A decade ago, the authors completed a RICS-funded study (see Jackson & Orr, 2008; 2011) into investor decision-making at the asset acquisition stage and found that the environmental sustainability rating of a property was an insignificant consideration, ranking at 7th place out of eight property attributes. These findings are revisited, again funded by the RICS, to explore how, as the sustainability agenda has advanced generally, the property industry has reacted.
Studies suggest that capital value and rental green premia for sustainability exist, especially in US and Australian markets, indicating that investors and tenants are willing to pay higher prices for properties with sustainability attributes. However, evidence also suggests that the higher values being paid are greater than the pure financial (cost-saving) gains.
Similar research in the UK is beginning to emerge but the findings are less conclusive. Thus, there is a need to investigate the drivers for such policies in the UK and the degree to which they are being implemented. Four key themes guide the study: (1) Strategy setting and policy; (2) Financial drivers; (3) Non-financial drivers; and (4) Implementation and measurement.
The empirical part of the study follows two stages: firstly, a quantitative simulation exercise revealed that the BREEAM rating has risen to be the third most important attribute for investors during asset acquisition. However, conversely, stated preferences revealed it is expected to make virtually no contribution to achieving target returns or to risk mitigation. Here we present the results of the second stage, where focus groups explored drivers for the adoption and implementation of environmental sustainability strategies, and any barriers to change.
The results indicate that:
- The drivers for investing in sustainability features vary and include internal initiatives, external peer pressure and reputational drivers, as well as the requirements of investor-clients and some tenants;
- Crucially, green premia are not felt to exist in the UK. This was seen as a source of conflict between the achievement of financial and sustainability objectives, where there is a lack of hard evidence of added-value coming from expenditure on sustainability initiatives and systems; and
- At the implementation stage, where the achievement of financial and sustainability objectives appear to be mutually exclusive, financial objectives remain the predominant concern of fund managers.