Guest: Tom Hill, Director of Environmental Economics at Savills

Savill’s director of environmental economics, Tom Hill, spoke on a podcast hosted by Blackstock Consulting founder Andrew Teacher, in the lead up to the 2020 RESI Conference. 

Despite significant progress being made in reducing emissions, the UK runs the risk of failing to meet its target of being a net-zero economy by 2050 unless policy goals are tightened, according to Hill.

“If you look at the emissions that the UK has now compared to 1990, then progress has been made. However, what’s clear is that the current policy trajectory of where we’re headed is not enough. It’s quite a long way to get on the net-zero track. So policy will need to be tightened going forwards,” says Hill.

“That’s the message that’s coming loud and clear from the Committee on Climate Change – that the government needs to actually put those policies in place to deliver on net zero.”

In its most recent report, the Committee on Climate Change said that although a limited number of steps have been taken over the past year to support the transition to a net-zero economy and improve the UK’s resilience to the impacts of climate change, much remains to be done.

“This provides an exciting opportunity for organisations, and it should provide the policy framework required to actually deliver and change behaviour. So I’m optimistic that that sort of change is coming,” he says.

Aside from changing how we deliver housing to benefit the environment, the pandemic’s impact on how we use our cities may also spur greater conversation around how we green our cities.

“One of the environmental positives that have risen through the COVID period is a greater focus on the livability of streets and areas. You’ve seen a movement towards having more pedestrian zones within streets, and also, a lot of councils and local authorities have invested quite heavily in increasing and improving tree cover within city areas. And that has a number of benefits, both in terms of actual livability of those areas, but also things like the cooling of buildings and providing psychological benefits to the people who live there,” Hill says.

Read the full article on Property Week.

Transcript

Andrew Teacher: I’m joined by Tom Hill, who’s director of environmental economics at Savills. First up, it would be good if you could explain to us what’s an environmental economist?

Tom Hill: I guess environmental economist is a sustainability person who basically plays with big spreadsheets, a lot of them at the same time. So there’s a lot of finding ways to measure the impact of different projects or activities and being able to communicate that in a more effective way.

Andrew Teacher: You’ve been on both sides of the fence, haven’t you? You spent a number of years at PwC, you were a senior research fellow at IPPR, so you’ve got experience on both the pure business side and the science and academic side of the fence, which seems to be a pretty good mix in terms of the sorts of advisory work you’re doing.

Tom Hill: Yeah, I started my career off at a charity called Bioregional as well. So I’ve been in the NGO sector, the think tank sector, and then the corporate advisory sector as well. And it’s interesting experience going through all the different places because you learn different skill sets and are exposed to different types of thinking in each one. And it’s quite a nice way of tying up both the aspiration or goal to hit what you might call true sustainability in a stretching and ambitious way, linked with a sort of corporate focus of actually what is practical and what can be delivered. And actually, what I call the “Yeah, but how?” of how you get things to happen.

Andrew Teacher: Hmm, yeah, the perennial question, isn’t it? Let’s start with social value, because that’s something I know you’re very passionate about and have really moved the dial on over the years in terms of thinking there. It’s something that I think is starting to permeate through the real estate world a little bit more, but to what degree can it truly be applied? Given that there’s often a disconnect between the company that that plans something the company delivers something the company that does the construction, the company that manages the development afterwards? So how, how is it possible to genuinely, genuinely implement a social value strategy? And fundamentally, how do you how do you how do you measure that impact?

Tom Hill: So I think what’s interesting with social value is that you can look at some best practice exemplars of what organisations are doing in terms of social impact and environmental impact, and there’s definitely some organisations out there that are really stretching the dial. Now, for me, social value needs to be thought around early on. And rather than explicitly thinking of it as a measurement exercise that gets bolted on to whatever is being done, the best way to think of social value is within the conceptual stage in terms of what an organisation or a group is planning on doing, and thinking about all the different ways that they can maximise the positive environmental and social benefits as they develop their ideas, and then building that into their business model that they’re pulling together. And then off the back of that, then you begin to think about how you might measure that and communicate it, but it starts in the initial planning going forward.

Andrew Teacher: So for someone that that’s totally alien to this, what does it mean? What are we talking about? Are we talking about solar panels on roofs? Are we talking about ground source air pumps? Are we talking about chucking cash at a local homeless charity? What does social value mean?

Tom Hill: In its purest form, it is kind of what you intuitively think it would mean. It’s like, as we’re building a development, for example, how can we build a development that maximises environmental and social benefits as we go about doing it? So on the environmental side, it’s all the things you just mentioned in terms of, “Okay, can we, as you say, throw some solar panels on the roof? Or of the types of building materials that we’re choosing, can we choose green alternatives?” And then on the social side, it is looking at things like maybe the value add that you’re achieving as you build the development is through things like the apprenticeships that you’re enabling, or the the level of accessibility that you have in terms of the people that you work with.

