Embodied Carbon, Green Leases & Stakeholder Engagement: Lessons from Stanhopes Sustainability Journey

Adam Hinds (00:03.327) Hello, hello, hello. Welcome to the ESG Improperty podcast with Adam Hinds and my trusty co-host Jordan Relfe. Our show is dedicated to real estate professionals who want to learn more about how the world's largest and most sophisticated real estate asset owners are leveraging ESG and sustainability for both impact and competitive commercial advantage - achieving better risk-adjusted returns and reputational benefits. To help you do that, we identify and interview world-leading experts operating in the ESG space in real estate to give you the insights you need to deliver the most resilient, future-proof and impactful real estate assets.

Today we have an amazing guest, Nils Rage, who is the Head of ESG at Stanhope PLC. For our international listeners, Stanhope is one of the most innovative development and asset management partners operating in the UK, having delivered over £40 billion worth of assets. Nils leads everything sustainability and ESG-related across the business - from asset level pre-acquisition, design, construction, operation and disposal, right through to the corporate level. He has a deep wealth of knowledge in implementing ESG and sustainability for both positive impact and commercial success. Nils, we're absolutely honored to have you on the show. A very warm welcome.

Nils Rage (02:03.569) Thank you Adam and Jordan. It's a pleasure to be here. Thanks for having me.

Jordan Relfe (02:08.674) Nils, welcome. We usually start these podcasts with the background of our guest and their interest in real estate and, in your case, sustainability and your career. It'd be great to have an intro to you.

Nils Rage (02:25.995) Casting my mind back, it was really an interest in architecture rather than real estate per se that caught my attention. I'm an engineer by background. I'm French. The French engineering curriculum is somewhat different to here in the UK - it's more general. You're basically taught how to solve problems that you can apply to various situations. But I knew I wanted to specialize in something I had interest in, and that interest was in architecture. I was fortunate to find a double degree abroad in Copenhagen, Denmark, and I found a second master's I could go on and do that was about architectural engineering.

That was effectively about defining a sort of common language between the architect and the engineer, which often can have sidetracks, different language, and that sort of lack of alignment can lead to suboptimal outcomes.

Nils Rage (03:45.037) That was really about two main broad topics. One was about indoor environmental quality - how to design buildings in a way that affects people positively. I think really my original driver was about the impact of buildings on people, how they make us feel. That's about daylight, acoustics, thermal comfort, indoor air quality, all these parameters.

The second was around building performance and building environmental performance. At the time, 10-12 years ago, really the focus was around energy performance. The sort of embodied carbon topics that we talk about today fluently were really not that much on the agenda at the time. But from there, that's really where I started to get into the why - why does all of this matter?

It matters because we spend 90% of our time indoors, and suddenly I started to understand that clearly the built environment affects how we work, how we learn, how we heal, how we get a good night's sleep after coming back from the office and whether we'll be rested the day after when we come back again. I started to be fascinated by things like the Finnish architect Alvar Aalto, who back in the '30s was asked to design a sanatorium for tuberculosis patients, which at the time they didn't have any way of really treating. He'd been in hospital himself and realized the effect that the environment around you has on how you feel and rest. So he designed a space that would have plenty of daylight, views of the natural world outside. He designed special sinks so people could wash their hands in silence and not disturb other patients in the rooms.

Nils Rage (05:41.777) Then you fast forward decades and you have actual scientific studies proving that hospital patients with a view out in nature as opposed to a view out of a parking lot recover faster, heal faster, require fewer medicines in order to heal.

The second aspect of where I started to get into the why is around that environmental question. Why does it matter to design energy efficient buildings? Well, because buildings consume a third of all the world's energy. Why is that a problem? Because buildings globally are responsible for about 40% of contribution to carbon emissions and climate change. And that's really where I started to have a big aha moment about the colossal opportunity of the built environment - and increasingly that became real estate in the sort of language in my head - in addressing what I think is one of the biggest challenges of our time, which is climate change. And that sort of led me to focus on sustainability in the built environment.

Adam Hinds (07:11.178) I love how you've followed your passions and interests and how that's evolved to inform your career choices. It's very targeted, and I bet it's quite wholesome that you have combined both your career with your passion and interests. That's really nice to hear, and I'm sure that's one of the main points as to how you've been so successful so quickly in your career. I think just for the listeners' benefit, is it okay to give an overview of your sort of professional career roles and how you've ended up where you are now with Stanhope?

