Resilient buildings - adapting to the changing climate

In this article we look at how the likely impact of climate change and related policy changes may impact the Built Environment sector. It is anticipated that such impacts will increase in both frequency and intensity as a result of changes such as temperature and flooding. Climate change risk is already attracting considerable interest from mortgage and insurance markets. It is also likely that this issue will increasingly impact investment decisions and the value of real estate portfolios.

Adapting to change

Amid the political turmoil of 2018, several reports were published warning of the impact of our changing climate, one of the greatest challenges we face. At the United Nation's Climate Change Conference in December, Sir David Attenborough warned "If we don’t take action the collapse of our civilisations and the extinction of much of the natural world is on the horizon". Guidelines were agreed at the Conference to implement the historic 2015 Paris Agreement, which pledged to keep the global average temperature rise below 2 degrees Celsius compared to pre-industrial levels, and to drive efforts to limit the increase to 1.5 degrees Celsius.

The message is clear: immediate action is required, and the window in which action to avoid the predicted devastating consequences of the global average rise in temperature is closing rapidly. As the Built Environment sector is particularly vulnerable to climate change risk, it is likely to feature prominently in both the adaptation and mitigation measures adopted globally by the parties to the Paris Agreement and the financial instruments that will underpin the unprecedented action required. In this article we take a look at how the UK's response is shaping up.

Global change

It is estimated that 571 European cities will be affected by droughts, heatwaves and floods more severely than previously thought. The built environment contributes to this, accounting for an estimated 40 per cent of global energy use, an estimated 30 per cent of energy-related greenhouse gas emissions and a large share of waste generation and use of natural resources. The report published by the Intergovernmental Panel on Climate Change in October 2018 considered the impact of global warming of 1.5 degrees Celsius and the mitigation and adaption measures that will need to be taken to limit warming to this level. Electrification, energy efficiency and renewable energy are examples of the adaptation and mitigation measures required to reduce energy usage and decarbonise energy supply in the Built Environment sector to meet the goals set out in the Paris Agreement. The report also recommends additional changes needed in urban areas, including the "demotorisation" and "decarbonisation" of transport through the expansion of electric vehicles and greater use of energy-efficient appliances.

UK adaptation plans

The UK's second National Adaptation Programme (the UK NAP) published in July sets out how the Government intends to deal with the most urgent risks arising from climate change over the next five years, which may include increased instances of flooding; public health risks from increased temperatures; damage to natural ecosystems and biodiversity; disruption to domestic food production and trade; impacts on water and energy supplies; and new and emerging pests, diseases and invasion arising by non-native species. Resilient buildings represent one aspect of the programme; air quality and transportation issues and energy policy also feature. The UK NAP sets out a number of objectives and actions aligned with these risks. In respect of flooding, objectives include making sure that decisions on land use, including development, reflect the level of current and future flood risk, and boosting the long-term resilience of homes, businesses and infrastructure. In respect of increased temperatures, the UK NAP sets out actions that will be taken to deliver more, better quality and well-maintained local green infrastructure, to adapt health systems, and work with infrastructure operators to outline risks posed to their productivity. The Government has stated that these steps, and more, will be taken over the next five years to strengthen the UK's resilience to climate change.

We may start to see these international and national commitments filtering through into real estate transactions.

RICs guidance

In October the Royal Institute of Chartered Surveyors (RICS) also published a new guidance note on environmental risks and global real estate, which considers the implications for how real estate is bought, sold, used and valued. The guidance acknowledges that part of the reason for the extensive growth in environmental law is an increasing awareness of how climate change is impacting the economy, including the Built Environment sector: "Global market participants and their lending partners now demand to know more about the factors that could affect value, particularly environmental considerations". The guidance sets out good practice for RICS members and firms that are regulated by RICS. RICS guidance can be persuasive in legal proceedings, and case law has established that it can be determinative of constructive knowledge about identified risks and recommended mitigation measures.

