, sustainable, they've got to offer the credentials that the tenants themselves are looking for. And that is the same for whether you're thinking about a data center, self storage facility, and to the more obvious kind offices and residential. So in terms of the key issues for companies, it's about understanding how they can provide to the market what is needed, the cost of that that is quite significant in a number of sectors, and then also staying ahead of environmental legislation, which is again something that is really impacting the behavior of landlords and then the tenants. So there are a number of issues for companies to navigate, and in terms of the key metrics, that's a really difficult question to answer. The unfortunate part of this kind of ESG and move to net zero for the real estate spaces, there are so many metrics and there are so many different types of real estate that actually it's very difficult to say, right, well, this is a key metric that applies across all of the buildings, the commercial buildings that we're looking at. It's just it's too hard to do that. So you really need to get into the weeds of particular sub sectors with particular companies. Are they just an owner or are they a developer, and how they are ultimately impacting the environment that we're obviously all living in.
Yeah, I think there are a lot of different aspects to navigate, and the metrics are definitely a challenge depending on the type of property and whether we're looking at commercial residential. And I also think finding some level of standardization and cross companies reporting to be able to assess and measure progress against peers is really important going forward. Having kind of had a look at some of the broader issues that the industry is navigating, Vincent, it would be really good to hear about the work of the Global Real Estate Engagement Network and what the role of engagement is in pushing progress for the sector.
Thanks Graace for that question. So, the Global Real State Engagement Network is a collaboration of shareholders in both listed and non listed to real estates companies and funds like Schroders, but also Wellington APG and men Center Square CVRY. So the large asset owners and managers in indirect rual states trying to ensure that the rule set companies they own their shareholder of are managing their climate risks properly, and obviously collaborating makes that work more efficient for the members the shareholders a lots a more effective because it clearly shows two the companies we engage with that it's not just one shareholder that wants them to improve on climate risk management, but a broader group of shareholders. And as a network, we assess companies based on indicators that they publicly disclose and with system on those those indicators, and based on that indicators, we have conversations with those companies to better understand where they are, to kind of nudge them into the right direction where we think it might be helpful, and have discussions on what that right direction for them might indeed be. So in terms of metrics that you also discussed, totally acknowledge what Tom has been saying. I think CRAMP had the CRIB and Risk Rual State Monitor has done a great job in trying to be as precise as possible with kind of target setting on carbon and energy intensity per as a type and per geography. But even then there's still so much more kind of nuance that of course discuss with the companies to kind of assess what is what is needed. But I think Grant made a good start for that kind of trying to get into KPIs.
Yeah, absolutely, and I think it's interesting we have seen the rise in companies putting forward in at zero targets, but it'll be interesting to know a bit more about the analysis, like whether this has been reflected at an asset level and whether these companies were then the set to have a good kind of grasp of what's needed of them, what the financial impacts of this will be for them, and whether you feel that there's whether there's a good kind of grasp on this within et cetera or not from from the results of that survey.
So what we're seeing, and the report is publicly available, so just go to our web site and have a look. But what we're seeing is great progress in terms of commitments. So last year from twenty twenty two to twenty twenty three, forty percent now have set net zero targets after of the listed real set companies the top one hundred and twenty foot cheaperennuity constituents up from thirty percent, so a significant increase. And the zero commitment includes then scope one, two, and three. That's also a big improvement. While in the past time companies might have said, well, I'm not really looking at tenant energy the amount and NC two emissions. That's also now more and more being integrated into the target setting. However, in terms of implementation, there are still a lot of work to do. So, like just between let's say some ten percent of the companies have an idea of kind of what needs to happen on their assets to get them on that trajectory towards net zero. Somehaw like the same kind of percentage you have net zero plans have capex estemates around that, and obviously if you want to kind of manage your portrolio, well you need to know how much kpex is needed to get as it's a zero just to make good investment decisions.