Nils Rage (07:50.545) I'm sure it's possible. So as I just touched on, I graduated as an engineer with sort of two slightly different degrees. But actually, I started by working in a form of sort of applied research for one of the companies of Saint-Gobain. Saint-Gobain is one of the world's largest construction material companies, and I worked as a concept developer, so a sort of business development function for a company specializing in acoustics and effectively advising architects and end users on effectively the importance and the role of healthy, comfortable buildings for their end users.

That was really interesting, but quickly I realized I wanted to focus on the environmental sustainability side of things. And for that, I moved to London about eight years ago, originally to work as an engineer for a multidisciplinary engineering practice called Buro Happold. I was part of their sustainability team there, advising real estate clients like myself today, frankly, on energy strategies, decarbonization solutions, master planning.

From there, I had the opportunity to join someone called Ed Dixon, who gave me my first role client side at Landsec at the time. Ed was sustainability director there. Landsec was embarking on a large development pipeline and had just recently released a sustainability strategy. And they needed someone to translate this sustainability strategy into tangible outcomes for the developments that they were embarking on, primarily commercial projects in London and the UK. And that was a superbly exciting opportunity. I learned a lot over the years, taking the business through the first net zero carbon wave, the development of exciting initiatives like the launch of Neighbours UK with the Better Buildings partnership and just being able to do this while shaping highly complex and successful projects was a real opportunity.

That led me to Stanhope four years ago when I was given the opportunity to join in what was a newly created head of ESG role and that's where I am today.

Jordan Relfe (10:52.590) It's interesting, as you were talking then about your role at Stanhope over the last four years, I bet the change of that role has been quite substantial in terms of what it started as and where it is today. It would be great to have a bit of your views to what your role encompasses - I'm sure it's pretty broad and it's going to be quite complex, but just as a high level, it would be great to hear what your day looks like.

Nils Rage (11:20.337) Yeah, that's right Jordan. It's certainly evolved over the past four years. I think when I joined it was really primarily focused on sort of developing our core corporate sustainability strategy. The business was certainly one that has its values in the right place, has been doing sustainability for 25-30 years without necessarily labelling it as such. But with me joining, I had a big role in demystifying these three letters of E, S, and G and what exactly we put behind them.

So my focus at the time was on developing an ESG framework to formalize what would be our impact into key impact areas. On the environmental side, net zero carbon and climate change, resource use of natural capital. On the social side, inclusive growth, thriving communities and developing the sort of governance layer that sits under this from the adequate reporting internally and externally, developing the consistent set of documentation to brief our teams to enter into contract to deliver the necessary outcomes.

The focus was really on where are we today and where are we going tomorrow in the next 10 years. With that there was also an enormous amount of stock taking frankly of how do we define our responsibility? Stanhope is a development manager, an asset manager, so we work on behalf of clients that want to invest in London real estate or the UK real estate, primarily pension fund, investment fund.

But defining our responsibility and our role in how we draw our impact was really important - something to take our leadership team and our board through in order to set targets and objectives that are meaningful and credible. Defining our impact, recognizing what we truly touch and influence, as opposed to what we have entire control over, which is very small contrary to what we actually influence is enormous.

Nils Rage (13:46.309) To illustrate this slightly, that's aspects of the construction embodied carbon, for example, that we as a developer have frankly a very large influence over, but it's not technically something we have financial control over. But that's, as a developer, that's 70 to 80% of our footprint, you know, and our footprint is something in between of 70, 75,000 tons a year.

So that early focus on defining our responsibility was key. From there, we could then, once you understand where you are, you can set improvement and objectives. And so that was also the time of developing decarbonisation targets, science-based targets, and also trying to encapsulate all of that the business stands for into an accreditation that could rally people behind. And so we became a certified B Corp, which is something I'm proud of, for a real estate company of our size and impact.

Nils Rage (15:14.021) That was the early days. After that comes the real interesting and impactful stuff, which is translating this strategy into implementation. And that's frankly where my team and I spent the bulk of our time today. The two main activities of Stanhope, as Adam introduced earlier, are the development of new and retrofit of existing buildings on the one hand, and the ongoing asset management of a growing portfolio of buildings, about four billion pounds of assets under overall management.

