British Land Company PLC (BLND) Earnings Call Transcript & Summary

Hello. And welcome to our Sustainability Event. I'm Jo Waddingham from the British Land IR team. I'll shortly hand you over to Simon Carter, our CFO; and the sustainability team, who will take you through our new strategy. [Operator Instructions] Hope you enjoy the event. Over to Simon.

Thank you, Jo, and good afternoon, everyone. Thanks for joining us. At our results in May, we gave you the highlights of our 2030 sustainability commitments. Today, we'd like to give you more detail as to why we chose these stretching targets and what we'll need to do to deliver them. In particular, we'll need to build on past successes, innovate and make sustainability business as usual. We'll provide some very practical examples of how we're doing this already. Here's the agenda. Shortly, I'll hand over to Juliette and Matt to talk about our environmental commitments. Cressida Curtis will then explain our transition fund and how we think about the many sustainability indices. James Pinkstone will talk you through our new sustainable financing framework. Anna Devlet will set out our social commitments, and Tim Downes will present a case study of 1 Triton Square. We've allowed plenty of time for questions. You can also log these at any time on the website. Sustainability is not new to us at British Land. We produced our first corporate responsibility report back in 2002. In 2015, we embarked on a challenging 5-year program, designed to deliver a step change in our environmental performance and contribution to local communities. We've achieved many of the goals we set ourselves, reducing our carbon intensity by a massive 73%, our energy intensity by 55%, and we've supported more than 1,700 people into work. Some of the targets proved quite challenging, as you can see on this slide, but by setting the bar high, we've made really good progress in these areas as well. A number of things have shaped our new strategy. First, we wanted to be ambitious. The urgency around delivering more sustainable places are making a positive contribution to society has clearly and rightly increased. Second, we wanted the plan to be completely aligned with our corporate strategy. And we were conscious that to be successful it needed to be business as usual. Third, our own experience shapes our thinking. Our 2020 strategy included a wide range of targets, arguably too many. This time, we've chosen to focus our attention on 2 key areas where we can really make a difference, achieving a net zero carbon portfolio and rolling out our successful place based approach to social contribution. Finally, we looked at best in practice. We've been a signatory of the UN Compact since 2009. And our work supports 12 of the UN 17 Sustainable Development Goals, but we've really focused on the 3 that are most relevant to us. For me, sustainability is an area where we should proactively share great ideas rather than regard them as intellectual property. So we have unashamedly incorporated elements of other leading companies sustainability programs. This gives us confidence that our approach is best-in-class. On the environmental side, our key commitment is to be net zero carbon by 2030. The main elements of this are for all future developments to be net zero embodied carbon, but offsetting alone is not enough. So by 2030, all developments will have 50% less embodied carbon. We'll also reduce our operational carbon by a further 75%. We're taking a whole life approach which Matt and Juliette will explain. But in summary, our overriding principles are to reuse, recycle, and resource sustainably will only offset as a last resort. We've launched an innovative transition fund, which incentivizes us to reduce embodied carbon while funneling resources to improve the efficiency of the standing portfolio, and Cress will talk more about this. On the social side, we're rolling out our place based approach to community engagement. We'll work with our communities, local authorities, customers, and suppliers to tackle local issues, such as education and employment. This strengthens relationships with our stakeholders and deepens connections with our places. We've got good track record of doing this at Regent's Place and Fort Kinnaird. Ultimately, a more sustainable approach makes sense because our customers are asking for it. The number of companies in London who signed up to science-based targets has doubled since 2010. For many companies, the easiest way to reduce their carbon footprint is through more sustainable real estate. So we expect the demand for greener buildings to increase significantly. This is reflected in the conversations we're having. We're seeing more and more evidence that sustainable buildings generate higher rents and lease quicker. JLL estimate that a BREEAM Outstanding or Excellent building achieves a 10% premium to other prime buildings without a rating. We're also seeing customers look beyond environmental criteria. The ability to make a positive contribution to local communities is increasingly important to their people. It's part of their brand, helping to attract and retain talent. And it creates loyalty. So our customers want to recommit, seeing that at Regent's Place, for example, where Dentsu Aegis an existing customer who are very active in our community program have pre-let 1 Triton Square. So at every level, doing this well is really additive to our business. On that note, I'll hand over to Matt and Juliette to talk about our environmental commitments. Matt's section is prerecorded. Like a lot of us, he's juggling child care with a day job. His wife is also a key worker, which means he's on call for their 2 boys right now, but will join us live for questions later.

