It’s Wake-up Time: Is Logistics Sleepwalking into an ESG Crisis?

“In the last three years, the logistics industry has experienced a surge in demand for real estate, largely driven by the onset of the Covid-19 pandemic and subsequent rapid expansion of online retailing.” (Knight Frank)

Remember back in 2020, the height of lockdown, the excitement we’d feel when our recent online purchase was due for delivery? The high of getting something new through the mail? Well since the pandemic, this drive for retail therapy online has only continued. The logistics powerhouses like Amazon and DPD are regulars in every neighbourhood, and on every road. But yet, with so much consumer demand, the Logistics industry is falling behind when it comes to their real estate.  

Net Zero Carbon goals are set for 2050 and the UK government have introduced policies to the commercial real estate sector to edge real estate closer to sustainable standards. The most notable for the Logistics sector being the Minimum Energy Efficiency Standards (MEES) which have been introduced for commercial buildings in England and Wales: “These standards set a minimum level of energy efficiency that must be met before a property can be let. As of April 1, 2023, all new and existing leases for commercial properties in England and Wales must meet at least an Energy Performance Certificate (EPC) grade E, with a planned increase to grade B by 2030.”

So, we know Logistics is no stranger to delivering… and fast (see what we did there?!), but yet Knight Frank research shows that ‘Around 60% of current warehouse space, will fail to meet the minimum EPC grade B by 2030’. Is the sector sleepwalking into an ESG crisis?

We’ve used Knight Frank’s recent research to map the key challenges and key solutions to waking up ahead of NZC.

Challenge #1 – What to do with existing assets?

“We analysed the current rate of progress for certified UK warehouses in meeting the proposed MEES EPC rating of B over the last three years. For all buildings to reach the target by 2030, the progress rate must be at least 10% of stock per annum (units over 50,000 sq ft). Our analysis shows that the current rate falls short at just 6%, yet significant regional variations are evident.” (Knight Frank)

The main decision here for the sector is to retrofit or build new. Both options can have a significant cost associated with them, especially with new build warehousing facilities; but when it comes to making a significant shift in your ESG performance (and fast!), retrofit is a great option. Ultimately, a key problem with the Logistics sector right now is the pace of progress, and retrofit not only allows you to work with what you already have – it also takes away additional concerns of moving facilities, moving stock, and potential troubles this can cause operational efficiency. And considering the majority of asset stock in this sector aren’t new builds, it echoes the need for retrofit to be considered: “With 82% of warehouses in the UK built before 2000 and only 5% constructed in the last decade, many warehouses do not meet modern sustainability standards.” (Knight Frank)

Challenge #2 – How do you gain the data required for ESG Reporting?

One of the hardest tasks for Investors, Asset Owners and Operators is gathering the data on their real estate to report on ESG performance and sustainable improvements. It can be a hugely expensive task, it can be hugely time consuming, and it can also leave some with questions on whether the data is accurate – Logistics is no different.

But, if so, much of this asset stock is uncertain of their footprint, and uncertain of how to obtain the data that shows their footprint, how on earth can they improve it?! ‘After all, it is not the raw data that creates value, but the ability to extract patterns and forecasts and use those predictions to design new market-entry strategies.’ (McKinsey)

The Utopi Solution #1 – Automatic Submetering Data

Automating submetering data can transform ESG performance and can allow for massive reductions in utility costs. Ultimately, without submetering data there is no way to really understand the impact of an asset. IoT devices can do a lot, but without a baselines of energy consumption, water use or an understanding of utility use in general; sustainable changes will simply be a guessing game for an asset. Hence why key areas of SFDR funding applications include ‘Energy Consumption Intensity’ as a key metric.

Utopi ESG Technology uses the foundations of wireless submetering data acquisition, via LoRaWAN technology. Whether it be one or three-phase electricity metering, water metering, or gas metering; our low-cost, easy to install solutions make submetering data acquisition simple, in real-time, and automated so you can concentrate on the analysis of data and making positive changes to better your ESG performance.

Utopi customers have used our submetering data and analytics to develop overheating mitigation strategies, establish optimized uses of amenity spaces, enable active management of utility consumption, and enhance tenant engagement.

The Utopi Solution #2 – Benchmarking & Asset Level Certifications

“…Building Research Establishment Environmental Assessment Method (BREEAM) is one of the most widely adopted in the UK. Over the last decade, the number of industrial buildings with BREEAM New Construction certifications has been consistently growing. Some 1,411 buildings have been certified, with the majority (62%) receiving a ‘Very Good’ rating.” (Knight Frank)

Benchmarks like GRESB and Asset Level Certifications like BREEAM, FitWel and CRREM are a great way to drive transparency and accountability when it comes to ESG performance. With clear assessment criteria, and the need to prove key areas like carbon emissions, energy consumption, access to parks and other green spaces – the likes of BREEAM now have a stronghold on the Real Estate sector. Why? Because a BREEAM score can be the difference in increasing your asset value or needing to offer a brown discount when selling or leasing your assets.

But, in the context of Logistics and the need to pick up pace, how can you gain the data required to gain such an important certification? After all, how can you better your environmental footprint when you don’t know where you’re starting from…

Utopi ESG Technology is aligned with key benchmarks and certifications, so much so, using our technology and the ESG data it collects on your real estate can actually help your scoring across GRESB, BREEAM, BREEAM In-Use, LEED and FitWel:

For more information on how Utopi ESG Technology can help the Logistics sector wake up before they sleepwalk into an ESG crisis, make sure to see more here or reach out and speak to me about all things Commercial Real Estate.

Author: Tom Cartlidge, Head of Commercial Real Estate at Utopi.