Government Flip-Flopping Sees North East Landlords Push Back On Net Zero Targets

Over a third of landlords will push back ESG goals and actions due to government flip-flopping to meet low-carbon emission targets, according to RSM UK’s Real Estate 360 survey.

Research commissioned by leading audit, tax and consulting firm RSM UK shows that 35% of businesses will roll back action to meet ESG goals due to last year’s government announcements to delay deadlines for several low-carbon targets.

In addition, nearly one quarter of UK landlords (24%) think that the real estate sector is currently not making quick enough progress to reduce its carbon footprint in line with the government’s target net zero emissions deadline.

Additionally, half (50%) of landlords think that the sector is making little or no progress in effectively developing and implementing environmental, social and governance (ESG) policies, slightly down from 55% the previous year.

The majority (82%) agree that real estate businesses need to have strong environmental credentials or plans in place in order to access financing from lenders, yet more than a third of landlords (35%) see access to funding as the second highest barrier to investment.

Landlords perceived the biggest barrier to de-carbonising the real estate sector to be lack of cost-effective tech solutions (35%), lack of landlord willpower to invest in environmental solutions (34%), and the impact of the energy crisis (28%).

Sanjay Pugal, director and head of real estate and construction at RSM in the North East and Yorkshire, said:
"The government’s flip-flopping of its net zero targets is problematic for the real estate sector in the North East, and it is no surprise to see landlords pushing back ESG plans against the revised targets. This year, our survey highlighted that Yorkshire is expected to see an uplift in residential property investment, so taking the foot off the gas now will slowdown progress, prevent the region from levelling up, and create an even bigger barrier to finance in the future if ESG credentials slip.

"This highlights a disconnect between industry and policymakers, and signals a real need for collaboration to ensure real estate remains at the forefront of driving the UK’s transition to net zero, as well as ensuring long-term inward investment to the real estate sector in the North East.

"But, this will require investment to develop new technology to create green solutions and upskill workers – which is challenging given the economic climate. However, there’s a real opportunity for real estate businesses in the region to help deliver net zero and the government’s national housing ambitions given the North East’s £4.2bn devolution deal, investment zones lined up in West Yorkshire, South Yorkshire and the Tees Valley, and the recently announced ‘Leeds Vision’ to unlock 20,000 new homes."

Rich Hall, partner and head of sustainability at RSM UK, added:
"The government has been under scrutiny for some time regarding its net zero plans. An unlawful high court ruling in July 2022 led to the government publishing additional information to deliver greater transparency on how targets will be met. In response the CCC actually lost confidence in the UK meeting its goals from 2030 onwards, despite acknowledging progress, it flagged higher levels of risk in some areas and insufficient planning in others.

"The resulting government backtracking is therefore making it increasingly difficult for businesses to plan for the future and implement long-term, sustainable action. Whilst these issues are not restricted to the real estate sector this change in behaviour will make it harder for the government to meet its sectoral pathway from decarbonising buildings.

"It’s clear that despite the risk of stranded assets and unleasable buildings in the short to medium term, clear strategy for decarbonising buildings, aligned to credible and a consistent policy framework, is very much needed to give the real estate sector the confidence to commit to ESG goals."