Thanks, Simon. Good afternoon, everyone. I'm Matt Webster. I'm probably trying to find an episode of Ninjago, will make an after-school snack once you listen to this. But I look forward to joining you for the Q&A. My role at British Land as Head of Sustainable and Smart Buildings considers both the environmental design and performance of our assets, whilst also working in our smart places team, developing and deploying digital technologies to improve the experience and operation of our places. I'll introduce net zero carbon and consider operational carbon before Juliette looks at embodied carbon. There's a lot of noise around net zero carbon at present. So I thought it would be useful if we get out clearly the definitions and scope we have adopted at British Land. Our approach is based on whole-life carbon, that is accounting for and reducing carbon throughout the full life-cycle of the property from the building design and development through its operation and all the way through to end of life. Firstly, embodied carbon. These are the emissions associated with the materials and components required to develop a building, raw material extraction, processing those materials into usable building components and supporting those components to a development site, and then constructing those components into a tenant ready building. There is also embodied carbon associated with operating buildings. When building components be that air handling units, chillers, heat pumps, reception desks, floor lighting, any component that requires replacement will have associated embodied emissions. It's also critical to consider how a building's emissions can be mitigated at the end of its useful life. Either through recycling as much of the existing building as possible or by circulating materials back into the supply chain. This impacts embodied carbon by extending the life of building components and reducing the footprint of projects where components can be used a second or third time. Secondly, operational emission. The first step in reducing the amount of operational energy of building needs is to design it efficiently. So it requires less heating, cooling, or lighting to provide a comfortable and productive environment. It's also important to have the processes and the technology to track that performance and identify where improvements can be made. So there's a clear crossover with the work we're doing to make our buildings smarter. Of course, all buildings will require some energy. We then focus on how we can maximize the use of both on-site and off-site renewable energy. When we've done everything we can to mitigate carbon emissions to achieve net zero carbon, any unavoidable carbon, either embodied or operational needs to be accounted for in a certified offset scheme, reducing or sequestering carbon outside of our footprint boundary. So how are we performing today? It's worth highlighting the statistics Simon gave in his introduction, we've already decreased carbon emissions by 73% since 2009. So accounting, reporting, and reducing carbon isn't new at British Land. We've led the way in our approach to measuring, reporting, reducing embodied carbon in our development, and we have a growing reputation for our progressive approach to managing energy more efficiently. For example, Meadowhall decreased its operational energies by 51%. Smart metering, LED lighting throughout, rooftop solar and natural ventilation strategies have all helped. Looking forward, some of the buildings we're developing and delivering today are already in line with the carbon and energy targets we're proposing for 2030. At 100 Liverpool Street, for example, we've managed to retain most of the foundations in existing steel structure, allowing us to achieve an industry-leading result on embodied carbon. Our new strategy sets some challenging targets, but we have the experience, the people, the processes, and the supply chain to meet this challenge. So how do we transition to a net zero business? Let's consider operational carbon first. Our target is to reduce operational carbon emissions by 75% from a 2019 baseline. We believe this is an achievable, but challenging and necessary target to adopt. Emerging definitions of net zero carbon treat whole buildings as a single entity under the responsibility of the owner with no differentiation between landlord and tenant procured energy. Our 75% reduction target is consistent with that. Using this approach, external factors like grid decarbonization and how ambitious our customers are in reducing their own carbon footprint becomes important. The national grid is becoming greener over time, and this trend is set to continue. This will support our net zero pathway, particularly where we don't have control over energy procurement. However, our targets go much further than this. So we're not just relying on this good decarbonization. And we see assisting our customers in reducing their emissions as an opportunity for greater collaboration. It's in an area where we can lend expertise and experience. And increasingly, this is something our customers appreciate. Energy-efficient buildings produce less carbon per meter squared. So a key part of our pathway is to ensure every asset we own is designed and operated as efficiently as commercially viable. We're seeing emerging industry benchmarks that state what level of energy efficiency are required for a building to be considered best practice. We're also expecting regulation to continue to push operational energy efficiency requirements for both new developments and existing assets. So in the first years of this new strategy, we will undertake detailed audits of energy saving opportunities across our spending portfolio with associated cost plans. Energy management requires real-time data and insights into energy use, identify where we can make savings or channel resources in order to run properties optimally. Smart technologies have an important role to play here. Alongside improving the efficiency of the portfolio, it's important to consider where the energy we do need comes from. This means continued focus and investment in opportunities for installing on-site renewable energy where viable. For example, solar panels. When we need to purchase energy, there is a hierarchy of renewable energy to consider, this is an emerging area of investigation. We currently purchase all landlord energy from existing renewable sources. The use of a power purchase agreement can protect against energy price increases, whilst ensuring our energy consumption is from additional renewable sources. So to become operationally net zero by 2030, we can assume that the grid will decarbonize, but we will also need to ensure our buildings are designed and run as efficiently as possible by our energy from renewable sources and engage with our customers on how to reduce their own emissions. Linking back to our definition of net zero, any residual carbon will need to be mitigated through a certified offset scheme. But we think of that as an active last resort. Undertaking the actions highlighted here will help reduce the size of that payment, and that is really what our approach is about. Over to Juliette to take you through embodied carbon.