Yeah, So, just to echo a little bit about what kind of Vincent was saying, I think it's also just important just to think about kind of the listed real estate companies and then some of the private real estate markets. The unfortunate position for listed companies is that they have networks like Green where you get lots of investors kind of putting together and you know, really asking for change. And I think the listed market is really held under quite a high degree of scrutiny. And I think that when you look at real estate players holistically, the listed players generally are pretty well advanced. They've got net zero targets that they are advanced in terms of their decarbonization of their portfolio. And I think that that's an important kind of point for listeners to understand, is that, you know, we as listed investors are really getting into management teams, having numerous calls, and that's really helped push the sector and to be quite innovative and forward looking. So generally, as you look at players, I think listed companies are very well advanced, further than some of their private market peers. Yeah.
Absolutely, And I think in Europe they were seeing increase kind of as we mentioned only environmental legislation and in Europe the drive to the need for retrofitting to meet energy performance standards and new new bills having to meet certain standards and various different regulations across the globe, and being able to have an idea of what the uplift and capex is going to be needed for this is really important, I think also as an industry when we're looking at decarbonization, and because this podcast is really about debunking some of the terminology and things like, there are nuanced terms within the sectors, so things like embodied carbon. It would be really great Tom if you could kind of talk us through a bit about embodied carbon and just explain of it.
Operational carbon is probably the easiest one to understand. So the buildings that we're all situated and now as they operate, as the lights are on, the heating's onward, air conditioning, whatever it is, that they will be emitting carbon and that is just what we call operational carbon. So that's just day to day running. Now, Embodied carbon is a really important part to understand because you can just sort of state yourselves, right, I'm in a new, modern building, Aren't I wonderful? It's operationally net zero carbon. I'm doing the right thing, and so it's the landlord and the tenants and everyone's happy. But what you fail to understand by just looking at operational carbon is the embodied carbon, and that is saying when this building was built, how much carbon was released when we were using steel, glass, concrete, whatever, all the materials going into that building. And that often is a hugely kind of polluting part of the process if you are using the wrong materials. And so there have been studies that actually highlight the if you're going to move into a operationally net zero carbon building, it could take you over a thousand years to offset that if that building has been constructed using the wrong materials in the wrong way. And I think that again is a really important thing that we need to address as a sector. So we like to think about the whole life cycle of the building. How was it built, what was the emission of it? Then when it's operated, what's the emission of it then? And then when it's deconstructed, you know what materials can be reused, And we're seeing a lot of advancement and modern developments reusing a huge percentage of the structure that was you know in the old asset if you liked that was deconstructed before a new one is then built.
Yeah, I think it's obviously there's huge challenges for this sector. But as you're just mentioning, Tom, there's some really exciting things going on material development, reusing materials and things like that, and be interested to hear from both of you actually what what innovations you've seen. What does good look like in this industry, particularly from a redevelopment, from a new development perspective, but also with challenges I think around retrofitting and things like that.
Sure, we had a meeting the other day with a company called British Land, which you know, many people in the UK will know. They're a diversified owner of real estate here in the UK, and they are currently you know, completing a development on Liverpool Street and they said to us that they retained fifty percent of the previous structure and were able to use fifty percent of the materials in the old building which was ultimately knocked down and then you know they built a new one. That's that's kind of a really impressive stat So good looks like that in terms of reusing existing materials from the old building when you've bought a site. But then also good looks like what they're doing in terms of kind of pulling together almost like a building ingredients of the new structure that's there, very detailed mapping of all of the materials in that new building, so that they are thinking about when that building ultimately comes the end of its natural life, the landlord in one hundred years time, ninety years time is then going to have a very detailed set of ingredients from the foundations through to the materials in the building that can be reused. And one of the reason why they were able to reuse fifty percent of the previous structure was because when the previous building was constructed in the nineteen seventies, you know, the people that did it then were very good at making lists of developments. So you're seeing this kind of whole life cycle approach to what good looks like. And then obviously the new building will be operationally net zero as well, So it's just kind of looking across the entire structure. It's looking at the materials used in a development. There is you know, what companies are increasingly doing is looking at a materials passport. So for every steel beam or bit of concrete, where has that come from, what's been the emission profile of it, so that again it can be accounted for in the whole structure that is ultimately delivered. So you know, good looks like that from a operational development point of view. But then also you know, you've got some companies taking advantage of some of the environments that they own their buildings in so Ria can a Canadian company they've got an asset near Lake Ontario. They have got you know, six stories deep down in the basement being able to use that lake water to both heat and cool their building. So again it's playing to the strengths that are in your natural environment as well as doing things like I've just mentioned that British Land were doing as well, a great example.