So my focus here with my team is to take the objectives of our strategy and translate them into meaningful outcomes through the stages of our activities, from the briefing of teams, brief setting, pre-planning, securing objectives with local authorities, working through detailed design with our talented design teams, and importantly securing the delivery of these outcomes all the way through to construction, eventual handover to property management teams.

The sort of two other aspects of my role will be looking at the sort of data integrity of it all in order to enable accountability and transparent reporting both internally to our own colleagues and importantly externally. So we put in place an annual ESG report that's an audited report. We are a private company so again a lot of this was about in my role defining where do I want to focus my reporting efforts. As I'm sure you're well aware there's a plethora of sustainability disclosure out there that larger organizations must comply with. In my position I had a bit more of a judgment call and an ability to decide what was useful to me in order to achieve what I want.

Jordan Relfe (17:37.516) Can I just ask you a really quick question? Has your role become easier or harder because of external factors in industry? Is it something that you go, there's more understanding, more knowledge, more tools, there's more support, or is it actually, it's just growing in terms of, like you were just saying then about reporting, like in the last four years, how many reporting frameworks have come out that businesses or voluntarily have to sign up to?

Nils Rage (18:13.721) Again, for reference, I think the PLC is maybe somewhat of a misnomer in this case. We remained a private company. We used to be public and the PLC stayed. I think to answer your question, probably easier in the sense that interest has grown over the past four or five years. Literacy has grown as well - from our clients, from our designers, from our supply chain. And frankly, what you get back especially on the supply chain side and the occupier side has really grown, and that's really exciting.

Jordan Relfe (19:07.054) It's really encouraging from hearing from you as a client, and you guys are at the forefront of development delivery, to hear how much change you're seeing and the benefits. I think that's probably for a lot of listeners - I saw an article this morning in the FT around Donald Trump's and America's potential political change rowing back from climate change initiatives and obviously sentiment around that sort of being rowed back - actually it's really encouraging to hear the likes of you guys, just how much you're pushing and how much you're seeing this really kind of being taken up. And certainly something Adam and I've seen definitely over the last two years is it's much more of an open door. It's much more reception to these themes and topics.

Adam Hinds (19:56.202) Think about sort of when we first founded, Jordan - that was seven, eight years ago. It was a pretty hard conversation. It was a very educational conversation with a lot of clients who had never even heard about these things. So I'd say the majority of our early clients were the businesses that had been doing ESG and sustainability for a number of years, just because that's what they believed in. And there wasn't really an acronym or a tag for them to describe it. It's just what they did as part of their DNA.

Adam Hinds (continued) Then I'd say probably three or four years ago, we started to get a lot more interest from larger institutional, more sophisticated investor developers who were leaning into sustainability and ESG because, well, for probably three reasons. One would be obviously driving positive impact and doing good with the skills that they have. But there was very quickly shaping a commercial advantage of doing it, being able to identify assets at a discount, drive value through regeneration of them, increase rents, increase asset values, increase insurability and increase reputational positions.

So then very quickly, it started to be driven by the commerciality. Benefits of it started to become a lot more mainstream and now a lot more people are adopting it. But interesting, you point out like at the top end globally, there's a lot of backlash about the use of the term, but I don't think it's actually changing people's behaviours. It's just changing the way people communicate it externally.

Nils Rage (21:38.459) I think that's right. I think it's become really politicized in the United States. We see the headlines about global asset managers sort of rowing back their climate alignment or participation to climate groups, but I think it's a lot of communication rather than actually affecting strategy and implementation.

Adam Hinds (22:08.692) I want to dive into a discussion about one of the key points when we had our sort of podcast prep call - on the overlooked ESG-related risks that we feel are incredibly financially material and reputationally material, but don't necessarily believe or feel that other investor developers are giving it enough attention or are even aware that those risks exist. So I suppose you'd call them like the ESG-related or sustainability-related blind spots.

And just to give the audience a quick intro to what we mean when we're talking about risks: From a global perspective, we've got these huge macro challenges that are happening constantly. So we've got things like population growth, climate change, we've got biodiversity loss, natural resource shortages, social inequalities happening all over the world. And then in response to that, you've then got sort of micro forces, which you've got governments underneath that and large institutions, which are enacting new laws, new regulations, new initiatives and incentives basically to either solve those challenges or navigate around them.