So thank you for having me, Matt. I'm Juliette Morgan. And my role is Head of Sustainable Development at British Land. I took on this role a year ago, but prior to that was Head of Campus at Regent's Place, which we established as a sustainable London campus, focused on social and environmental leadership. From the Regent's Place community fund in café and gardening with the local community, the circular economy fit-out with customers. We recycled landscaping, which was cross-laminated timber construction and the BREEAM Outstanding development at 1 Triton Square, which you'll commence to hear about. I'm sorry not to be able to share the progress we made on that campus with you in person today. But in bringing that background to the sustainable development role, along with the qualification and sustainability leadership from Cambridge. We've heard from Matt, that operational carbon will reduce. So consequently embodied carbon becomes more important over time, moving proportionately from 22% in 2020 to over 60% in 2050. Carbon from the building industry accounts for about 40% or more of global emissions. And the manufacturer of concrete and steel alone each contribute about 5%. The products we build is what we're judged on, both now and in the future and customers demanding low embodied energy buildings now. Building greener buildings gives us defensible assets now, but preserves future value. The biggest influence we can have on embodied carbon when building is at the brief and commissioning stage. And that includes diminishes over time." We've updated the development brief to reflect this, but essentially it means us being much more demanding at the beginning, and our teams are being measured on how much carbon they reduce in the designed phases. Let me take you back. When we built the Leadenhall building, 70% of the embodied energy was on the structure, driven by the use of steel and cement. In fact, 84% of the embodied energy came from the materials we used and it was carbon intensive, emitting close to 100,000 tonnes of carbon at completion. Or to put it another way, it was more than double our 2030 target at over 1,000 kilograms of carbon per meter squared. Our 2030 target seeks to be about 500 kilos or less. And in many cases, within the existing pipeline, we're outperforming that with the portfolio average hovering at roughly 650 kilos at the moment. You can see on the left of this slide that steel and concrete are drivers in embodied carbon because they require smelting. And the chart on the right demonstrates that within buildings, it's mostly the structure and the floors where concrete is used. So using alternative materials on the floors reduces the embodied carbon. Most British Land's developments are concrete, glass, and steel in their design and construction, but we just purchased our first timber led building also invites a story. Cross-laminated timber or CLT as its named has much lower embodied carbon content than alternative materials. So when used as a structural material, it lowers total body carbon of development. Research from JLL suggests that the use of timber at mass scale has the potential to make cities carbon stores. And there's much work going on globally and within BL on the structural use of timber, including an emerging industry alliance to progress its use. But by far and away, the best way to reduce carbon is to reuse existing buildings. And that's how we've got outperformance at 1 Triton Square and the 100 Liverpool Street and meeting some of those 2030 targets on embodied carbon now with each achieving below the 500-kilo target that I mentioned. Recycling structure can save up to 40% of emissions and shows that these targets are achievable today. 