Jones Lang LaSalle Incorporated (JLL) Earnings Call Transcript & Summary

Budgets. Building the business case for investing in real estate becoming more sustainable can be a real challenge. And it's not for want of lacking in action, companies have set their commitments. We have the goals, but we're just not moving fast enough or far enough yet. So today, we brought together a group of experts to explore how you can build a solid business case for securing that investment in buy-in in decarbonization of real estate and making it more resilient to what is an inevitable change in our climate. We are going to finish with Q&A. So if you have any questions, you can write them in the chat. We will be sure to answer as many as we can. So let me get to introducing the incredible panel that we have lined up for you today to share their insights. First of all, from Hines, we have Peter Epping, the Global Head of ESG. Hines is a progressive $100 billion global investment manager, including both development and property management. They have both institutional and private wealth funds and a very broad and very deep sustainability practice that Peter is representing. Welcome, Peter. From ULI, we welcome Lisette van Doorn, the CEO of ULI Europe. ULI's mission is to provide leadership in the responsible use of land and help shape and transform the future of the built environment. Welcome, Lisette. From Standard Chartered Bank, we're joined by Darren Sear, the Global Head of Sustainability for Property. Standard Chartered has a presence in 53 markets and serves clients in an additional 64. Their purpose is to drive commerce and prosperity through their unique diversity and their heritage and values are expressed in their brand promise here for good. And finally, but certainly not least, from JLL. Currently in Dubai, at COP28,we have Guy Grainger, the Head of Sustainability Services and ESG. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for their clients, their people and communities. Thank you all so much for joining us and sharing your expertise with our audience today.

Let's dive right in. As we mentioned, it's a tough economic environment for real estate right now, high interest rates, different demand patterns, both landlords and tenants have limited budgets and competing priorities. So while we've made commitments and we want to take action, is this that moment? Are we in a pause button right now? Guy, I want to start with you because you are in the epicenter of this conversation right now at COP. What are you hearing? What are you seeing? What's the current state of [indiscernible] around sustainability decision-making. And what do you hear? What are the challenges right now?

Well, I have to say I came here to Dubai with quite low expectations. And I have been pleasantly surprised, firstly, by the fact that the built environment is very much a centerpiece. I actually heard one CEO who say no way are we going to be able to decarbonize more than in the built environment. So 2 years ago at [ Glasgow ], this was not they discussed. When I said I was from the real estate sector, people said, what, where does that -- what role does that play? So I think that's really good. The point you made about particularly the real estate investment community, I think they are stuck in a moment. And I think the cost of finance increasing so dramatically. At the same time, as the supply chain really becoming challenging is that to make a case on CapEx now, I think a lot of asset managers are finding it difficult to articulate the real value creation. I think it's a miss. And if I'm really honest, when you come and spend time with other industries and see the pace at which other industries are going, it gives you a better perspective to look back at your own industry and feel like, we are a bit stuck certainly from the investor side at the moment. We're stuck in the moment, which is all about the cost of finance and the cost of capital, and the risk, which is all encompassing rather than just being about environmental risk. But when I spend time with corporates here and there are hundreds of CEOs from major organizations, and we'll hear from Darren on this. But the pace at which they feel the pressure. And it might not be from their customers, it might actually be from their employees or elsewhere. There's lots of stakeholders giving corporate [indiscernible] at the moment. But they're on it. And actually, for me, that gives me a lot of sort of faith that this is going to turn into a demand-led situation where investors have a capital and commercial reason to respond.

That's great. We're going to get more into supply and demand next. But was that -- how does this compare to what you're seeing? Does that match with what you're seeing?

