Green shoots and deep roots: Towards sustainable recovery

A consistent theme in recent World Built Environment Forum activity has been the opportunity to re-shape global, regional and national economies for the better. To innovate and modernise rather than reinstate past practice. Many of our expert contributors see the pandemic as a turning point. An opportunity to seize the moment and adapt to emerging trends such as unsustainable urbanisation, and the approaching tipping points in biodiversity and planetary warming. New approaches to these challenges will ideally address historic failings such as substandard infrastructure – often created with little thought for social impact – and inadequate housing supply.

Underpinning these considerations is a realisation that we need long-term thinking, policies and practices that take full account of the entire lifecycle, from dirt to disposition.

Here, we highlight three aspects of the debate, to bring some focus to this inter-connected and wide-ranging agenda: impactful investing, resilience and the new economic rulebook.

Impactful Investing

Environmental Social and Governance (ESG) funds have outperformed counterparts during the pandemic. Open source reporting of data from the Federated Hermes survey, Morningstar, Blackrock, Alpha FMC Product Trends Survey and MSCI seems to support the argument that ESG investment will be at the heart of the economic recovery.

To illustrate the point, 85% of UK independent financial advisers reported a rise in client requests to allocate capital to ESG-integrated funds during the outbreak so far. 59% of UK asset managers reported a “substantial increase” in demand for specialist ESG products. 76% said they were facing pressure for ESG integration across the whole product range, and 88% supported an industry standard taxonomy.

Capital flows and indices tell a similar story. Despite a March sell-off in markets, ESG funds based in the UK had overall net inflows of £2.9bn in Q1. Over the same period, ESG funds netted €30bn against outflows of €148bn across European-based funds overall. 51 of 57 Morningstar and 15 of 17 MSCI sustainable indices outperformed broad market counterparts.

Our community members have tended to agree, citing clear ESG benefits as the key differentiator for infrastructure projects in search of investment. But can we rely on such short-term data? Has the demand for ESG investment been over-hyped, and can we really believe funds’ claims to meet strict ESG criteria?

Resilience at the heart of recovery

By exposing the vulnerabilities arising from the interdependencies of populations and economies, in ways that are tangible to everyone, the pandemic has highlighted the central importance of resilience. This in turn highlights a need to ensure that financial systems, human and community needs, technology and natural systems play mutually reinforcing roles against future shocks.

Our expert contributors expect logistics supply chains to shorten and to shift from “just in time” to “just in case” models. High Street retail will likely lose further ground to e-commerce but may be partially balanced by a growth in click and collect services. Commercial space will need to be more flexible, and more office space will become available for conversion to residential use.

This might sound like good news for what UK city leaders say is their highest priority, namely housing supply. And yet, work undertaken by RICS Research Trust shows attempts to accelerate supply through eased restrictions on commercial-to-residential conversions has resulted in a significantly lower quality of dwelling. It has furthermore resulted in a loss of contributions to the public infrastructure required to support the additional housing. Pragmatism without standards is a recipe for poor outcomes.

Economic and social resilience can be increased through innovation to spread high value activity more evenly across geographical areas.

These leading cities are economic powerhouses, drawing talent at the risk of lower regional growth. This model depends on a highly mobile cohort of skilled workers, but their mobility is checked by barriers such as high living costs, language and cultural issues. New methods of construction and more dispersed teams offer the chance to close disparities of regional prosperity and individual opportunity. The concepts are easy enough to grasp, but is the industry ready to make the change at scale?

The new economic rulebook

The pandemic, and our responses to it, show that society is more adaptable than many expected, and that lasting shifts in values are occurring. People have re-appraised the value of community, the benefits of clean air, less commuting and safe communal spaces both inside and outside. Citizens and employers have become more accepting of substantial state intervention. Transparency is ever more greatly valued, as policymakers and citizens alike seek to make sense of infection and mortality rates.

One area of fundamental change is the shift to a circular economy. The European Commission, for example, sees the circular economy as “an essential part of a wider transformation of industry towards climate-neutrality and long-term competitiveness.” It will “deliver substantial material savings throughout value chains and production processes, generate extra value and unlock economic opportunities.”1

In the Real Estate sector, circular economic principles can address inefficiencies due to underused space, premature demolition, vacant land, depreciated materials and underperforming components.

Do we adapt the rulebook for asset management? Or does this historical inflexion point require a reinvention of the rules? Airports, for example, must comply with national requirements while welcoming and reassuring visitors from other jurisdictions. A multi-layering of new and existing protocols may prove unworkable. Instead, a whole new approach may prove necessary.

The OECD suggests the rapid expansion of teleworking, enabling flexible and family-friendly work schedules, could be supported by UBI in recognition of “socially beneficial but previously unpaid work”. Trials in Finland showed the main benefit of UBI was improved wellbeing. This is an increasingly important consideration, best highlighted by the World Health Organisation’s work on how the pandemic has impacted mental health. In the UK the Royal Society for Arts has advocated UBI in the form of a £2,000 direct cash payment through the existing tax infrastructure.

As the sector faces disruption on multiple fronts, should it embrace or reject UBI and similar innovations in workforce welfare?

Conclusion

The complexities we face as we build back better may seem overwhelming, but the challenge is so pressing that we must act swiftly. The built environment has the potential to drive a sustainable economic recovery, drawing in investors in search of environmental and social value. Through innovation, it can also reap the rewards of increased productivity alongside the social benefits of more equitable growth beyond the leading cities. Market actors report that the pandemic has driven new approaches to collaboration at the project level. This should lead to better understandings of risk and the re-drawing of contracts to ensure delivery can still be achieved despite unforeseen circumstances.

We can adapt rapidly and innovatively. We just need to do so on a scale commensurate with the historical turning point we call Covid-19.

1European Commission; A new Circular Action Plan for a Cleaner and More Competitive Europe; March 2020;