Biodiversity Is The Next Frontier Of Real Estate Sustainability

First, sustainability and wellness accreditations moved from being something nice to have for developers and investors to something that could determine the value of a building. Now, the latest sustainability initiative has emerged, focused on biodiversity.

From the need for new UK developments to meet planning requirements on delivering biodiversity net gains for their schemes to a major voluntary push from institutional investors through the global Taskforce on Nature-related Financial Disclosures, biodiversity has become a hot topic.

While biodiversity net gain currently is only mandatory for new development, given the way that environmental, social and governance requirements have gradually become regulated or de facto standards in order to protect against stranded assets, investors and developers need to get ahead of the momentum behind biodiversity initiatives before further regulations are put in place.

“It’s at early stages but a lot of our clients are talking about it, led by the funds, especially those who invest in impact funds or have green loans, or a wider ESG mandate and KPIs,” Workman ESG Director and Chair of the BBP’s Managing Agents’ Partnership Vicky Cotton said.

“Obviously you have the planning-led initiatives through BNG, but where I think it’s really interesting is in the voluntary area, where clients are looking at how they can improve environments,” she added. “Depending on the asset, that may be green roofs, terraces, or planting in car parks and landscaping.”

Looking at the mandatory requirements, the government has defined BNG as an approach to development, and/or land management, that “aims to leave the natural environment in a measurably better state than it was beforehand.”

Enacted through the Environment Act, which amended the Town & Country Planning Act, it requires a minimum 10% gain calculated using a formula called the biodiversity metric and approval of a biodiversity gain plan. Significant on-site habitat and all off-site habitat must be secured for at least 30 years and can be delivered on-site, off-site or via a new statutory biodiversity credits scheme.

The mandatory requirement came into place on 12 February 2024 for all TCPA development other than exemptions and non-major development and was extended to non-major development from 2 April 2024 after allowing a longer adaptation period for developers and local planning authorities. Implementation for Nationally Significant Infrastructure Projects is planned for 2025.

TNFD has been designed to help financial institutions better understand their dependencies and impacts on nature and to identify opportunities for investment in nature-based solutions. Institutions that adopt the framework are expected to set themselves targets to build in biodiversity, including measures such as using responsible landscapers, ensuring that the correct pollinating plants are used, and assessing the impact on overall biodiversity.

For those looking to get started, Cotton said that it is crucial to bring in ecologists early to complete due diligence and evaluate opportunities, especially in mixed asset estates where there may be more extensive opportunities at some sites and so investment can be skewed towards sites where adding biodiversity is more impactful.

“In the overall picture of an asset we’re not talking about huge sums,” Cotton said. “In addition, it creates better spaces, is great for occupier engagement and addresses the E and S of ESG. What is always impactful is adding colour and ensuring that maintenance is easy.”

Existing offices in dense urban locations such as London are typically the most challenging, but Cotton stressed that rather than becoming fixated on KPIs, “doing something” should be seen as a positive step forward.

“Inevitably there are trade-offs, but looking at the longer-term value of adding biodiversity, it’s a very effective way of improving an asset for occupiers and we’re seeing the main drive currently coming from forward-thinking funds,” Cotton said.

New policies on biodiversity are being introduced internationally, including France’s Article 29 and Singapore’s Landscaping for Urban Spaces and High-Rises.

“Much of the work to transition towards net-zero can’t be seen. But biodiversity is a very visible element of ESG and we see it as a great opportunity to act in urban locations and to create more attractive and green spaces which also help to relieve heat for customers and clients,” Unibail-Rodamco-Westfield Group Director of Sustainability Clement Jeannin said.

“In any new developments we will be looking at adding biodiversity. As an example, our project Westfield Hamburg-Überseequartier, which has been built on former industrial land, has been carefully developed while also being mindful of strong restrictions because it is in a flooding area.”