So Tom and I think to add to death power in general, I was saying that it's not easy, but it's not kind of not necessarily. All is more costly. It takes of course time to you know, look at materials, and I think companies have to work much more closely in their whole kind of values, less supply chain to work with kind of providers of materials if you're building USTs or when you're retrofitting things. But there's so many great examples and the actually nice things, and there is of course big geographical differences in terms of carbon UH target setting and in timing, I would say, I mean we're all heading in the same direction, but not at the same speed. But I would say especially in the United States, there's a lot of kind of investments also from the companies in formal proptech, private equity firms to really be on top of the developments. So while in one of European markets, there's a lot of focus on actually improving the assets better insulation, you know, improving the facade et cetera, et cetera, which are relatively costly but in our view at the end of the day necessary to get there. That might be a little bit less the case in the States, but there are a lot of investment in the kind of new technology prop tech to kind of do it there better in terms of the energy and carbon performance. And of course especially when you have large large roof spaces like logistics or self storage, you know, using the opportunity of renewal electricity on your own rooftop and may get into your business model. But also for shopping centers currently mainly in Europe, using kind of providing green energy and doing the whole kind of logistics making it able to kind of green The transport sector is also very relevant because logistics players are also trying to look into how can I we kind of decarbonize our way of working If logistic companies has kind of the facilities on sites to kind of charge drugs et cetera, et cetera, and of course that's a profit center for them, and many of those companies are looking at the kind of the opportunities also for kind of green the assets.
I think the just AD didn't agree. So just the proper tech side of things is really interesting and quite exciting. So when we're having these conversations with British Land recently, they mentioned that there's a company that can you know, so I mentioned that in the nineteen seventies they were quite good at making lists, but it depends where you are around the world and this and that, and so there's actually a company today that can go to any existing building and effectively scan it and then it can then detail all of the ingredients, you know, slash materials that were used and are there in that current building, which can then be repurposed. So I think that's, you know, an example of prop tech. Another great example that we hear companies refer to you know, a number of times is just sort of digital twins. So whether it's an existing building or a new development, they are building that in a digital world and then operating it and then seeing how much energy it consumes and saying, right, well, if we make a tweak here, if we change that or what it might be, is that going to increase or decrease, And that is really fascinating to be able to use that digital twin before you then ultimately go and develop a building, and that's hugely powerful as well. So prop tech is where you know, we can come up, you know, and be very half empty that there's huge problems in our sector, and then we can be kind of, you know, it's half full. And I think prop tech is going to really help us move into that world where we do meet kind of the Paris goals and we do achieve kind of net zero carbon by twenty fifty and that that I think ultimately will determine our success.
And by the way, good old fashioned kind of relationship building is also a relevant player, So you see that more and more. Then loads are also investing in your better relationship with our tenants. There are not just on kind of improvement sustainability together, but of course working on those topics together also kind of improves the relationship and thus the retention of your kind of rental contracts. So also there it's kind of a win win, but not unfortunately not all tenants are there yet, but also there there's an increasing the amount. So there are studies that have said kind of if you look at simply the number of companies that have set net zero targets for themselves and the office space, for example, available that's already near zero, then you know there's it's a huge opportunity to actually offer of Nedzier already spaces to have those kind of committed terms.