And depending on where you are geographically, those changes are happening very quickly or very slowly. And that change is basically creating new risks, commercial risks and reputational risks and impact risks, but also new opportunities. And that's where we as a business, and what Nils has invested his career into sort of specializing in, is understanding what those risks are, how to navigate them and how to flip them into opportunities.

And one thing we spoke about Nils in our call that you felt was probably very misunderstood and overlooked was climate resilience in a real estate space. So what do you actually mean by climate resilience and what have Stanhope done and what have you implemented to help navigate that?

Nils Rage (24:20.625) Resilience to the effects of climate change, but also simply at its core, frankly, preservation of value and asset value for our end clients.

We followed, as many others did, the Task Force on Climate-related Financial Disclosures, long name for TCFD. Maybe, I'm sure both of you know, but for maybe listeners less familiar with the subject, it sort of categorizes risks into two big categories. One of them is transitional risks that a business will be affected by with regards to external forces such as an asset that wouldn't align with the Paris Agreement or aligned with decarbonization trajectories set by, for example, a nation in this country. There's a zero carbon pathway to 2050 and with entering targets within this that the built environment has to respond to Assets lagging, failing to align with the transition would become stranded and there's various ways to define this as an example of transitional risks. Other risks include reputational risks and we've seen sort of backlash for example around greenwashing or failure to effectively be diligent enough in some of the claims made, for example, in downward supply chain risks and issues of ethical labor, I think is an overlooked risk, especially in the construction industry.

The second big bucket consists of physical risks affecting assets. Obviously, we're speaking, you know, end of January after the tragedy that's been taken over California. That's a very salient example of physical risk affecting properties in the UK and affecting commercial real estate. That's something I wanted to understand better for the own portfolio that we manage. So last year we actually partnered with International Insurer Aon in order to leverage their wealth of expertise on the subject to drill into our own portfolio of managed buildings.

And what we found, again I wouldn't necessarily call this an entire blind spot because frankly it's something that we are aware of but that we were able to quantify better, were issues affecting our buildings primarily around flooding risks, extreme rainfall because rain will become harder, more frequent, and therefore flooding risks become very material. Heat stress, again, something we know from a changing warming climate. And how will our building actually be able to cope with future temperatures outside in order to enable still a comfortable occupation?

And but interestingly, that's the thing with climate change is it's actually a game of opposites. So at the same time as it gets more rainfall and risks of flooding, a big risk that I think is overlooked is that of drought and water scarcity, especially in London and the southeast. London is already in the southeast as a region already classified as a region of severe water stress.

And we already see in parts of London or in parts of the UK where we operate that power availability becomes a bottleneck to development ability because you're simply not able to connect to the electricity grid and assume that you can take any amount of power that you want. I sincerely believe that in the not so distant future, water will become such a bottleneck in its ability to be supplied to dense urban environments.

Nils Rage (28:58.769) What we learned with the Aon study was just a series of specific risks affecting our specific assets that we could then go on and manage. We've improved flood barriers to protect our loading bays. We've improved nature-based responses in the form of a bioswale, for example, in order to, again, take on surface water in a natural way. And these were just some examples of the sort of risks we're seeing.

Adam Hinds (29:39.200) I love this because I think this is one of the biggest areas we see people get wrong or they misunderstand it, misinterpret it or have no idea that it exists is natural hazard risk or climate related risks or physical risks on an asset. And I think one of the things that even climate deniers will get caught out if they think, "I don't care, I don't believe in climate change," is that the people that insure that asset, that building, is an insurance company and insurance companies invest a lot of money into understanding asset related risks because they are a for-profit business and they basically want to minimize the number of insurable claims that result in a payout.

So when they are doing their due diligence on an asset, they want to assess every single risk, includes natural hazard and climate related risks. So even if you didn't believe in climate change and insurer who ensures your building is appraising it on the basis that that is happening and they have very sophisticated models for that. And if they flag that an asset has, well, it doesn't necessarily have to just be flood risk, could be many different risks of wildfire risk, flood risk, overheating, there's probably 75 different things that they track. If they flag, there's a risk, you then have a long-term insurability risk that needs to be managed.

So that means the insurer is there as potential at some point that they will increase in premiums to cover their perception of that risk, or they adapt the insurance clauses that they have. Basically, if there is a flood risk, they will say, "We'll cover your building, but we're not going to cover you for flood. You'll have to cover yourself." And then the worst case is they say, "The asset's uninsurable. We don't want to touch it. Good luck. You're on your own."