Andrew Teacher: And in terms of how that can be applied in a truly meaningful way, what are some of the the exemplars and who does it well? And what can people learn from those examples on a practical basis?

Tom Hill: Yeah, so there’s there’s quite a number of examples. I think that the best exemplars are the ones which take what I’d call the holistic approach. So they focus on both the environmental and the social aspect of the developments. I think the developer Hill is doing a lot at the moment in terms of their developments, to build in what you might call the ‘true sustainability angle’ into that. And so I think, as I said earlier, the first part is actually trying to work out how to achieve that best impact. And the second part of that is then how do we quantify that and communicate that and pull it together into some sort of strategy?

Andrew Teacher: And for people who don’t know Hill, they have a couple of schemes in Cambridge and, just thinking about the Cambridge Oxford region, there has been a lot of pushback from people living there around, well against development, against planned transport infrastructure, such as the roadway and rail links. And I guess the concern that people have there is around the impact on biodiversity, which I know is another area that you’re focusing on. So when when people band around this phrase, ‘biodiversity net gain’, what are they talking about? Because, again, a lot of people will approach this with some degree of cynicism, that says, Okay, we’re developers, you know, well not even just developers. But I mean, aviation is a great example, when you go on to the British Airways or virgin website, and you book your you book, your first class ticket to New York, coughing out how many tonnes of carbon and you get at the end, pay 25 quid and British Airways will plant a few trees for you somewhere. And you look at that, certainly a lot of people look at that and they think this is a load of nonsense. So I guess, given that there is that cynicism, firstly, what does biodiversity net gain mean, in the real world? And secondly, for people that are very, I guess, anxious about the environment, for people that are concerned, and that perhaps don’t have as much trust as they could do in property developers – let’s be clear about that, it’s not a hugely trusted industry – how are you able to square some of those circles? And I guess, support in a meaningful way, that can potentially help build trust, and above all, generate a positive environmental outcome?

Tom Hill: Yeah, so I guess, the way that I would start, in my response to that is, I hear those concerns, and I have a certain amount of sympathy with them as well, in terms of, for example, what you mentioned about carbon offsets. And my view on carbon offsets is that there’s there’s quite a significant mix in the quality of that. You’ve got some carbon offsets that

Andrew Teacher: Is there really a good one?

Tom Hill: Well, the ones which tend to be quite good, they tend to be quite expensive as well, if I’m honest, but some of them are, for example, actually sucking carbon out the air and turning into rock and then by turning it into rock, they’ve sort of become the gold standard of carbon offsetting – essentially, it is removed. And that’s quite different to the ones which are essentially saying that we’ll give some money to somebody else not to offset because it becomes less clear with what you would call the additionality of that.

Andrew Teacher: So this is the British approach, isn’t it? We get rid of all the bendy buses in London, we send them to Venezuela. So they’re not going to pollute the world over the other side of the Atlantic are they?

Tom Hill: Yeah, yeah, exactly. So I think there’s a kind of variation in terms of the quality of carbon offsets, but some of them have actually been quite impressive. And other ones, maybe less so. One thing I would say about carbon offsets is that actually regardless what we think about them, I think that they are central to, for example, the Committee on Climate Change’s plans to achieve net zero, and we will inevitably need them – we just need to make sure that they’re good ones and that they achieve additionality and that we’re not just using carbon offsets to essentially legitimise business as usual, but basically we’ve decarbonized as far as we possibly can, and then the carbon offsets are used to do all of the residual bits that we don’t have any other options for. It’s the icing on the cake really rather than the first port of call.

Andrew Teacher: So focusing on biodiversity where there is a lot of development planned in areas like Cambridge, Oxford and around the home counties, Bedford, lots of land coming forward there. And again, also across the Northwest and North of England, where we’re thinking a lot more about urban extensions and creating new towns so there is policy commitments on all sides of the fence to go and build a bunch of new housing in the middle of nowhere. So how do we deal with that impact and, thinking about biodiversity, how are we able to measure it, and above all, who’s going to take control of making sure that things get done?

