21 April 2020

The COVID-19 emergency understandably dominates the current thoughts of everyone in the construction and real estate sector. However, we should not lose sight of the crucial role that the sector will play in the post-COVID recovery and society’s other great contemporary challenge – climate change. MMC needs to grow up quickly as it has an important role to play.

There is very little point replacing traditional processes conducted inefficiently on a site with very similar processes conducted more efficiently in a factory. MMC needs to reach further and address #netzero. By COP26 at its revised 2021 slot, will we have taken the early steps to realise the potential of MMC to support #netzero? Investors are key to showing the way.

Institutional attitudes to zero carbon

With increased public awareness of the climate emergency, major funds and investors are increasingly focusing on sustainability as a key metric in the performance of their portfolio, or in the case of lenders, as a key performance indicator for their borrowers to meet.

As reported in BISNOW, Goldman Sachs is set to turn a significant profit in the first European green CMBS transaction. This is due to the strong appetite from institutional investors for bonds backed by loans to sustainable properties, and comes after Goldman’s announcement in December 2019 that it plans to pledge $750 billion over the next decade into sustainable and green initiatives.

Seven major global private sector companies including Goldman Sachs and Lendlease have signed up to the World Green Building Council’s Net Zero Carbon Buildings Commitment, committing to slash emissions from their buildings to net zero.

Funders, managers and investors are seeing the moral and growing financial benefits in backing sustainable built environment:

  • BlackRock has put the climate at the centre of its $7T strategy, outlining that “climate risk is investment risk”, and calling for a fundamental reshaping of finance.
  • Venture capital firm Fifth Wall has recently announced a $200 million carbon fund focusing on areas including decarbonisation, and the ‘circular economy’ (aka the reuse of materials).
  • Asset manager and pension fund firm PGGM is undertaking an analysis of the risks presented by the climate emergency to its 4,000 assets, with a total value of $178 billion, and plans to use this data for its future investment decisions.
  • PGGM, APG and Norges Bank Investment Management are joint-funding an initiative to develop decarbonisation pathways for real estate assets, building on the CRREM project.
  • Real estate investment manager Redevco has committed to a net zero carbon portfolio by 2040.
  • Great Portland Estates’ new $450 million unsecured revolving credit facility and Derwent London’s £300 million Green Revolving Credit Facility both incorporate environmental KPIs, including incentivising decarbonisation, into their metrics.

In turn, the UK property owners and managers are also recognising the importance of ensuring buildings are efficient and ‘resource conscious’:

  • Schroder Real Estate announced the Better Buildings Partnership Climate Change Commitment, with 23 of the UK’s leading commercial property owners signing up to tackle the risks of climate change.
  • In 2019 Clarion became the first UK housing association to adopt the Pan European Certified Sustainable Housing Label, which commits it to reporting on 30 social and green indicators.

Despite these encouraging movements towards sustainability in the built environment, the 2019 Global Status Report for Buildings and Construction issued in December 2019 reported that nearly 40% of CO2 emissions are generated by buildings and construction.

If nothing else, the PR and reputational risk of not being seen to make changes may soon be a risk the sector cannot afford to ignore. From a social conscience perspective, of course, the need is even greater.

Sustainability in construction – can Modern Methods of Construction help?

The UK has committed to achieving net zero carbon emissions by 2050. How we address the particular challenges posed by the built environment will be crucial if we are to have any chance of meeting that target.

Waste is a major sector failing. Defra’s UK Statistics on Waste report found that in 2016 the construction industry made up 30% of the UK’s total waste generation (of 221 million tonnes). In addition to site waste, many developments are specified to have a design life of no more than 30 years. The attrition rate of building, demolishing and redevelopment of buildings (especially in cities), with all of the debris that comes with it, must be challenged. DEFRA’s report referenced above also states that 60.2 million tonnes of the UK’s 66.2 million tonnes of non-hazardous construction and demolition waste in 2016 was recovered. Whilst a 91% recovery rate is encouraging, this figure is largely unchanged since 2010, when public perceptions on waste have changed vastly in that time.

Sustainability can be a key benefit of adopting Modern Methods of Construction (MMC), particularly where developers properly adopt a design for manufacture and assembly approach. Indeed, the NHBC Foundation’s 2018 MMC study, found that 53% of participating developers considered sustainability as a key factor driving the uptake of MMC. Developers also cited improved efficiency (81%), again highlighting the sustainability credentials.

Adopting a manufacturing process in construction has many advantages in terms of sustainability over traditional methods of construction:

  • Wastage can be more easily monitored and minimised through the process of production; through honing and repetition of processes. A study by KLH Sustainability, comparing modular and traditional construction, concluded that modular results in over 45% reduction in material use and over 50% reduction in waste generation.
  • Offsite manufacturing minimises the time (and energy) spent on site thereby minimising pollution and disruption at a site level.
  • There is over 40% reduction in HGV movement at construction sites for modular construction as compared against traditional construction.
  • MMC workers are likely to be more geographically concentrated around a specific factory, minimising travel around the country. Focusing populations in specific locations also allows for greater uptake in sustainable, public travel in those areas, thereby further minimising the impact on the environment.
  • The regular testing of products can be carried out systematically, with improvements factored into the design process on an on-going basis, therefore allowing for far more regular product improvements.
  • Materials, particularly those used in panelised and volumetric modular systems, can be more readily reused in MMC, than those used in traditional timber/brick/concrete structures.

If funders and investors are looking to sustainability metrics to measure performance, then developers will need to find effective ways of meeting those expectations. Not only will those developers who adopt MMC in a meaningful way find it easier to satisfy their stakeholders, but those who do not look at embracing change will not only be left behind, but could even find themselves starved of funding. With the largest actors in the market now increasingly looking at zero carbon and the climate emergency and sustainability, developers and contractors simply cannot afford not to invest in the many benefits of MMC.

Key contact

Steven James

Steven James Partner

  • Construction and Engineering 
  • Energy and Utilities
  • Construction Disputes

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