And all three of those link back to asset value. So if we were coming to buy an asset and acting for an investor, we would do that research at pre-acquisition due diligence. And that would basically be used against a vendor. And I would say more often than not, the vendor is completely unaware that those come up on when you're using an insurance platform.

One other thing I'd like to come back to Nils that you mentioned that you partnered with Aon, which is an insurer to do the climate risk assessment, which I think is a really, really valuable point for listeners to note that yes, it's helpful using like a random software platform to do those assessments, but where you've connected a lot of commercial dots is by partnering with insurers who have a vested interest in making sure they correctly appraise the risk and use their models. You're both understanding the climate risk in terms of what's going to happen to the building but also how does that then impact the potential long-term insurability of the asset and what will that do to the premiums or the exclusions in the policy or our cover and then that gives a very in-depth understanding of how to then navigate that whether you can upgrade the design of a building and then that then has, can engage with the insurer to say, let's upgrade the flood defenses here. And then that will then result in better insurance cover long-term or in a worst case, you could even dispose of an asset, which we've seen a lot of lately.

The other thing I wanted to touch on with flood as well - I know I'm sorry, I'm wound up, I love this, but this is stuff we see people get wrong all the time - is when you're looking at an asset, whether you own it or you're looking at it from an acquisition perspective, you can look at the asset in terms of its direct risk from flood. So you could upgrade flood defenses, et cetera. But then you also have to remember that that building is also reliant on the local infrastructure around it that's also protecting it.

So a simple one is you might have an asset that doesn't flood, but it is reliant on the upkeep of the Thames barrier by a third party to make sure that's maintained. And if that was to ever fail or that wasn't invested in, then you have an issue either at your building or to the local infrastructure around your building, which is necessary to get people there and to keep it in an in-demand asset.

And a very simple example that happened in the UK probably two years ago is there were beachfront properties in Wales. I think there was a stream of about 20 of them and they were obviously incredibly expensive in terms of their pound per square foot because they were very desirable seafront locations. They were actually protected by a seawall which the council was responsible for funding, maintaining and upkeeping. The council didn't have the budget to keep that for such a small string of homes because it was obviously very expensive. So they've then come out and said we're not going to keep maintaining that seawall and it's effectively just going to erode.

The houses don't have the funds to cover the maintenance of that seawall that they're reliant on and therefore insurance companies are now pulling out of insuring the assets because of rising sea levels that those homes will effectively at some point just disappear into the ocean. So what was previously a premium asset is now hugely at risk and the value is eroding over time. So that is just some very simple examples of how understanding this information is literally so essential for getting the asset strategy right and the design and operational strategy and engaging with the right people to be able to give you the right information to navigate both the protection and also the commercial element.

Nils Rage (35:38.917) Yeah, sometimes it's also looking at, when we talk about heat stress, for example, which we know is a risk coming - in the residential sector, I think like over half of UK homes or English homes already overheat during the summer. In commercial properties, we tend to think or assume that we are insulated from this because they are mechanically cooled, which is true up to a point. These systems also are designed with resilience in mind. So there is more often than not spare capacity in order to cool.

But actually the failure point is probably elsewhere. And increasingly we something we are picking up with our designers is how actually your cooling system is able to and maintain your building cool, but its efficiency also starts plummeting when outdoor temperatures increase because its efficiency is always about the differential with outdoor temperatures. And so you're starting to see a sort of perverse situation where as temperatures outdoor rise and your need for cooling increases is also where when it starts to reach a certain sort of threshold breakout point, these efficiency of where you'll start plummeting.

And a cooling unit on the roof with an absence of shades, direct sunlight can very easily reach really high temperatures. If the outdoor area is 40 degrees, these units can be much warmer than that. And suddenly, the moment you desperately need your cooling the most, your systems just don't have the efficiencies and are just running at empty. And so these are just, I think, breakout points where you don't expect them, if you see what I mean. It is something that we're picking up with our designers in terms of guidance for resilience for future buildings.

Jordan Relfe (37:51.865) I'm really interested - you just mentioned that and it teed up my next question perfectly. You mentioning setting up your design team and contractors - I think at the beginning of this talk you mentioned a big focus is taking your strategies and then looking at the actual implementation of those on the real assets and your team is something you spend a lot of time and energy and focus completing. I think this is inherently where sustainability and ESG has always struggled - taking it from the principles of a strategy, whether it's financial requirements, then through to how do you actually design it? How do you get someone to construct this in the right way? And there's inherent risks that are presenting themselves through that entire supply chain and the stakeholder partners. How do you guys kind of approach that implementation? Is that through architectural briefs? Are you basically putting a lot of owners onto them? Or is it something you hold quite close to the process as a developer?