1 Triton has achieved our 2030 target from embodied carbon through recycling its facade and retaining much of the existing structure, and Tim will talk you through more of that later. But if we build from new, we need to be looking at laminated timber and chem free cement or replacements like hempcrete or limecrete and other recycled content materials. New innovations are coming through, like board made from mycelium or peel or insulation from wool and paper as opposed to rockwool. In 1 Broadgate, the team is looking to replace their conditioning piping with cardboard rather than metal and no better is this thinking more perfectly demonstrated then the work the design team are doing at 2-3 Finsbury Avenue Square, but they reverse engineered the carbon target and are close to parity on embodied carbon compared to use of timber against chem free and recycled steel. And it's not just in materials either, it's in how we design. We've been looking at what happens when you change shape. Can it change the amount of materials we use or orientate a building without full height glazing to reduce solar glare and therefore the amount of glass. But how much it needs to be heated and cooled. We also need to increase the recycled content of our buildings, reusing what's already available in its highest possible value state. For example, not crushing stone for aggregate and also designing for disassembly. Many of you will have heard of this as circular economy design thinking, and it's made its way into the new brief. The industry is elevating in its construction methods, materials, and approaches. All of which has attracting R&D and collaboration. As we rebalance our materials, embodied carbon will reduce. From this year, we commit to make our buildings net zero at completion. And that does require us to make a payment into an accredited scheme to offset the remaining carbon in the buildings when we've done -- when we've done everything we can to minimize our carbon footprint. Our intention is to pay into offsets, which will grow the materials will ultimately be used in the building material supply chain. So we have a circular process and are sequestering carbon into lower impact buildings. We intend to do this mindfully a biodiversity, social impact, and traceability, and they were in the process of due diligence on how it progresses. Remember how I said earlier that Leadenhall was nearly 100,000 tonnes of carbon. Contrast that was the completion of 1 Triton at 21,000 tonnes, and you can see how successful our teams have been at reducing embodied carbon in buildings. I won't steal Tim's thunder, but this was substantially driven by recycling facade and retaining the existing structure, which says circa 40% of the embodied carbon. Cress will go on to talk about our approach, but we've calculated that using a carbon price of GBP 60 a tonne, where we've adopted the same value as the city of London used. We can mitigate the embodied carbon in completing this building at a price of GBP 1.3 million. This is de minimis compared to the cost of construction, but it is meaningful to customers and our commitment to develop net zero building and would help underpin the buildings value, both now and in the future. Finally, we have a road map to get the whole portfolio net zero by 2030, not just our developments now. We'll spend the next couple of years, auditing assets identifying where we can upgrade and make buildings run more efficiently. That will help us prioritize where to focus our spends. And we will look at that through improving efficiency, embodied carbon, cost to implement, and the timing of the work. Over the next couple of years, we'll go further with our power strategy. Although we run on 96% renewable energy today anyway, we'll look at REGO backed or PPA power agreements, which adds more capacity to the grid and are traceable. And that will help us meet science based targets to stay below 1.5 degrees of warming. I mentioned earlier that a number of our future developments are meeting 2030 targets today. But generally, this is where we're doing substantial refurbishments. The profile of development pipeline may fluctuate over time, where we have more new builds and refurbs and it's more challenging to meet the 500-kilo target. For example, when Canada Water comes online and so to keep us on track, we intend to have development portfolio average below 750 kilos of carbon by 2025 on a portfolio basis. But we expect to outperform this target as the current average is below this figure. This is to keep us on track to get to that 500 kilos by 2030, and we'll review the strategy by 2025 to see if we can go further. Over the course of the next 10 years, we'll be upgrading the portfolio and working with customers to reduce their footprint too. So that by the time we come to offset portfolio emissions in 2030, we'll have met our Better Buildings partnership and U.K. Green Building council commitments. Over to Cress to explain our mechanism for achieving this.

