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Insights from PropertyEU’s ESG Roundtable – Part 2

By February 22, 2022September 8th, 2022No Comments

Following on from our article on the key points discussed at PropertyEU’s ESG roundtable, we thought it would be interesting to have a look at where the South African property industry could perhaps expend efforts to increase price differentials for those investing in the sustainability of their assets.

Roundtable Highlights

The key points that were brought up in the webinar were that the end user is demanding a focus on sustainability; gathering accurate, verifiable, and appropriate data is difficult; the constantly changing legislative space creates headaches; and the EU suffers from an over-supply of bodies providing certification. Too many certifications and the relative ease of securing them has seen the power and trust in certification wane.

Participants in the webinar also discussed that it was high time to move away from an exclusive focus on energy efficiency and to start embracing concepts such as circularity and biodiversity in their approach to making their assets sustainable. In addition, all agreed that there were innovative technological developments emerging for producing low carbon materials for the construction and property sectors.

An Opportunity?

In South Africa, we should be investing in and hunting for producers of low carbon construction and interior products, as well as building a web-based database administered by a body capable of verifying the carbon levels. Financiers are actively looking to support businesses investing in sustainability.

Also, given that in the EU, independent 3rd party recognition or certification remains a necessity in a transactional or investment situation in terms of verifying ESG data, despite the plethora of ratings and rating bodies, is there an opportunity for South Africa to learn from and take advantage of these trends?

In South Africa, the Green Building Council provides our certifications and is doing a great job in stimulating green investment in the commercial space. This is of course far easier to do for new builds than retrofits. What’s the appetite for green renovation versus new builds in South Africa? I haven’t found any solid data on this, but it is clearly happening in the commercial space. And green buildings can definitely command a price premium. A shining example of a green renovation is the World Wide Fund for Nature’s (WWF) building in Braamfontein.

Perhaps another opportunity is in the residential sector. In Boschoff and Mey’s 2020 paper on the  building emission reduction potential of South African residential building efficiency tools the authors highlight that the International Energy Council has projected that residential floor area in South African would increase by 75% between 2015 and 2050. Part of South Africa’s attempt to meet its climate change commitments is to employ building efficiency tools, which include mandatory and voluntary regulations, standards, initiatives, and certifications. The paper concludes that these tools are just not sufficient to meet our emission reduction obligations.

Energy Performance Certificates

South Africa’s Department of Energy published draft Energy Performance Certificate (EPC) regulations for public comment in 2018. EPCs allow landlords to systemically analyse their building’s stock energy performance, while populating a country-wide energy intensity database of the building sector and supporting the government’s national energy efficiency strategy.

The proposed mandatory EPCs are not required in the residential sector and are for existing commercial buildings used only for entertainment, public assembly, theatres, indoor sports arenas, places of instruction, and offices. EPCs are, however, used extensively in the residential sector in several countries, and they may also be extended to the residential sector in South Africa in the future. Apart from being an informative tool, Boschoff and Mey state that EPCs have been shown to improve the sales and rental price of properties. This price differential will hopefully drive the uptake of improvements in energy efficiency and alternative energy sources.

Edge Certification

EDGE certification, developed by the International Finance Corporation to stimulate the uptake of energy-efficient buildings in developing countries, is used in 140 countries worldwide. EDGE positions itself as both a free online assessment tool and a certification system, so that architects and engineers can quickly identify low-cost, high-return design alternatives before (or instead of) committing to perusing certification. EDGE can help determine, at a concept level, the financial viability of a project’s green building initiatives early in the design stage.

The online assessment tool has been localised for South Africa’s local climate, utility costs, standard construction and system specifications, in addition to building regulations, allowing it to accurately calculate a building’s inputs and consumption. The EDGE assessment tool presents the building’s potential utility savings and reduced carbon footprint against a base case.

To pursue certification, the EDGE standard of 20% less energy use, 20% less water use, and 20% less embodied energy in materials compared to a base case building must be achieved, which is then independently verified and certified. This makes EDGE one of the only green building certification schemes that explicitly addresses the embodied energy or ‘upfront carbon’ of constructing buildings.

Many local residential EDGE certifications are being pursued by developers in the affordable or gap housing market, primarily due to the social co-benefits that have attracted funding by development finance institutions, but also for market differentiation. The International Housing Solutions Fund II has enabled the development of 5 000 EDGE-certified residential units, of the nearly 10 000 certified units between 2017 and 2019 according to Boschoff and Mey’s paper. With between 40 000 and 50 000 residential buildings being completed annually, EDGE certified units could represent up to 10% of all new homes being constructed annually. As EDGE certification requires buildings to be at least 20% more efficient than the local building codes, it could equate to a 0.5% reduction in the energy intensity of the sector by 2030.

Extending the benefits beyond developers

Given the drive in South African society to go ‘off-grid’ and the reduction in the pricing of renewable power systems, surely these applications, or derivatives thereof, could be applied to existing residential stock that has gone through some sort of green renovation, even if its just rainwater harvesting? Could the man or woman in the street take advantage of these trends?

We’d be interested to hear from our South African property gurus on whether or not these ideas are practical and possible or pie in the sky.