Tom Hill: So I think a lot of this stuff is in the nuance, really. So I’ve been quite impressed with the plans for biodiversity net gain as they’ve emerged so far. Now, I think you need to make a bit of a distinction between the specifics of the biodiversity of an area. So we’re not necessarily talking about extra trees and that angle which are dealt with in other parts of the planning process. But the actual principle of biodiversity net gain is essentially to find ways to funnel and encourage greater investment into the creation of biodiversity and habitats across the country. And as a mechanism for doing that, I think it’s quite an effective structure that’s been proposed. And what what the government has effectively done is they’ve worked with a large group of ecologists to work out that where society has deemed that development is appropriate or where local government or planners have worked out where they do want to create a development, it’s how do you first minimise the impact of those developments? And if you are going to go ahead with those developments, how would you actually offset? Or how do you actually create better habitats elsewhere? And how would you create the mechanisms that encourage that? And in that sense, what’s being proposed is additional to what we had in the past. Whereas in the past, you had the development and you wouldn’t necessarily have that biodiversity net gain – now, we have this commitment to achieving 10% biodiversity net gain as part of development. And in my view, that’s a step forward, as plans are currently proposed.

Andrew Teacher: What does that then entail? So what do you actually have to do? And what are the data that you would measure in ensuring that those actions have been undertaken?

Tom Hill: So part of the criteria for biodiversity net gain, is still being worked out, it’s still in relatively early stages.

Andrew Teacher: Theoretically, what could you do? So let’s take a mythical 150 unit housing scheme in Cambridge? What could that look like? What are three or four of the KPIs that could be set around that that you’d measure?

Tom Hill: So what they ecologists do basically, is that they go on site, and they work out what’s already there, they do a survey to work out what’s happening on the site, and they document all the different, say, habitats and types of biodiversity, the quality of that biodiversity and extent of that, and so on. And then basically, there’s a metric that the government has created, that basically quantifies what goes into what they call biodiversity units, and say, how much biodiversity that the existing site currently offers. And then what they then do is they say, Well, actually, you’re going to achieve at least 10% biodiversity net gain, what would you need to do either on certain areas of the site? So you may say well ok, we’ll develop only 80% of this site and we’ll set aside 20% for enhanced natural capital development? Or, you might say, Okay, we’ll go to a local area, just off site, and we will invest in improving the biodiversity in that area, and essentially getting the equivalent uplift of biodiversity that was achieved on the site.

Andrew Teacher: And how workable is this within cities? I mean, cities like London, have a lot of squares. There are lots of squares that were originally created to be the lungs of the city and that is one of the defining factor, certainly of London. And it’s one of the things that you notice if you go to Manchester, there isn’t much green space in the city. So in thinking and applying this, how could the real estate sector look to do this? Particularly on the resi side of things – how could they look to apply that kind of thinking into more urban clusters?

Tom Hill: I suppose I would separate this question out from the explicit biodiversity net gain angle and maybe talk about it a little bit more generally. But on the on the more general side, I actually think if you go to compare to other cities, say, within Europe, and so on, like London, for example, and some of the UK cities that are actually relatively green, and have quite large parks compared to many cities around the world. And there’s a relatively large amount of public green space within our cities. And one of the environmental positives that has risen through the COVID period is a greater focus on the livability of streets and areas. So you’ve seen a movement towards having more pedestrian zones within streets, and also, a lot of councils and local authorities have invested quite heavily in increasing and improving tree cover within city areas. And that has a number of benefits, both in terms of actual livability of those areas, but also things like the cooling of buildings and, actually providing, essentially psychological benefits to the people who live there. Now to return slightly to the biodiversity angle, obviously, the ability to do biodiversity net gain, within cities, is more limited, however, often on the development sites themselves, the existing biodiversity will be fairly limited in cities anyway. And that’s where the offset angle comes in, and where essentially investing in offset in other areas comes into the process.

Andrew Teacher: And do you think we’ll start to see genuine innovation in how we build homes? Because again, if we’re thinking about that biodiversity net gain and thinking about broader impact. Clearly, if we started using a lot less concrete that would create a lot more of a positive impact than, you know, 1000 years of offset.

Tom Hill: My take on this is that we already know, a lot of what we need to know. So a lot of the technology that we need is already here, for example, in terms of net zero, we already have modern methods of construction and we have this awareness. And my take is that the incentives and the pressure to move forward with that are inevitably going to rise going forward. So if you look at the government’s commitment to net zero by 2050, for example, then what you can see is that, although we’ve made good progress so far, that has been quite heavily based on a couple of sectors, around say power and the use of white goods. And a lot of the other areas haven’t made the level of progress that’s needed to keep us on track for net zero.

Andrew Teacher: We haven’t made any progress really, have we? I mean, you know, we’ve kind of resisted the full scale shift into nuclear, which, let’s face it, you could argue has been the only game in town in terms of moving us to decarbonize the grid, quickly. And then when you think about things like housing, you’ve had standards that have been lobbied against by many of the main developers. The standards that we’re looking at bringing in now on housing were promoted 10 years ago.

