Introduction: John Davies is the Head of Sustainability at Derwent London and has been for the past 8 years. Prior to joining Derwent, John had spent 15 years working in a range of roles that all pertained to sustainability. Whether that be airport infrastructure, construction consultancy or real estate development. For 23 years, John has been a key pioneer for sustainable business practices and his broad spread of work has given him a holistic view of the sustainability world that few can match.
JR: We begin our conversation discussing ways occupiers can be given greater transparency regarding the number of emissions they use, especially when operating from conventional office spaces as opposed to co-working or flex spaces.
JD: This is being talked about a lot by progressive landlords and developers because they have a keen eye on their scope 3 emissions (tenants scope 2 emissions). Understanding and keeping track of your scope 3 emissions is particularly important for any landlord or developer that is committed to a carbon net zero journey.
JR: For those that don’t know, what are scope 3 emissions?
JD: Scope 3 emissions are emissions that stem from assets or activities not owned by the reporting company. For example, the number of emissions used by occupiers in Derwent buildings help make up our scope 3 emissions.
JD: In terms of understanding and measuring their emissions usage, good quality metering - that links clearly to service charge arrangements - is a strong starting point that will given tenants greater transparency over their activities. This allows occupiers to understand not only what the service charge is created with but the data that then supports that. While this information is only the first-step and is somewhat granular, as it doesn’t give the occupier ways to actually reduce the number of emissions they’re using. From a data perspective, it is necessary to know what level their carbon usage is at - so the carbon reduction process can begin.
JR: Lots of companies, from a cross-section of industries, are adopting carbon neutral ambitions. However, those who operate from within the sustainability sphere are increasingly doubtful of carbon neutrality, via offsetting emissions, as this is often a form of ‘greenwashing’ when compared to zero carbon or net zero carbon ambitions - which involve genuine emission reduction. How do you see the tide changing between offsetting emissions vs genuine emission reduction?
JD: You’re right, over the years carbon offsetting has failed to garner a strong reputations and this is deserved. It is important for people to understand the difference between carbon neutrality, net zero carbon & zero carbon. Unfortunately, as much as we’d like to aspire to a zero carbon society, life will never be completely zero carbon - business activity always includes some level of carbon activity.
JD: In the real estate industry, all parties are responsible for some carbon price-tag. This is where net zero carbon enters the dialogue, you need to show a demonstrable reduction in your energy consumption. For developers and landlords, this demonstrable reduction can come in the form of reducing the emissions produced via construction. For example, showing how the embodied carbon within the construction process has been lowered. Unfortunately, there will be a portion of emissions that cannot be eliminated - these emissions are the ones that then will be targeted for offsetting activities.
JD: When offsetting emissions, it is important to choose offsets that are of the highest possible quality - offsets that centre around carbon-removal and/or carbon capture technology. What you’re not looking to do is avoid carbon. Within the carbon-offsetting market, there is a broad spectrum of activities that a developer can choose from to support, all of which have a baring on the subsequent cost with the higher quality items costing more. Therefore, carbon removal activities often have a much higher price-point than carbon avoidance activities. However, it is essential to understand that these (higher quality) activities are significantly better at genuine emission reduction.
JD: Going forward, the companies that are truly committed to operating a transparent and effective journey to net zero will openly report back explaining the carbon-related decisions that they’ve made. For example, outlining where they’ve genuinely reduced their emissions and then explaining how they’ve subsequently offset the remainder of emissions via certain offsetting activities. First and foremost, net zero carbon is all about showing emissions reduction - to the largest extent possible - and then, lastly, carbon offsetting. However, we have to be realistic that offsetting will occur, until we reach a time when carbon reduction is inherently built into the mindset of developers and, therefore, into the spaces that are being delivered.
JR: Derwent have a stated commitment to reach Net Zero by 2030. Do you feel that you’re on track to achieve this target, in just over eight years, and what are some of the ways you’re working towards getting to Net Zero?
JD: We haven’t got long - that’s for sure. In terms of progress, we released our pathway to Net Zero in 2020. Effectively, we’re 10 months into full net-zero carbon activity and we have undertaken a huge number of initiatives over the past year to get there. This includes: carbon accounting, carbon forecasting and becoming the first UK REIT to establish green financing via a green revolving credit facility (RCF) which has a £300m green-tranche within it. We’ve also begun carbon offsetting and renewable energy projects on our 5,500 acre Scottish estate. A sizeable, 100 acre, solar farm opportunity -for example - which would allow us to produce our own electricity and also offer that electricity to our customers. Therefore, we’re simultaneously differentiating our business from our competitors in terms of how we produce and, subsequently, offer renewable energy to our customers. Derwent are moving beyond the current status-quo of the landlord that simply collects rent and are now adopting a much more holistic offering that will include many renewable energy alternatives for our occupiers. Collaborating with those who occupy our buildings will be fundamental to Derwent achieving Net Zero by 2030 - we won’t achieve this goal on our own. A collaborative network of interventions must occur for us to reach Net Zero by 2030 and whilst we are critical to many of those interventions, those who exist in our space are also integral to the ensuing success of these interventions. For example, if spaces are developed in a sustainable manner, it is critical that occupiers operate them effectively and sustainably as well. It is very important we strive to move beyond the transactional relationship that landlords and tenants have and, in actuality, a new, collaborative relationship between these two parties must form in order to achieve certain sustainability-related goals.
JR: Some developers are hesitant to move as proactively as Derwent are, in regard to adopting sustainable business practices, due to the perceived complexity and cost that these involve. What would some simple advice be, that other developers could embrace in the journey to adopting sustainable business practices?
JD: Start with the data. Energy and carbon data is the closest thing landlords have to a financial metric in this instance so you need to get that flowing from your buildings. Everyone understands their simple financial metrics of cost per sqft, pounds per sqft and monthly rents front-to-back. Your energy and carbon metrics need to be in the same position. You need to know what the building is consuming in terms of kilowatts - as kilowatts are then converted into carbon. From there, once you’ve monitored and measured your building’s energy and carbon metrics, the process of managing and reducing carbon begins. From here, you can layer sustainability into your proposition -which is where some may be put off by the increased costs. However, there is also an increased quality by doing this - and everybody appreciates quality. Put the quality in and you will get it back. Derwent’s buildings are clear case studies in favour of this approach, we’ve adopted sustainable development practices and our buildings don’t hang around there (sitting empty) for very long. Occupiers come in, they recognise the quality and it meets their expectations of a space that, in this day-and-age, they want to be working from. Wellness, sustainability and ESG are all triggers that dictate how occupiers view space and are more important now than ever before. Tenants want to be in spaces that will help them achieve their targets for these triggers.
JR: Finally, socialisation plays a key role in how sustainable a building is. Buildings need to be developed in a way that is conducive for human interaction and social activity, as well as contributing to the local community. How can the landlords and developers work cohesively with local communities, especially in emerging submarkets, to develop socially sustainable space?
JD: Yes, this is definitely important. People are a key stakeholder in any building and regarding any local community - ignore them at your peril. Don’t think that just because property is part of an investment portfolio, that local communities aren’t aware of who you are. These communities need to be included in discussions and you need to understand their needs. Fundamentally, you need to be a neighbour. This is key to the Derwent Way. Construction is noisy, dirty and irritating but if you engage with and talk to your neighbours then you’re setting a positive precedent where community individuals are able to come and speak directly to you, even if this may lead to some awkward conversations. Personally, I believe this approach is far more socially sustainable in comparison to sitting behind the veil of a PR company or anonymity. If you skip the steps that centre around proactively reaching out and relating to local communities then you may well find that getting your next planning permission or council approval is far harder than it was before.