Thanks, Juliette, and good afternoon, everyone. I'm Cressida Curtis, Head of Corporate Affairs & Sustainability. And I started working in sustainability 15 years ago, while as a major contractor, where I realized the construction industry sent 3x more waste to landfill than all the U.K.'s households combined. Despite the challenge of getting hardened subbies to segregate waste for recycling, we committed to achieving 0 landfill within 5 years, challenging the status quo in the industry. And we found it was a really effective way of transforming the internal approach, driving change across the industry, and building stronger relationships with our customers. I also led work on increasing community cohesion which kept us firmly oriented towards helping our customers deliver their priorities before spending a decade at Quintain where we had a highly progressive environmental agenda. And now at British Land, I lead the public affairs, corporate communication, and sustainability functions, drawing together the expertise within these 3 departments to accelerate our progress. So British Land's journey to an entirely net zero carbon portfolio will take 10 years. Our track record over the last 10 years, reducing carbon intensity and energy intensity give us confidence in our ability to deliver this really bold ambition. But the journey will involve work across the investment portfolio. So we've created a vehicle that will deliver 3 priorities. First, it will make carbon impact a simple concept that everyone within BL can grasp and integrate into their decision-making at every level, every day, so we make increasingly intelligent decisions. Second, it will provide a ring-fenced source of funding we can use to retrofit our assets. And third, it will enable stakeholders such as you to monitor our progress annually towards this long-term goal. So how does it work? The vehicle we designed to deliver this is a transition fund. And a few minutes ago, Juliette illustrated our ability to influence the whole life-cycle carbon of an asset is at its peak during development. And in some years, development itself can represent of the half of our carbon emissions. So to encourage real focus on driving down embodied carbon, we're applying an actual mitigation cost to every tonne of carbon in the BL development pipeline, and we're setting that at GBP 60 per tonne. And what does that look like in practice? We're looking again at the example of 1 Triton Square. There are 21,000 tonnes of embodied carbon in the building, and that's about 1/4 of the amount that was in the Leadenhall. The carbon mitigation cost applied to this development will be GBP 1.3 million. And to put that in context, where its just 0.3% of its net development value. Of this GBP 1.3 million, we'll use GBP 400,000 to purchase certified offsets, making the development net zero embodied carbon at PC, and the remaining GBP 900,000 will be paid into our transition fund. You can see in the yellow bar, the estimated payments we'd expect to make into the fund from forthcoming developments and will enhance the fund by GBP 5 million each year as alone, shown in the green bar. Looking to the right-hand side of the slide, you can see the 3 ways we'll use that money. First, in upgrading our standing assets; second, where the industry is moving too slowly for our goal investing in research and development into low carbon materials and design; and third, as loans to the customers and the service charge to improve energy performance. We know that for many customers, particularly those in high-growth sectors, real estate is the largest element in their carbon footprint, and we have the expertise and funding that can help them reduce that impact. Using the transition fund in this way helps us not only achieve our goal of reducing the carbon impact of our portfolio that strengthens relationships with our customers, which is key to our wider corporate strategy. This is the first time a U.K. REIT has committed to paying an actual internal price of carbon on development. And we're already seeing our development teams pivot towards lower carbon options as a result. Now although net zero carbon and our place based approach, which Anna will walk you through shortly, are our headline ambitions. There were 2 other important goals in our 2030 strategy. First, we're committed to leadership across environmental indicators beyond carbon. And we feel that the best way to maintain focus on the efficient use of energy and water, reduction of waste, and the expansion of biodiversity, is to target within 2 years of 5-star rating in the Global Real Estate Sustainability Benchmark. This is our key index. You can see on the slide, our 2019 performance across the 8 areas GRESB covers. Our performance is shown by the dark blue bars and the upper quintile that 5-star rating we want to achieve by the red line towards the top of each. To-date, we focused attention on the areas we think are most important, such as effective management and high-quality disclosure. And you can see we score well in 7 of the 8 areas GRESB measures. But we're aware that more process-oriented areas are given significant weight, and so we're investing in a rolling program of BREEAM certifications to lift our performance in that category. These certifications also support our sustainable finance framework, which James is going to talk about in a moment and our leasing program. Concurrently, we're investing in the performance indicators category and the stakeholder communications category, where we score well but I think there is more to go after that will help take customer relationships to a new level. Now you'll be aware that growth is just one of a vast range of indices flowing now into the ESG space, and it makes no sense to invest substantial resource purely in reporting. And for a decade, we've published a full set of sustainability accounts with key information assured alongside our annual report, and that enables you, our stakeholders to draw your own conclusions from our data. So with the indices, we focus on those, our stakeholders most value, and we'd really value your feedback regarding how we can support you in this regard after the event. Now, I mentioned there were 2 supporting goals in our 2030 strategy. And the second is advocating responsible business. On the right, you can see 5 key areas, and you'll find plenty of information on our website, but we're particularly passionate about integrating well-being into our places for the benefit of all who use them. So they're designed and managed around defined well-being principles that we developed with Happy City 5 years ago. And this is particularly personal today as we exit the pandemic lockdown. As Chief Executive, Chris has also long been a vocal advocate that includes the culture, encouraging employing led networks on issues as diverse as ethnicity, well-being, and LGBTQ issues. And these networks and regularly channel recommendations to our executive committee. Again, you can read more about their work alongside a range of other issues in the sustainability section of our website, where we show a great deal in our acquiring sites, that we hope will help accelerate progress outside our own company, and I'd really encourage you to take a look. Now I'm pleased to hand over to James Pinkstone from our Treasury team, who's going to talk to you about our sustainable finance strategy. James?

