As the construction sector transitions towards zero carbon buildings, understanding and de-risking the financial impact of these climate actions is critical to making better choices given the high upfront costs.
The case for a “brown discount” to valuation is becoming increasingly stark with new minimum standards which limit the ability to rent or dispose of properties and impose penalties. The ESG premium is now well recognised amongst commercial tenants both in sentiment and now performance and valuation. At the individual level, we spend 90% of our time in our homes, workspaces and other buildings. The quality of our indoor environment can significantly impact our physical and mental health, well-being and economic productivity. Also cold, damp conditions damage the property. On top of this, energy-inefficient buildings increase energy costs and household spending, which is particularly challenging for low-income residents.
Despite the emerging link to capital values, from an immediate cashflow perspective the economic case for the property owner to undertake upgrade works is not always clear depending on the lease structure. The Pivot platform provides you with a toolkit to eliminate the split incentive as to who pays and who benefits.
For new build property developers, particularly in the housing sector, emissions legislation and the demands for electrification of heating and mobility require significant grid reinforcement which, at a certain scale, can turn a property development into an infrastructure project. Pivot can enable separate ownership and financing of the distributed energy assets to help protect your core business model.
With the savings payments guaranteed, the projects can be structured in such a way as to pay for themselves, while leaving a day 1 saving with the bill payer. Whether the lease has a pass-through for utilities, or a fixed charge for the tenant, Pivot’s performance guarantee enables the works to be paid for by the beneficiary of the savings thereby eliminating the split incentive. These can be separately financed by Pivot’s partners through a project vehicle, alternatively the performance guarantee is equally available should the property owner wish to finance the works themselves. With the cashflows guaranteed, this allows the property owner to accommodate longer paybacks on balance sheet or fund them through a separate vehicle with a guaranteed return.
The tenant is provided with an improved environment, an excellent ESG rating that they can publish and support and the possibility of financial savings.