Nils Rage (38:51.921) Probably a combination of that. We're really fortunate to work with some of the best designers in the country and what we do wouldn't be possible without them. We do as a client certainly have a role to brief our teams well and that's absolutely paramount. So from my perspective it's making our environmental and social outcomes clear. And yeah, that briefing is something my team and I are involved in.

What I'm also passionate about is the importance of engaging adequately in order to see these results through. I've certainly made a mistake in the past of thinking that because I sent out the brief, then suddenly my job was done. And that's of course wrong. It takes ongoing engagement with these teams to either demystify what's in the brief, make sure it's understood properly, help answer questions when maybe this brief can be seen as conflicting with other aspects.

But also a lot of it is about transparency. That sort of makes me think about a different aspect. We just talked about the early briefing to architects, but something else I spent time on is briefing to our delivery teams when the time comes of building to building with our construction supply chain. As I mentioned, embodied carbon is paramount in us achieving our long-term decarbonisation goals. It represents probably two thirds of our footprint as a developer, at least two thirds.

So how we brief our construction supply chain for the outcomes we want is directly affecting that. We are, I think, seeing a lot of progress in these recent years. So we've started to spend a lot more time detailing to subcontractors at package level what embodied carbon targets are. I think where we were a couple of years ago was to undertake whole life carbon assessment, of course, for every of our buildings through every design stage in order to, by the time you prepare yourself to go and build a building, having a good idea of what your expected embodied carbon was and then using this sort of whole building target as something to engage with.

Nils Rage (41:44.273) But the reality is that's not how buildings are built or procured. And when you go out to a facade contractor and ask them to respond to a design for your building, they are not going to have any impact or influence over your substructure design. And obviously by going with a coarse target, you're just preventing that ability for them to respond to exactly where their expertise lie.

So what we've started to do is to break these building targets into each individual packages and to go out to our trades with targets that are really pertinent to their own work. And also, I mentioned transparency. We go out and we say, "Okay, here is your package level carbon target. Please review and here is all the underlying assumptions that go under it." So that not only do you know what the number is, but you know how the number has been arrived at.

And there's an important step here that is, that we ask them to actively review it and confirm whether anything is missing or wrong or wrongly assumed or whether the target is appropriate. And if there's an update step that is needed, then that takes place but then we have arrived at a target that is well understood by both parties. You know, we're not just parachuting down a target to a contractor that has no idea what is expected of them.

And you know, to your question earlier Jordan about what has changed in these recent years, I think that's a big difference I've seen in the level of maturity and from the construction supply chain in responding to these quite precise questions asked of them on where are the materials coming from, what are their impacts. So we ask, you know, we provide an assessment, we ask them to provide an assessment of whether this target is achievable, to identify any gaps or differences, and to come back to us with a quite simple template spreadsheet for how they've arrived at their number so that we can also test that they know what they're talking about.

Jordan Relfe (44:08.461) Can I ask, are you seeing a premium from those subcontractors or is it something that is difficult to navigate?

Nils Rage (44:18.673) I'm glad you asked this because that's actually one of the things we ask at tender stage, right? So typically we'll have a detailed design that our design team will have and that we are able to go out and ask them to price. We'll have a good idea of how much it should cost and how long it should take. And so in our tender, we now ask for them to A, respond to this design spec as it's expected, but also to give us two other options and we do that for in truth for the sort of most impactful packages, you know, your structure, your facade, your sort of substructure and piling These sort of things. Two other options which are: give us a response that has a lower embodied carbon outcome but no cost or program implication, and give us also an option that has a lowest embodied carbon that may have a cost or program implication that we can then take on as client team and review in the round. And that actually with seeing, providing really excellent results out because suddenly, you know, ultimately the supply chain knows best how to achieve these outcomes. And so when you give them the space to come to you with solutions, when you're an open client that with whom you've developed a trusted relationship and you ask them to come to you with solutions, then we're seeing results that we didn't necessarily want to assume or were yet available coming out to us and often back to your question, not necessarily at a cost premium or a program premium.