Initiatives include green roofs, roof terraces, playgrounds with greenery, planters, outdoor facilities with individual trees, perennial beds, display gardens and a climbing planting at the entrance to the underground car park, plus measures for the settlement of birds, bats and invertebrates. A green space ratio of 16.1% has been implemented, corresponding to more than 100K SF of greenery. 

“We have been partnering with [the Department for Environment Food and Rural Affairs] to help define BNG, and we’re looking at what we can do to create a meaningful impact by 2030,” Jeannin added.

That wider approach and seeing biodiversity within the context of climate change and environmental and social impact is also what is helping drive new strategies.

“The penny has recently dropped that biodiversity is the other side of the coin to climate change, and that natural capital is vital in getting nature back into our cities. Trees clean the air, cool the streets and provide water management against flooding, so there is a very positive story about investing in green capital, not just grey capital,” Savills Earth Head of Investment Strategy and Asset Management Robert Godfrey said.

“London scores highly on its green spaces, but in reality, these are very dispersed. And the other advantage of encouraging biodiversity in real estate developments is that we create a linkage and wildlife corridors,” he added. “From a risk perspective, it also makes for more climate-resilient cities, and as a result, more investors are talking about natural capital and green infrastructure. Also, it’s tangible, biodiversity makes places more beautiful and needs to be looked at in a holistic way within placemaking.”

It also fits with the greater focus on impact investment, and biodiversity has gone up the agenda when it comes to how funds view their strategies.

“There has long been a demand for green infrastructure, but the planning process has not always allowed that. But with a new government in power, we can see this going up the agenda. For urban locations, it really is about planning, and for rural it's about land use frameworks,” Savills Director of Impact Investment Tom Hill pointed out.

“Societal needs are often the catalyst for investors because they want to be ahead of the curve, and that creates opportunities and will almost certainly become an increasing priority for real estate investment. I could also see it becoming part of existing certifications like BREEAM and LEED.”

However, with greater demand to increase biodiversity, some concerns have been raised about the readiness of planning authorities to approve compliant development. The British Property Federation is among those to have called for a new long-term approach to resourcing the planning system to ensure that local authorities have the capacity and capability to deliver BNG effectively.

The BPF is concerned that current levels of resource, capacity and skills within local authorities are not ready to deal with the introduction of BNG, targeted at delivering biodiversity net gains of at least 10% maintained for 30 years or more. Gains can be delivered on-site, off-site, by purchasing BNG credits from Natural England or by a combination.

“The property sector has a huge role to play in protecting and restoring nature,” BPF Assistant Director Rob Wall said in a statement. “The new mandatory BNG regulations will place an additional burden on already over-stretched local authority planning departments.”

However, no doubt seeing the green shoots of biodiversity as moving in a one-way direction, an increasing number of property players are already taking note of biodiversity, even though many are at early stages.

“Enhancing biodiversity is one of the four pillars of our 2022-25 responsible investment strategy and is of growing importance," Orchard Street Investment Management Head of Responsibility and ESG Kathryn Barber said.

"While we do not undertake significant new development schemes or own large areas of public realm/land, limiting opportunities for biodiversity growth, we have set a target to increase biodiversity and planted 25 trees this year. We have also integrated biodiversity requirements into our landscaping contracts, via our managing agents. 

“This has absolutely risen as a priority for both Orchard Street and the sector more broadly. Nature and biodiversity becoming mainstream has really excited sustainability professionals as there is a growing realisation that natural capital cannot be used by businesses without a financial cost, so the loss of nature will eventually translate into business risk,” she added.

Likewise, Supermarket Income REIT Managing Director of Fund Management Robert Abraham said that while the company mostly lets the whole site directly to its tenants, including the outside areas, its major grocery companies have their own biodiversity targets and tend to be very proactive.

“On some of our bigger sites we have been enhancing our landscaping strategies,” he added. “We have recently undertaken biodiversity surveys to look at opportunities for more greening of our sites, and our view is that it provides a good narrative for investors.”