‘Mainstreaming’ sustainability: lessons from green buildings

What does ‘sustainability’ mean in the era of Covid-19—and how can we ensure that it is integrated into post-pandemic economic rebuilding?

Earlier this month I was very pleased to be part of Guernsey Finance’s ‘Sustainable Finance Week’. Originally planned as a week-long conference on the Channel Island, the event was thoughtfully and creatively re-designed for the era of the pandemic and transformed into a fully virtual, yet still interactive event.

The panel session on which I spoke examined the macro issues around private capital financing of sustainability in the post-pandemic context. The first question—basic though it may seem!—is around what do we actually mean these days by ‘sustainability’? Before the outbreak of Covid-19, ‘sustainability’ was most often taken to be more or less synonymous with environmental concerns. Now, wider social concerns have been catapulted to the forefront of society’s attention. Indeed, the pandemic has emphasised in very stark terms the extent to which environmental and social risks are related. For example, the European Commission’s proposed €750bn Coronavirus Recovery Fund includes numerous sustainability elements. But perhaps more interestingly in this context, the Commission’s current consultation on the Renewed Sustainable Finance Strategy explicitly notes that the European Green Deal adopted in December 2019, and the overall approach to sustainability, needs to be much more comprehensive. The Commission notes:

The ongoing COVID-19 outbreak in particular shows the critical need to strengthen the sustainability and resilience of our societies and the ways in which our economies function. This is necessary to, above all, minimise the risk of similar health emergencies in the future, which are more likely to occur as climate and environmental impacts escalate….The COVID-19 outbreak underscores some of the subtle links and risks associated with human activity and biodiversity loss….Therefore, it is important –now more than ever—to address the multiple and often interacting threats to ecosystems and wildlife to buffer against the risk of future pandemics, as well as preserve and enhance their role as carbon sinks and in climate adaptation.[1]

This demonstrates very elegantly the link between climate issues, wider environmental issues, and social issues.

There is an emerging consensus that in order to address this comprehensively, issues around sustainability need to be ‘mainstreamed’ into finance and the wider economy. Indeed, the past few years had seen increasing debate about mainstreaming, and current discussions about integrating sustainability into the post-pandemic economic recovery make this point all the more salient.

In financial services, one of the major obstacles to mainstreaming remains the lack of standardised definitions and benchmarks. In the wider economy, however, one of the big hurdles is a lack of technical expertise among a broad range of ancillary industries, and lack of resources.

Consider, as an example, ‘green’ buildings, which our recent research identified as a key aspect of low-carbon infrastructure more widely. But looking at the full goods and services supply chains required to design and build a new building to environmentally-friendly standards, it becomes apparent that all of the following require specific technical expertise not necessarily related to their core knowledge bases (though the definition of ‘core’ is likely to expand to encompass this area in future):

  • Architects (eg, energy code compliance)
  • Engineers (eg, calculating the carbon footprint of a building)
  • Fittings manufacturers (eg, sourcing of sustainable wood for use as flooring)
  • Builders (eg, best practice for minimising and managing construction waste).

The inescapable conclusion is that relative to a conventional building, a green building will—on average and at this point in time—be more expensive to construct because of the additional time and expertise it requires from each of the relevant professionals, and also because many low-carbon materials are currently more expensive than their ‘brown’ counterparts.

Our low-carbon infrastructure report cited research published by the Committee on Climate Change estimating that the additional investment in buildings required to meet the UK’s net-zero carbon-emissions target by 2050 will be £15-20bn. (Of course, in the long term, green buildings may be cost-neutral or even more cost-effective once things like operating costs are accounted for, but the long-term cost-benefit calculations are complex and heavily dependent on variables like ownership structure, building use and time-frame.)

In the case of buildings, then, clients are unlikely to commission ‘green’ unless laws and regulations compel them to do so; or unless sustainability is central enough to their values and priorities that those considerations supersede the cost considerations.

Extrapolating from this illustration, two main conclusions seem apparent. Firstly, government regulation will continue to be a crucial driver—if not the primary driver—of sustainability ‘mainstreaming’. Secondly, effective financing strategies will be essential to ensure that the higher up-front costs don’t result in potential new projects being abandoned due to economic unviability. Government subsidies or incentive schemes may well have an important role to play; the consensus was that financing the transition to a more sustainable economy was going to require a combination or private-sector and public-sector money even before the pandemic. But now that balance will be even more important given the huge impact of the pandemic on the public finances, and the additional constraints that will present for government spending in the years ahead. (The Office for Budget Responsibility estimates that the total cost of government interventions related to Covid-19 will be £132.5bn in 2020/21[2] and official data published on 19 June showed that the UK’s debt-to-GDP ratio has now exceeded 100%.[3])

A final point about mainstreaming is that particular attention needs to be paid to the ability of small businesses to integrate sustainability into their products and services. As demonstrated by the green buildings example above, attaining the additional knowledge and skills required for more sustainable approaches (while continuing ‘business as usual’!) will require considerable investment—of time and, therefore, money. But in general—aside from firms specialising in sustainability issues—small businesses have, on average, less expertise and fewer financial resources to deploy in this area than large firms. In the Covid-19 era, the resources challenge is all the more acute since so many businesses will be focused on survival, necessitating an intense focus on cash management and short-term strategy. But small firms (defined as those comprising fewer than 250 employees) make up 99.6% of all UK businesses and account for 44.5% of turnover.[4] In this context, true mainstreaming of sustainability will be impossible unless all firms—small as well as large—have the incentives and the support to make these issues central to their businesses.

1. https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/2020-sustainable-finance-strategy-consultation-document_en.pdf
2. https://obr.uk/coronavirus-analysis/
3. https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/may2020#the-impact-of-the-coronavirus-on-the-public-finances
4. https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/adhocs/009558employmentbyemploymentsizeband