Jordan Relfe (46:14.830) That's encouraging to hear because that's certainly something that's definitely evolved in the market in the reduction of premium just because it's green. I think that's certainly in supply chain and construction. Something I'm really interested in and something Adam and I navigate a lot for clients and we see is ensuring that that strategy is consistent through a design and construction and operational phase. And I think that's the multitude of so many different stakeholders, the pressures that they will have as we spoke about. Insurers ask for certain requirements if it's in a flood zone, you've got banks that might need certain requirements met for funding. You've got planners that are pushing for requirements through maybe certifications. You've got occupiers saying in order for our demand in the market, this is what we need. And it's certainly such a moving feast from obviously the principles of a strategy. Is that something you guys are navigating well or is it something that's just a constant, I guess is it a bespoke to each project that you're having to really navigate those pressures through?

Nils Rage (47:29.027) Yeah, I think so. I think there's pressure that are inherently local and project specific. You know on the social side I think a lot of our focus has been to develop targeted local responsive strategies that respond to local needs, for example. I think again, three, four, five years ago, social value strategies, social value was a relatively misunderstood term, could often be misunderstood for charitable giving or for employment and skills initiatives.

But what we're finding is each project will have very distinct local needs that it can play an active role in addressing. Be it community cohesion, be it participation of women in economic activity, be it loss of green space and biodiversity or frankly, struggling with our cost of living crisis. These are just each of the four I've just listed are from like four different projects that I've got in my head in London. And so each of them will be doing something actively different in order to address that. And back to your question...

Jordan Relfe (49:06.690) But I'm just to jump in there, I think that's almost like the future of real estate viability is, and that's where opportunity comes from having a sophisticated understanding of ESG and impact and sustainability to be able to say, this is how I think we can respond to these issues. These are the, it's not just build and construct and rent. It's actually, this is how we can position this asset or this community to best suit this location. I think, I think that's where the excitement of the bespoke nature of this space is coming and actually it's not a tick box or one size fits all approach and interesting to hear you talk about the social impact side, just how important that is when you are thinking beyond the asset and as Adam mentioned, how much wider ESG addresses the space, the locality of that building, not just from energy demand or flood risk, but actually social impact. I think that's really important.

Where do you see the biggest kind of growth areas in that implementation coming from? Do you see any kind of big changes coming down the pipe that are going to revolutionize the ability to deliver these objectives? I mean, it's still a long way to go from the supply chain design teams and construction more generally.

Nils Rage (50:26.597) I don't know if I see anything at the horizon that's going to completely revolutionise and transform it. It's more like what I'm slightly worried in and is what's revolutionising our world right now is probably artificial intelligence and I'm slightly nervous about energy demands from this and how real estate is. We're really, really good as a society, as a species, to become highly efficient at things, but I forget the exact name of the law, right? But it doesn't mean that you're consuming less. You're more efficient at doing something, it means it's cheaper, that means you just consume more of it. So that's a consideration.

Adam Hinds (51:23.154) Nils, just on that, how are you considering AI through Stanhope and like in around maybe internally in the operations or through the assets and the function of the assets just out of complete curiosity?

Nils Rage (51:39.921) So as an asset class, I don't know if that was your question, not that I'm aware of today. In terms of utilizing AI in order to improve processes, everyone will be saying that they're doing something about it. I think utilization of large language model to help with individual efficiency is definitely something that is leveraged. Our designers, no doubt in their design processes and optimization models will be utilizing this. I also probably believe it can be a bit of an overused term and I also want to remain grounded that the construction industry and the real estate industry is frankly a very slow moving industry.

Adam Hinds (52:45.492) Yeah, I absolutely agree on the overuse. Literally on LinkedIn when you scroll through it's like every second post is something on AI this, AI that. That's like, well, it's just a survey. Don't have to lead with AI, just doing a survey. It's definitely, everyone's jumping on it. It's probably not dissimilar to ESG a couple of years ago when it sort of first came out and everyone wanted to be associated with being the lead in that space.

I'd like to just, but this is the sort of last question. I'm mindful of time. We're coming to the near end of our slot, but the last point we wanted to run through and it's so key as a stakeholder is the actual building occupants and tenants and whether they're businesses or individuals. They're obviously very influential through the operational phase for how the asset performs long-term, especially when you link that to your decarbonization pathway.

