Can You Afford Net-Zero Carbon As Inflation Bites? The Answer Is Yes
Orchard Street Investment Management has simultaneously announced the launch and first close of its inaugural 'sector agnostic' impact fund, a £90M equity cheque from Brunel Pension Partnership, as it hunts for investment opportunities that make an environmental and social difference.
The principal targets are decarbonising existing buildings via an accelerated programme of refurbishment; investing in place-based responses to social issues; and making buildings healthier for those that live and work in them, for example through improving air quality, access to green space and wellness amenities. It could invest in offices, retail, warehouses or leisure, wherever the biggest splash is to be made.
Orchard Street is so confident that it is linking 30% of its performance fees to the achievement of the fund’s objectives. The fund has an equity target of £400M.
The move comes as the growing stagflationary risk in the UK and Europe, and an unsettled economic outlook in the U.S., prompts many real estate businesses to look closely at the maths of net-zero carbon with an eye to shelving or scaling back intervention.
General consumer pricing growth remains high, and the UKMI’s forecasts for real estate and inflation tender price inflation across 2022 have both been raised to 9%. In 2023 this is expected to reduce to 3.5% for real estate, and 4.5% for infrastructure — but the shock in the meantime could give pause for thought among some developers.
Despite inflationary risks it is no time for businesses to compromise on their sustainability ambitions, according to analysis from project management and cost consultancy Turner & Townsend.
The report recommended sustainable procurement approaches, keeping project team structures and processes lean, fostering a digital-first culture across the supply chain, accurately measuring embodied carbon alongside construction cost, and operating a programmatic approach to align all of these goals.
“Recent evidence from several public sector capital expenditure programmes show it is achievable to reduce costs while keeping on track for net zero," Turner & Townsend North West Director David Williams said. "The returns on investment for energy-efficient technologies and retrofit projects are better than ever, and improving day by day.”
Orchard Street agreed that the maths makes their move easy to justify.
"One of the underlying drivers behind both our efforts as a business and the launch of this fund is the forecast that 80% of the buildings that will exist in the UK by 2050 already exist now, underlining the impetus for immediate action to be taken today to remediate existing but underutilised buildings," Orchard Street Investment Management Managing Partner Philip Gadsden said.
