Legal & General plots course to net-zero real estate across £21bn UK portfolio

Legal & General’s Real Assets arm has outlined plans to reach net-zero across its UK real estate portfolio by 2050, including new investments in onsite renewable energy and carbon offsetting.

The business manages more than 76 million square feet of buildings across the UK, collectively valued at more than £21.3bn. This estate contains a mixture of owned and tenanted buildings with uses ranging from build-to-rent housing to major infrastructure projects.  

Legal & General Real Assets has reduced operational carbon emissions across the portfolio by 20% over the past 10 years, through investments in energy efficiency and low-carbon energy. It said in a statement that a “step-up in pace and ambition” is needed to align its approach with the new national climate goals.

The business’ new strategy for delivering net-zero maps out key focus areas through to 2030 and hints at what will likely be needed after this point. Its approach notably covers emissions across all scopes, including Scope 3 (indirect) sources.

The new strategy outlines how net-zero has already been embedded into some new build and refurbishment briefs, and states that this will be a requirement for all briefs by 2022. The same requirement will be added to all major transactions.

Legal & General has already begun engaging landlords to help them phase out fossil fuel-based electricity, the roadmap states. Fossil fuels can be removed from all landlord areas by 2030 and all other areas by 2050, the roadmap states, as low-carbon heating and cooling technologies scale-up.

Other key pieces of work for the business this year will be modelling climate risk in line with the Taskforce on Climate-Related Disclosures’ (TCFD) recommendations, to inform a new resilience strategy, and firming up a short-term carbon offsetting approach.

And, next year, the firm will conduct in-depth feasibility analyses for adding more onsite renewable generation and procuring renewably generated power from offsite arrays.

Legal & General Real Assets believes that taking the actions detailed will reduce the operational carbon and energy intensity of landlord-controlled areas by 60% by 2030.

“As long-term investors and real asset owners, we have a responsibility to protect our clients’ capital through integrating ESG considerations into the investment process,” the firm’s head of ESG Shuen Chan said.

“By future-proofing our assets, we can ensure they are resilient and able to adapt to both climate-related transition and physical risks. Through the integration of sustainable practices into everything we do, we believe we can deliver enhanced returns for our investors in the form of higher occupancy rates and the ability to generate better rental income.”

To Chan’s latter point, a 2018 survey found that two-fifths of renters consider the environmental impact of a property when debating a contract. The proportion is higher the more expensive rent is.

Orchard Street

The announcement from Legal & General Real Assets comes shortly after property investment manager Orchard Street outlined plans to reach net-zero across its £4bn portfolio ahead of the UK government’s 2050 deadline.

Both firms see stricter brief requirements and climate risk analysis as major factors in their plans.

Those interested in hearing more about the progress to date, as well as future challenges and opportunities, of the net-zero transition in the UK’s built environment sector, are encouraged to watch edie’s recent video panel discussion on the topic. The video features Bennetts Associates’ director Peter Fisher and FORE Partnership’s managing director Basil Demeroutis. As an architecture practice and a property fund respectively, the organisations represent different viewpoints from within the built environment – a sector responsible for more than one-third of the world’s energy demand and emissions. And both are classed as leaders in the sector’s transition to net-zero. Watch the video here. 

Sarah George