Thanks, Cress, and good afternoon, everyone. I'm James Pinkstone, and I'm part of our Corporate Finance and Treasury team. I joined BL around 6 years ago. And since then, I've been involved in a number of areas across the business, including our development function. Over this time, I've also worked with both our sustainability team and the Prince of Wales's Accounting for Sustainability charity, which Simon is a member of, and we've tried to explore how finance can contribute to the sustainability agenda. The collaboration required between sustainability and finance is common across our business, and it's one of the ways that we ensure that every decision taken is environmentally and socially intelligent as well as making sound financial sense. And we've been doing that for a long time now. And I'm going to provide you a brief overview of a couple of recent initiatives that helps to demonstrate how finance can support and drive our challenging 2030 sustainability strategy. Firstly, in March this year, we extended and refinanced one of our revolving credit facility. We took the opportunity, working closely with a number of our relationship banks to include 2 new sustainability KPIs that were key to our 2030 ambitions. The first KPI is into BREEAM certification coverage of our developments and our major refurbishments. This scenario we've historically performed well. This case while includes a minimum certification level now adopted for our new sustainability brief developments, and these required levels will push us to build more sustainably across our significant capital projects and work even closer with our supply chain. And in doing so, it will support our net zero carbon goals. The second KPI related to the BREEAM certification coverage of our standing portfolio. As Cress has outlined, while we are focused on creating more sustainable space, what we haven't always done is pay for the formal certification. This KPI will help us do that. Base coverage targets increased over the term of the facility, and our performance could lead to a modest margin adjustment, which over 5 years or so, to represent a meaningful saving for the company. Important though, the increased certification coverage means we can learn more about our portfolio, helping us to identify and prioritize opportunities to improve our sustainability performance. And as Cressida has explained, increasing our building certification levels will really help us to achieve our target of GRESB 5 star. The second initiative I'm going to talk to you about now is our sustainable finance framework, which we published last month. The approach we set out is to maintain a sustainable portfolio comprised of our most sustainable buildings and our eligible projects. These projects align with the UN Sustainable Development Goals, and the framework will enable us to raise sustainable, green or social finance up to the value of our portfolio. We expect the portfolio to develop over time, both as we commit to development projects and certify more assets. But also as we evolve and improve the framework as best practice emerges. On day 1, the portfolio primarily includes green buildings, which are also subject to minimum certification requirements, such as the BREEAM Outstanding, 1 Triton Square development, which Tim will talk to you about surely. Aside from green buildings, there will also be a number of other initiatives that we undertake across the businesses that are eligible for inclusion. This could include renewable energy projects, such as the solar panel installation works at Meadowhall and Hull, or energy efficiency projects related to our lighting, heating and management systems. We've included a list of these sort of projects in the framework, which we published on our website. We also expect the portfolio to include a number of social projects, such as the Canada Water, where our first phase will cover 3 buildings delivering a total of 265 homes, of which we expect around 35% will be affordable. The framework has been assured by DNV, who are recognized in independent expert in assurance, and the framework aligns with their prevailing LMA Green Loan Principles as well as the ICMA sustainability, green and social bond principles at the time of issue. And as I've noted, we will continue to develop this framework over time as best practice emerges and the new guidance is published. But for now, I'm going to hand over to Simon for any questions on what you've heard so far.