Yeah, and Vincelent just mentioned kind of old fashion, and you know, back in the beginning, but if your question you spoke about retro fitting, and I think, you know, if you think that's kind of old fashion, because I think I saw a stat the other day talking about how eighty percent of the buildings that are here today are still going to be here in twenty fifty. So retro fitting is old fashioned if you like, but again really really important and very efficient for us. So that's something that you know, we need to think about.
It's really great to hear actually all the different elements that are going on in the stay because I think there's some really exciting things going on prep Teck particularly exciting, and I think there is always that strong focus on kind of what the rest for the sactor and the challenges that are going on, but actually focusing on what's the innovation. I think, as you mentioned the potential kind of slight. I think actually British Land was a particularly good company giving the marginal increase in capit needed for some of these more carbon neutral developments. But on the flip side, I am where we have seen that has driven green premiums, particularly in the commercial space office space. I think you mentioned Vincent, where companies have their own net zero targets and their largest portion of their operational emissions is their office space, so the opportunities are massive. Do I guess Tom a question for you. Have you seen green premiums in certain kind of property spaces and do you think that this is set to continue going forward?
Yeah, we do see it, and we are absolutely convinced it will continue going forward. I think kind of today where it's at its most extreme is in the office sector because I think that that's where legislation has kind of been focused, and that's sort of where it's very easy for kind of governments to lean on l lords and it doesn't sort of lose votes and stuff. I think that, you know, we get into the kind of the politicization of kind of environmental regulation, and clearly the largest sector that we actually need it for is residential, but that also has the potential to lose politicians the most votes, so that's why they continue to kind of rowe back from that. But kind of offices has absolutely kind of been the focus, i would say, of most environmental legislation, and as a result, we see a very clear kind of green premium. I mean, if just to give London as an example, because it's kind of where you know, I'm sitting today, you know, vacancy across London offices is today kind of ten to eleven percent, and it's growing. Vacancy for new green operation in that zero carbon buildings is less than one percent, and most of those new developments going up are pre left before you know, well before they're finished because there's such strong demand. And so we're seeing rents really growing significantly in that space at a time when the whole sector is clearly being disrupted by working from home, and ultimately, you know, corporate space needs are reducing, so that's really interesting. But ultimately we are seeing and will continue to see a slow increase in the premium for those most environmentally kind of efficient operationally efficient buildings, whether it is in a data center, self storage, residential, or whatever it might be. There will just be different speeds because legislation led by the politicians will just be coming in and enacting at different periods of time.
And kind of one danger of data and I think you rightfully said that there's a lot of focus on this operational efficiency there. So one of the things that as an industry we should be working on this and suring it also does all our buildings that might be a little bit less efficient but are not being demolished but you know, being improved, are also kind of rewarded with the rights of marks sort of. Tenants are also interested in actually renting those kind of a little bit older assets that heavy and metrofitted instead of only kind of demolishing and googlees and forgetting the about the emodited carbon and so I think, you know, there's a balance to be found and I think the current the group of investors which is called load of more direct owners have also pointed out that a lot of work still needs to be done with kind of the bream leads and all the other rating agencies to better reflect net zero whole life, including embodied carbon in the the justplification schemes. So there's a clearer market signal there also for not just kind of the best operational but also the embodied carbon and even on the operational side to be truly net zero lined, because we see that kind of a significant number of buildings that have kind of really high ratings in terms of bream e leads are still nowhere near anywhere after CREM targets that are needed to actually get the setor to net there.
I think a lot of the older buildings that we see today, whether they are you know, meeting environmental regulations or not, is all to do with the landlord and the attitude of the landlord. Have over the last ten years they've been you know, finger on the pull, investing in the building, understanding what tenants are going to want in the future, and you know, slowly each year investing into the building, or have they just been kind of delaying that capex, delaying it year after year, and then suddenly they are now realizing that there's a very large content money that they need to spend. That's really dictating kind of where we're at. And so you know, you're seeing headlines about stranded assets where owners of real estate are kind of handing the keys back to the bank because their equity has been wiped out more I would say in almost all of those instances, that is where a lanold has not factored in correctly the amount of capecks that they need to spend and they've been delaying it, and they've now faced with a very large bill. And I think that's, you know, a really interesting kind of part of the market to look at, because you're now going to see those banks ultimately reselling those assets at a much lower price because the new bar of the asset has to factor in the correct amount of APEX so that they can then make their return. And that's what we're going to see over the coming years is stranded assets being sold at value which account properly for the amount of CAPICS that needs to be spent.