Committee on Climate Change

The UK's Committee on Climate Change (CCC) is an independent statutory body established under the Climate Change Act 2008 which reports to Parliament on the UK's progress in reducing greenhouse gas emissions and preparing for climate change. The CCC is committed to publishing progress reports, and the most recent report, published in June, identifies that, although the UK is making progress in some areas, emissions from buildings actually increased in 2017 on a temperature-adjusted basis. However, the CCC considers that there is considerable scope to reduce emissions by improving resource efficiency during the construction of buildings and infrastructure. New and existing buildings are estimated to account for about one-third of the UK's greenhouse gas emissions and the Prime Minister pledged in May 2018 to halve energy usage of new buildings by 2030. To meet these targets, the UK Government is looking at cost-efficient ways to make all sectors of the economy more climate-friendly and less energy-consuming. The CCC is also calling for tougher long-term standards for construction emissions, while driving consumer demand, innovation and cost reduction. These standards may require retrofitting measures.

New reporting requirements

The Government considers that measuring and reporting energy use and emissions can help to drive improvements in energy efficiency and financial savings for organisations. A statutory instrument will come into force on 1 April 2019, which will introduce new reporting requirements for large unquoted companies and limited liability partnerships to annually report on emissions, energy consumption and energy efficiency actions. 

Sustainable construction materials

There is also increasing recognition of the importance of materials and construction methods in real estate assets to meet decarbonisation goals and develop sustainable, resilient buildings.
The Government considers that new methods in construction may help with the construction of new energy–efficient homes more quickly and cheaply. HM Treasury and the Infrastructure and Projects Authority have recently launched a consultation on how prepared the construction industry is to adapt to a new approach to building, and the Government is currently putting out to tender a £1.4 million three-year research project to address the drivers, barriers and challenges of new low-carbon homes.

Flood and temperature risk: planning, policy and insurance

One of the objectives of the National Planning Policy Framework (NPPF) includes the protection and enhancement of the built environment through adapting to climate change. The NPPF aims to achieve this by improving the resilience of buildings, for example by taking account of flood risk and the risk of overheating. Loss and damage caused by flooding results in billions of pounds worth of damage to businesses and households each year. The effects can include direct and indirect physical damage to building structure, resulting in business interruption and disruption to supplies and services.

In the 2018 Budget, the Chancellor announced a £13 million fund to tackle risks from floods and climate change. An increased risk of flooding, sink holes and subsidence will impact on the ability to obtain mortgages, and insurance premiums may increase in response to climate change pressures.

Although investors and developers generally rely on insurance to protect against flood risk, given the increased susceptibility of buildings to flooding and foreseeability of the risk, the ability to insure real estate interests against such risks is not guaranteed. Insurability concerns may also adversely impact on the ability to secure financing.

Increasing the resilience of buildings to rising temperatures is also a significant challenge. The Environment Audit Committee (EAC) considers that, at current temperatures, one in five homes in the UK overheat. As a result, buildings often rely on air conditioning units, which add to both air pollution and greenhouse gas emissions and increase energy consumption. The Government has recently acknowledged that since 2015 it has been aware that all new builds are prone to overheating. The NPPF considers that the risk of overheating should be examined, but there are currently no building regulations in place to prevent overheating.

Members of Parliament are particularly concerned about the effects of overheating on real estate assets such as hospitals and care homes, and the CCC and the EAC are pushing for policy changes. The EAC argues that, if building regulations do not change, there is a risk costly remedial works will be required as heatwave risk intensifies. The Government has stated that new homes will be built in a way that minimises overheating, but has not considered overheating in the wider built environment.
This is likely to be a key policy issue and we may see building regulations which require mitigation against potential overheating. The effects of overheating can be mitigated by construction materials, consideration given to ventilation and shading, and investing in new technologies to reduce interior temperatures and the consequential need for air conditioning.

Improving the resilience of the Built Environment sector

In the 2018 Budget, the Chancellor announced that a new study on improving the resilience of UK infrastructure "in light of technological advances and future challenges such as climate change" will be published in spring 2020 by the National Infrastructure Commission. This report will look at how resilience can be assessed and improved, including through better design and the application of new technologies. In the meantime, investors and developers should consider the risk of investing in real estate assets that may require urgent adaptation at considerable cost, as well as the potential benefits of investing in sustainable and resilient buildings.

By Co-Authors Jacqui O'Keeffe, Joanna Fox and Abigail White.