Great. Thank you, James. I understand we've had a couple of problems with the audio particularly on the GRESB section. So if there are any questions, in particular there, please do ask them if anyone was unclear. We have a couple of questions that have been submitted already. Jo, do you want to read those out? That would be great.

Yes. Our first question is from [indiscernible] from Hopkins. Who asks will these GBP 60 per tonne internal carbon price change over the decade, responding to industry consensus, such as the Draft London Plan, potentially raising it to GBP 95 a tonne.

It's a great question, Seth. And absolutely, we're intending to evolve our strategy over time, both in terms of the targets we set ourselves, those could well become more stretching over time, but one area in particular is the cost of carbon that we use internally, and we will likely increase that as market convention moves forward. I don't know, Juliette, if you would like to add anything to that.

Thanks, Simon. Yes, only at the time of growth in the transition time, the price of GBP 60 a tonne was adopted by the city of London, and we were basing it on developments that are brocade that fell into that area. We're aware of different pricing across London. And it's something that we keep under review. But essentially, it's a price that we use for an internal function to feed into the transition fund. And actually, what it's doing is encouraging our teams to price in carbonates developments and having them think much more about the embodied carbon, which is what drives the investment into the fund. So it remains under review, but that's why we adopted that price.

Great. Thanks, Juliette.

And then we have 2 questions from [ Jay Baldwin ] at T. Rowe Price. The first is, the cost of carbon offsets are still small today around GBP 3 a tonne, which is economically cheap. Why have we not seen more real estate companies offset carbon emissions today given the limited impact on NOI.

Another good question. I think a bit related to the question that was asked previously. There are differing prices that are used for offsets. As you've seen, you can offset for as low as GBP 3 or GBP 4. Market standard seems to be about GBP 20 today as Juliette flags, we've set it higher at GBP 60 so that we get the appropriate pricing. I think one of the reasons perhaps we haven't seen is much offset by property companies in the past is for many years, businesses weren't necessarily aware of their carbon footprint. And I think as data has improved, and has been more collected, then it's enabled this to move forward as an initiative, and we're very supportive of the idea of offsetting, as you've heard.

And second question is on how achievable is 75% reduction in operational carbon is by 2030. And most companies utilize low-hanging fruit like LED lighting and more efficient HVAC units, what other decarbonization options are there.

Yes. It's -- I think it's clear that we obviously focused initially on the low-hanging fruit. We managed to make really good progress on reducing our emissions, as you say, by 73%. A further 75%, when we set that target, it did and does feel quite a stretch. But as you heard from Matt's presentation, there are quite a few ways that we will be able to strive to hit that target. We will be helped by decarbonization of the grid, as Matt set out. We also feel that another good area to look at is monitoring an energy management and smart technology. That will be a fruitful source for energy savings for us as well as retrofits. And interestingly, although retrofits obviously have a cost associated with them. Some of the payback periods are very good and short- and represent a good financial and energy efficiency return. And I think the other aspect is around power agreements. By entering into power agreements, we lock in the cost of our energy, but also we're creating additionality for the grid, and that will help. Matt, I don't know if there's anything else you would like to add it in this aspect.

I think you've covered it all really nicely. I guess, just a bit more flavor on the retrofit. We think there are still opportunities out there. So the 75% target is a whole building target, which means close collaboration with our customers is going to be really important here as well. And it will -- the target is as it's set in a whole building, I mean we consider on floor energy consumption, which is not in the same area where we're focused. On the base of those things, where we're completing the retrofits, we kind of tried to split it into 3 categories: deep retrofits, which would be capital projects relating to fabric facade, glazing and things like that, they tend to only be viable and rightly so, both commercially, but also from an embodied carbon perspective, at the end of that component life. And then there's more moderate retrofits around the HVAC and M&A. Now that technology is moving at quite a pace. So there's a lot more to be done around heat recovery. We were one of the first landlords to retrofit an air source heat pump at 350 Houston Road. And that saved about 90% of the gas there. So although a lot has already been done, I think there are still further opportunities to save more energy.

Thank you, Matt. Do we have any questions on the phone Jo?