Yeah, I think it's so interesting that it just points to why that metric Vincent that in the survey looking at how many of these companies have capex estimations and things like this to be able to quantify that financial impact, have been able to make these upgrades that are needed, and I think it is exciting to see that actually it's a very is a sector where there's a very clear example of ESG materiality why it's financially material. There is the uplift prospect, but equally the very real risk of kind of brown discounts, stranded assets and things like that. I think one thing just to touch on is that, of course these companies have their targets in place, but there are aspects where it's not They are dependent on other aspects in order to meet these meet their targets. Of course we touch on there's different areas or potentially challenges around like triple or also on a broader scale geographically where they're based and dependency on like natural grids being decarbonized as as well as well as their potential for providing renewable energy. So I guess the questions both of you, do you think we'll see where people are trying to even just decarbalize that portfolio where see major geographical shifts and things like that in order to meet targets or what do you kind of see in with regards to those kind of challenges.
Yeah, I think in terms of will we see geographical shifts so that people can meet their targets, I think that's pretty unlikely. You know. I don't think that, you know, somebody who owns and operates assets in London is suddenly going to say, okay, right, well, I can't meet my targets here. I now need to go to Iceland, where it's one hundred percent geothermal and kind of natural resources of energy. I think where you're going to have where you will get to in obviously cities where there's kind of greater environmental stretch, maybe somewhere like in Miami. Do buy you need to ensure that the operation of that building is as efficient as possible. So I think that that is where we will get to for those cities. I can't see a geographical shift. I think you need to understand that, as you highlight, there are some energy grids which are cleaner and some that are dirtier. So you know, the energy grid of Norway versus say kind of Germany to you know, one clean one less clean, but Germany has to ensure that there's more renewable energy going into their grid, and then ultimately the building owners will then have a lower emission profile for their assets. While they have to wait, if you like, for that kind of government policy to come through. What is very clear is that the best owners of real estate in a market which which has a dirty grid like an Australia, like a Germany, is that they are maybe offsetting so that maybe they are signing power purchase agreements which leads to the building of a new solar farm, of a new wind farm, so that they are ultimately contributing to more higher levels of renewable energy going into that country's grid. And I think that's what we're seeing that the companies that we own in those locations where the grids has less per cent of redewal energy, that's how they're reacting because they don't really have any other options. You mentioned on the sort of the triple net point is again I think we need to understand that as landlords of real estate, we don't actually control all of that space, you know, So the building I'm in Schroeders doesn't own it, but we have signed a twenty year lease on the building, and so the landlord is actually not it's not his choice what energy, how much energy? You know, the tenant users like you know that is Schroders, and so Schroeders are going to determine the emission profile of this building, and the landlord is just a recipient of that. He's passive. And so there are some elements of rial estate that a landlord owns that they don't control if they've signed over a long lease. So there the landlord has to try and influence the tenant's behavior. And so again we see the best in companies really trying to influence a tense behavior where they don't control where the energy is sourced from. So there are natural limits which may not kind of be obvious to somebody looking at the sector from the outside.