Tom Hill: In my view we have made progress, if you look at the emissions that the UK is having now compared to 1990, progress has been made, particularly within the sectors I just mentioned. And in other sectors in construction progress has also been made. However, what’s clear is that the current policy trajectory of where we’re headed, is not enough. It’s quite a long way to get on the net zero track. So policy will need to be tightened going forwards.

Andrew Teacher: On the current trajectory we’ll basically fail to meet the 2050 ambitions?

Tom Hill: Yeah, so if you look at the most recent version of the Committee on Climate Change report, I think it identifies that by mid 2030s, we’re looking at being on track to be burning about 170% of emissions that we’ll be able to be burning, if we are to be on track for net zero, which basically means to me that either the government will need to find ways to tighten targets and policies in order to get us on track, or it becomes questionable how we would achieve it. And that’s the message that’s coming loud and clear from the Committee on Climate Change in terms of the government needing to actually put those policies in place to deliver net zero, which I think provides an exciting opportunity for organisations, and it should actually provide the policy framework required to actually deliver and change behaviour. So I’m optimistic that that sort of change is coming.

Andrew Teacher: Are some of the classifications fit for purpose? Because again, everybody bangs on about net zero. But it’s not net zero at all, is it? What they actually mean is its net zero if you’re thinking about certain aspects in the operation of a building – so net zero in a building doesn’t think about the concrete and steel that you’ve imported from China, and God knows where else. It doesn’t think about the TVs, the PlayStations, all of the gadgets and things that actually consume tonnes of energy – it’s simply focusing on the heating, ventilation and water, which seems a bit daft and a little bit misleading, isn’t that?

Tom Hill: Well there’s lots of different definitions of net zero…

Andrew Teacher: I’m going by the government definition, so the UK GBC definition, but I mean, I get your point. But the broad bucket is as I’ve described it isn’t it?

Tom Hill: Kind of. The UK government takes a territorial approach to net zero like other countries around the world. And the committee on climate change, says that it considers the impact associated with consumption emission, so the emissions that are associated with the goods that we import from other countries. Now, I agree that we should be considering our consumption emissions and the way that we extract oil and gas around the country as well, I think that’s important. But I think the focus on buildings and so on, I think, essentially, if the policy frameworks are put in place, from the government level, then that should trickle through to the business level.

Andrew Teacher: That’s fine. So when we think about how some of these rules need to tighten, what meaningful things can we do or should we be urging government to actually make interventions on?

Tom Hill: I think what’s needed is the policy clarity. And it’s often actually creating the level playing field required for businesses to work out what’s needed by when and what the sorts of milestone targets and the sector-wide plans look like. And in some cases, some sort of innovation funding and investment is also required as well.

Andrew Teacher: In to what?

Tom Hill: So a good example of where that is being explored and deployed effectively at the moment is around industrial clusters, particularly around carbon capture, use and storage, for example. And the money is essentially needed, because at the moment, businesses and organisations and communities essentially have freedom to release carbon emissions into the atmosphere. If you are actually designing a process where that gets buried under the sea and gets capped off, that implies additional costs. So you need to actually create the policy frameworks that will make that more viable, but in the meantime, you actually also need to help create the business clusters and the R&D required to actually work out how to respond to it in the first place.

Andrew Teacher: So finally, the whole pandemic and everything that has happened this year has made people more sensitive to the environment to wellbeing since working at home with families. And if you believe what Zoopla and other people say, that everyone’s moving out of London into the countryside, which remains to be seen – I guess Savills will tell us if that is happening, and they will benefit largely from it, I suspect – but that aside, if you accept that we are a little bit more sensitive to ESG and the social impact of what’s around us, what are the questions that investors should be asking? So when investors are looking at opportunities, when they’re looking at partnering with businesses in real estate, how should they be holding their feet to the fire? Everyone obviously, would have seen the big blow up around Boohoo, and its share price has taken a battering since, you know, some of your former colleagues have walked away as auditors. So what should investors be asking? And how should investors be holding real estate companies’ feet to the fire, so to speak, when it comes to ESG, when it comes to social value, it comes to some of these things that we’ve been discussing today?

Tom Hill: So this area is still, as I said, it’s still emerging to a greater or lesser extent. I think, with the government’s evaluation of the planning guidelines and things like that, what comes out of that will set the criteria which businesses are required to meet and then I think the key thing to focus on is the degree to which those guidelines are compatible with us achieving net zero. And then when that does become more clear, it’s then essentially seeing the extent to which businesses are complying with those and essentially looking for the ones which are trying to go above and beyond those requirements and to link social value and environmental benefits as an integral part into their business processes.

 

Participants

Tom Hill

Director of Environmental Economics

Savills

Andrew Teacher

Managing Director

Blackstock Consulting