So I know Stanhope does a significant amount through your asset management function of proactive and positive engagement. So I'm just curious to understand a little bit more about the approach and how you sort of combine the engagement with Green Lease clauses and the sort of management of energy and utilities and carbon.

Nils Rage (53:59.717) Right, yeah, there's a couple of topics here, I guess. So the first one on the decarbonization side, and I guess it links to what we touched on earlier about risks and transitional risk and how we manage this. So aligning our buildings with the Paris Agreement is one of our key objectives. We do that through this tool called CRREM, the Carbon Risk Real Estate Monitor. And so trying to take our managed portfolio through this decarbonisation curve.

Where we've achieved, I think, really significant results in the past couple of years has been on that energy and smart building optimisation of these buildings and these assets, i.e. taking what we have and fine-tuning it in order for it to either, A, run as intended the first time around, or actually respond to how the building ends up being used in order to save energy and cost for our occupiers.

This has been a core focus of our strategy, leveraging building management systems in order to identify through data optimization to a more efficient heating cooling of the space. We've reduced on some assets energy by up to 20% year on year across our office portfolio last year, 18% reduction in energy usage. So that represents, you know, quite easily quarter of a million pounds worth of saving for an asset that we can pass on to occupiers. And that's a sort of core focus of what we want to achieve on our asset management side.

Nils Rage (55:51.301) Reducing energy usage, utility costs, and therefore enabling comfortable occupation. And that's been a big focus of especially Dan Rafatine, my team, who's done some exceptional work in the space. You mentioned green leases. So interestingly, that's where you're back to the sort of enablers. What do you need in order to do stuff like this?

Improving our sustainability linked leases has been a big focus of the past year. Leveraging existing publicly available toolkits like the Better Buildings Partnerships, you know, has some fantastic resources on the subject that I'd encourage listeners to get to. It also helps us with having, you know, pointing to an industry position, which is always helpful in legal matters, in improving your strengthening frankly your legal clauses around environmental, primarily and social second matters.

And finally, on this point about the green leases, what we found also effective is frankly to just speak human to human with occupiers in order to demystify what this clause is. Something I've done personally a number of times with, you know, head of legals or finance representations on the other side to help them understand when they would come maybe at first and push back on certain clauses because they just didn't maybe understand what we were aiming to do. And being able to talk it through person to person has proven really beneficial and something I really wouldn't under appreciate, you know, the importance of that.

Nils Rage (57:48.247) You just lawyers are fantastic, but sometimes they will be quick to when it's just lawyers to lawyers to get rid of certain of these really important clauses, if they're not well understood.

Adam Hinds (58:02.932) I'll just add to that very quickly, Nils. Yeah. So we are currently helping deliver a pretty significant life sciences scheme in central London, and it's over a million square feet. And within that, we've got pretty innovative green lease clauses, and we're going through the negotiation with prospective tenants. And within one of those sort of negotiations, quite a significant tenant basically requested that they wanted to have a meeting with us to run through the green lease causes without the solicitors or lawyers being involved. They wanted to have a one-on-one conversation to say, what are these mean? Why is this important for you? Why is this important for us? And then just remove all of the legal speak to come to a joint agreement. And then we move forward from there. So really interesting to hear that you've found the same with tenant conversations and navigated to a very similar approach of just getting in a room one-on-one.

Jordan Relfe (59:35.092) It comes back to communication of ESG, what it is, why it's all just comms, isn't it? And I think that's, there's a really interesting lady called Swetha Chakraborty. And she runs a media communications business called We Don't Have Time. And she said, ESG and climate change is in a communications crisis because no one knows how to communicate it and why. And I think everything we talk about, stakeholder pressures, occupier pressures, developer pressures, it's all because of communication.

And like we see it so often where a report might be published or created for a net zero transition plan. But it's written in such technical speak that if you had to share that with your investor to say we need to do these things, they'd say, "I don't understand it." It's just a technical report. But actually, why is it important to that investor that we do this net zero transition plan? It's the same outcome, but this is what you're going to get. And I think it's a really good reminder that you've just said there about just communicating it, talking through it.

This has been fascinating hearing about your world in the developer world. You know, you're at the forefront of actually creating these buildings and they're not small buildings by any means. So thank you very much for your time. It's been a real pleasure to have you on.

Nils Rage (01:00:42.833) Thank you for having me. I'm grateful for the opportunity.