Yeah, and add to that, of course, I mean not saying that they will, but if Shutvigce would facate the office in the twenty years from now, the owner still has an issue. So it's also in kind of their best financial interest to actually work with the tendant to try to kind of work together how to kind of improve the assets and reduce the energy performance. Although it's kind of twenty years away. You know, you can't wait for twenty years and then you know whether Shutgers or somebody else will actually move to another office building which is more energy efficient and ultimately leads to lower cost. So but yeah, we definitely acknowledge that kind of that those longer leases takes a lot more time and effort, and I would say that the ones that are leading a still mentioned are pretty a little effort in kind of their tent relationships. I think there's also still a lot of organizations that are simply understaffed in the kind of triple net long term lease environments that don't have their internal capacity to actually work with the tenants because they have seen themselves more as a financial product then as a kind of client a landlord relationship. I think there's a lot of work to do within those organizations to kind of change the business model a bit more into kind of working with tenants to ensure that you know, also after twenty years, you know, the building will still be kind of at par and leasable add to the current talent or to the future future tenants.
Grace. We also see, you know, parts of the world where legally the tenant does not need to hand over any data to the landlord, and so a number of tenants actually just sort of hide behind that. So whether it's a tent in a shopping center or an industrial space in certain parts of the world, the landlord has no right to see how much energy that tenant is consuming. So again, there are are someome limits there that we just need to be kind of aware of in terms of what landlords can do. It's not solely down to them. You know, some tenants in shopping centers are kind of reluctant to hand it over because they don't want that data to be They think it could be used against them whatever it might be, they might be named and shamed, when actually the landlord just wants it for transparency and just to have the opportunity to try and kind of help reduce the emissions for everybody.
And also that takes time. So there's a really nice example where one of the rule SAT companies, So one of our members was invested in a rusted company, and the rusted company was saying, well, we don't have the data from our tenants, so yeah, we can't really do anything because we don't know what to do. And well, the shareholder asked, what are your biggest tenants? Because we are universal owners, so we don't only own this real state, we only own we also own kind of your tenants. We were simply invested in a broad equity index. So they also reached out to one of the tenants and you know, made sure that tenants and landlord were starting to work together. Because today there's not one company. There's like you know, there are stability departments, they are leading departments. There's different people bringing them together. There's those companies with that have an actual target, but the leading department is not really involved there yet. So and of course it does take time to kind of get such a company, you know, into kind of a well, into moving its position. But when you have the staff in place and you put in the effort, you can actually work mid those sentence and again a stump set. I think the leading companies are now doing that to with great success.
I would say, yeah, I think it goes back to that point of yes, we put a lot of new tech and exciting things going on, but what you said earlier that relationship building is actually very important. I'm dealing with a lot of different stakeholders, so to make this happen and have that layer of transparency that is really needed in order to achieve targets and be able to discover those properly. That is a really important tool as well as that relationship building.
When we think about sergs, when we think about companies that we're investing in, you know, we don't have a line in the sand to say, you know, one side is good and one side is bad. Is that we just want to know. We want to be able to see where the line in the sand is and then say, okay, right, this is your starting point. We now expect improvement every year. And I think that's where we've got to get to you to encourage people to the starting line is say look, we're not going to judge you now, we just want to see wherever you start you then improve. That's what we want, and I think that's sort of how we can help you know, bring you know, the sector together to improve.
Yeah. Absolutely, And I think that is one of the biggest challenges for investors to actually how can we measure progress if we haven't got that starting point and also have a layer of some level of comparability between peers as well. So I think that the piece around transparency and disclosure is really fundamental going forward. Just kind of having a look ahead, I think we evincing your mentioning timelines up kind of twenty years time and everything. It's a sector that does have to concend consider like longer time time frames kind of to to fundaments to kind of close out. If we're kind of looking forward, what do you think and even a year's time is going to be the key focus for the real estate sector within the ESG space and more of a fun one to end. If you were going to choose anywhere in the world right now to put new office space, where would you be putting this? And why.
Spaces already least for twenty years, so to me, maybe you can a start with this.
Yeah, So so one year from now, what will the focus be. It will still be on moving to net zero. You know, we're we're sort of there's too much work to do to start moving on to other areas, you know. You know, we talk a little bit about biodiversity and I think that's going to to come through, but right now the sector needs to decarbonize. So that's where we will be one year from now, and then what you know, where would I like to build offices today. I think it would probably be in Asia. I think it would either be Singapore or Tokyo, uh. And that would be just really because that working from home is you know, relatively sort of minimally adopted over there, very sort of strong demand. And I think that would be kind of my answer.
