IAS Conference: ESG takes centre stage

By Liza Helps Property Editor Logistics Matters

The environment, the economy and AI adoption were front and centre of the IAS Conference which took place in London on 18 April 2024.

Industrial and logistics property agents, and developers, listened raptly to a series of seminars highlighting issues facing the logistics sector in the UK right now. 

Rightly, ESG took centre stage with panellists from some of the largest development companies in the UK, responding to the question: When is the world going to wake up?

Led by Cushman & Wakefield’s Head of Logistics & Industrial EMEA Tim Crighton the panellists Baytree UK development director Amit Babbar, Prologis UK head of Leasing Sally Duggleby, and Tritax Group Head of Asset management and Equity Partner Petrina Austin all agreed that occupiers were more familiar with the lexicon of ESG and sustainability than they had been only five years ago.

Duggleby said: “Occupiers are now asking ESG questions about what the buildings have to offer. They are interested in airtightness, water consumption and understand the need to move away from gas boilers to alternatives such as air source heat pumps.”

But, she added, there were ‘others still fixed on transportation [as a way to reduce carbon output]’.

It was acknowledged that with up to 70% of a logistics company’s carbon output hailing from HGVs and LGVs, one of the most visible ways for a company to reduce this would be with a focus on the moving parts rather than the hub itself.

However, it that could be almost considered a missed opportunity for occupiers. Austin said: “Our buildings can be seen as a differentiator, while decarbonisation of the transport network is enshrined, having the best in class buildings in the right locations to support that in the future, is essential.”

The modern Grade A warehouse is not just a place to store and distribute goods they are so much more. Austin noted that in the drive to decarbonise the transport element, buildings can play a pivotal role supplying supplementary power through roof mounted PV arrays to electric vehicle chargers as well as provide on-site green power to run office and warehouse functions. Developers are going further  with larger scheme hosting collaborative micro grids and private wire networks to distribute excess on-site power from roof mounted PV arrays  to the occupiers that need it usually at a discount than that of the National Grid.

There is a recognition that developers and investors need to future proof their schemes to be able to provide larger amounts of power provision to cope with the direction of travel not just decarbonisation of transport via electrification but also in the ever growing demand for automation and robotics within the warehouse itself.

In an earlier seminar, AI consultant and Data Quotient CEO and founder Nicole Buttner, had already informed the audience that the industrial and logistics sector was positioned to benefit the most from AI through the use of automation of repetitive tasks and the integration of robotics and increased used of AI in warehouse management systems.

“Around 80% are already implementing some form of generative AI and that is only going to gather apace.”

Babbar said that integrating warehouse management systems including sensor suites within the building itself was part of a base build from his company. Creating digital twins allowing building functions to be remotely monitored and changes made remotely was of increasing importance to occupiers.

Buttner had mentioned that this layering of  AI to drive efficiencies and monitor the effectiveness of warehouse operations was only going to increase.

This theme was carried through to the final seminar of the morning when Institute of Fiscal Studies Director Paul Johnson discussed the economy at large and the need to drive productivity across the board as a way balance the books and create a resilient UK.

The more intangible issues of ESG were also discussed. Crighton said that it is relatively simple to engage occupiers to reduce operational carbon - a reduction in energy output means an increase in cost savings - when it comes to embodied carbon it is a bit more difficult to show costs benefit. While there are advancements in low build technology some of these are as yet comparatively expensive.

Despite that there are moves by developers and developer investors  to reduce embodied carbon in the built environment, driven by  the world wide movement to decarbonise portfolios to meet  financial investment criteria ahead of legislation and international environmental accords such as the Paris Agreement on Climate Change.

There was talk of circular economy principals focussing on a cradle to cradle material supply chain whereby the developer was already looking at the deconstruction of a building from day one, so that components can go on to be reused once the building itself has passed its economic shelf life and demolished.

Each ESG panellist said that their company was continuously looking at ways to challenge suppliers to improve and reduce embodied carbon. To do this all were seeking to codify the total carbon footprint of their buildings and developments giving them the base to prove a reduction in both embodied and operational carbon used.

Duggleby said: “Relatively simple changes in material used or the way construction is carried out or indeed the way vehicles are powered can deliver significant carbon savings for example using electric arc furnace steel reduces embodied carbon by 65% compared to traditional steel. Vehicles using hydrotreated vegetable oils (HVO) instead of diesel reduces carbon up to 90% and replacing traditional cement withGround Granulated Blast-Furnace Slag GGBFS takes embodied carbon down by 25%.”

Babar, having cited Baytree’s most recent development at Nuneaton where the offices were built out of cross laminated timber and Glulam - which significantly reduced embodied carbon compared to a steel construction equivalent, said: “Obviously, there is a cost to doing this.”  However, it was agreed that if the appraisals did not stack up then the developments would simply not be built.

As for the occupiers those looking ahead to that wider environmental legislative piece and taking on board the needs of their customers to be able to identify both direct and indirect carbon output, having a building that is already codified through national and international accreditations such as BREEAM, Global Real Estate Sustainability Benchmark (GRESB), and CRREM certification is critical. Austin noted: “It is not surprising that  occupiers are seeking ever higher rating levels not just for their own use but as a tool to attract customers.”

While biodiversity in itself, is not necessarily highest on the list of ‘must haves’ for occupiers Austin said: “Creating an attractive working environment which includes boosting the biodiversity of a site is seen as a way to actively retain staff in an industry where labour is a major issue.”

There is an increasing movement toward Wellness and having building that can offer wider amenities linking the natural world  to where people work be that  footpaths, cycle ways trim trails, and outside lunch areas, can attract and help keep employees.

These wider amenities can also include multi use games areas, canteens, prayer rooms, creches and wellness centres.

Provision of these type of amenities is becoming far more commonplace and also can help both occupiers and developers deliver on the Social aspect of ESG. Sharing of amenity facilities outside of work use and connecting countryside areas with the community at large are possibly the easiest wins, but there is also increasing movement towards looking at what a local community actually needs be that football pitches for the local girls and ladies teams to volunteers in reading programmes.

An area increasingly seen as collaborative between developer and occupiers is in training and setting up facilities to enable training to occur – easier to be done on the larger campus type developments. As the logistics sector becomes ever more technologically advanced there is a need for training workers in the right skills required to start and to upskill workers already employed.

On the face of it, who would not want to have a logistics development on their doorstep, ecologically aware, providing skilled jobs, opening up facilities to the community at large and actively driving towards carbon net zero but to the general public and for many Local authorities these are just big monolithic structures which are not great places to work. Changing that perception needs to come from community engagement and from both developer and occupiers going forward. It’s too easy for nimbyism to get the upper hand and planning is difficult enough to secure in the first place.

[The IAS is a national network of commercial agents focused on the leasing and development of industrial and logistics space in the UK.]