And I think this is a great example that there's more, and there's other important topics and just eachga So at the end of the day, real estate is also about demand and supply and and of course we should always you know, acknowledge that. Nevertheless, of course the climate's resilience we didn't talk about physical risks also plays a big role. I would say in terms of assets, so great places, but not necessarily next to the shoreline. I would say, a little bit higher up and with your elevator kind of not on the hand of your technical installation is not on the kind of in the basement, but on the somewhat higher floor would be my answer in terms of the location of the office. And I don't have a specific view on the region there. And I totally agree with Tom that I think in need didversity and increasing yourso social will become more pronounced on the agendas of shareholders asking you know, what are you doing on those topics? But you know, the net zero implementation is still such a long and tedious round ahead of us that that will for sure stay on our kind of the top of our priority list for well, probably even more than ten years. And I would say maybe I should even say it should be more than ten years, because the tendency in real state is to kind of use underwriting processes for ten years. And I think if you look back at KPEX and their requirements and the number of actually how often you touch your building up when you do ultrofit, you don't do that every year. That I would strongly suggest to any listener that is in real states to kind of two increase the kind of underwriting process to at least kind of twenty twenty five years, so they better know, you know, what needs to happen after that ten year holding period that you anticipate, because the future buyer will definitely look, you know, in ten years time at the next ten years and if there are significant capex to expect it after that period, and it will influence your price, and it might be better to, you know, do it already now, so I would just stormly encourage to take a longer term view also use carbon pricing in the in the process. And ULI is currently doing great stuff, and we're holding that as well on promoting the use of an internal carbon price as a shutter price or as a fund to actually better reflect the potential of future carbon pricing, energy levies or potentially even tenant de amounts, but as approxy for a future world where carbon is better priced. And at the end of the day, you know, most of the governments have committed to an zero twenty fifty and you already said, Grace that rules Sex is responsible for forty of global emissions, so it's impossible that governments can actually kind of meet their targets. And then even in a more pessimistic scenario, if it's not twenty fifty, then it will still be twenty six or twenty seventeen. So for sure, if governments are going to lead towards anywhere near to net zero, whatever the date, they will implement stronger energy efficiency and carbon reduction legislation over time. And yeah, as you rightfully said, the rule said, it's not here for five years. Most of the assets in Europe are already built and when you're now building a new office well in Asia, Storm suggested it, then it will also be there for at least another century, so you better take that longer term into perspective.
Yeah. Absolutely so, Natzera is still very much in focus for the set going forward, and of course, as you mentioned, we could go on. I think if we had even more time to really delve into the physical risks and what's going on in this space, which is also incredibly important and a big issue that the sector is navigating now. I think, just reflecting on one of the statistics Tom gaves earlier that eighty percent of the buildings that are here today are still going to be here in twenty fifty, So it really emphasizes what you're saying, Vincent, that we need to have that long term lens when we're developing new buildings, as well as companies having a grasp on the capex needed to get existing buildings where they need to be to decarbonize them. And I think it was fantastic to hear some of the technology and innovation going on in the space, and there's some exciting opportunities and a very real financial material impacts of making these changes as well. I think office space in Singapore sounds great with the added bonus of some sun alongside those supply and demand dynamics. It's been really fantastic to discuss all these issues with both of you and gain your insights into this. There's so much going on in the space, and I think it's really exciting to see what's happening in the set to going forward. There's some amazing innovation going on, and I think having a lens on the opportunities as well as obviously addressing those risks is a really important going forward. You can find more information on our ESG analysis of the real estate sector by going to BP go on the Bloomberg terminal, and if you have an ESG quandary or burning questions you would like to ask bi's expert analysts, send us an email at ESG Currents at Bloomberg dot net. Thank you, and thank you both Tom and Vincent