Yes. Certainly, it does. I agree with Guy that probably investors will take even more of a central role. But you could also ask yourself if now the cost of finance and the current high interest rates, high construction costs are the issue, why didn't we do something before that? Because we again came up from materials with high profits, lots of opportunity, and it wasn't done at that time. So I think what we also need to realize is the way we value buildings is not really helping, where the valuer kind of the industry as a whole, agreed at some point with valuing buildings based or mostly looking through the rear view mirror and not looking so much ahead. And obviously, we know that the past is not reflective in this case of the future. And I think that is holding back progress at the moment as well, which doesn't help create the business case going forward. And building on what Guy just said, it is hard to justify the CapEx, but it's also almost a dominant CapEx mindset that people still look at decarbonizing, and it's almost only from a downside risk perspective. It's so heavy the investment we need to make. Instead of looking, it is happening already. We know what the agreement set in the Paris agreement [indiscernible] where we need to get to. That it's not everyone in regulation yet. Doesn't mean that we can sort of close our eyes and just act as if nothing is needed. So I think -- and therefore, the value decrease or the pricing in the CapEx is already happening, whether you see it in your valuation or you don't, and also the current muted transaction market, I think, doesn't really help with getting to what's going on in real. As you all read recently, did a survey trying to assess who is already incorporating decarbonization transition regs in their investment decision making. And that's actually growing really fast with almost 90% of the respondents. So I think it is that and also realizing that there is a value preservation at least, if not value uplift element.

While you're pausing, I'll just say, we're going to be getting more into that risk assessment conversation and the valuation. So plenty more to come from Lisette as she comes back on. Peter can...

Values...

Thank you. We lost you for a second. But again, we're going to pick back up on those themes that you set up for us around risk and valuation. So thank you for setting the stage with that. Peter, I want to bring you in because you have a portfolio, a huge portfolio. You have over 790 properties in 380 cities across 30 countries. And you have a target of net-zero in operational carbon by 2040. So curious how you see the conversation right now as shifting or picking up steam.

Yes. Thank you, James. Yes, it is really interesting to see how it varies across our portfolio globally, but there's a notion specifically that Europe is more advanced than some of the other parts in the world where there may be a different discuss around this topic. But what we've been observing just over the last 6 to 12 months, I'd say, is that the trends are actually much more universal in nature than we may have thought a year or 2 years ago. And it's really starting to hit home for asset owners in different ways. We're seeing now, especially from the occupier side, we're seeing that the leading edge of that market, the large institutional investors are really ramping up their assets that become a lot more sophisticated and that not only set themselves net-zero targets, but importantly, also now more and more occupiers are creating the important link between a firm-wide net-zero target and how that translates into actual leasing discussions. So that's one important trend that we're seeing. And that is something we're seeing in New York, in Houston, in London, [indiscernible] and Melbourne. It seems like that is becoming more universal. On the other hand, with investors where we're seeing them still on a range as well and some have become very data driven now, and much more metal. In fact, we're not seeing a lot of hyperbole language anymore. There's been a bit of a sobering up in a way, but a bit of getting down to business and how do we implement. Data is one of the first pieces. And we're seeing that the sophisticated investors are taking that into account, they're very focused on aligning with [ prem ] and looking at the value proposition. I agree with Guy and Lisette that, that is not yet happening at the scale it needs to happen. Well, I think for me, the really encouraging element is that the larger, the more sophisticated leading edge of the market has started to move. And even though is that may be more skeptical and cautious. They're realizing that the market is starting to move, and they're realizing that just sticking to the status quo may present -- may exposure them to significant risk in a different market in 5 years' time.

Yes. That's great. Yes, we're going to unpack a lot more of that you're getting into, but -- before we do, Darren, how are you keeping up with your own strategy and work in real estate right now?

Thanks, James. So we have a quite a clear strategy around our own sustainable journey within our own property portfolio and our own operations. We generally look at four levers to follow through. We want to have an optimal real estate portfolio. We only want the space that we really need. And post COVID, we've seen a lot of change around those needs and what our colleagues desire. We call it the future of work, and we're noticing a lot more change in how we operate and how we use the space. So that's allowed us to treat the portfolio a considerable amount And of course, in doing so, releasing a lot of our commitments in that way. But we also have to maintain a very strong energy efficiency program. So we have year-on-year targets around gaining incremental gains on energy efficiency, water efficiency, et cetera. It's important to keep track of things like that, so that we're constantly trying to improve, constantly invest in, in making things better and work more efficiently. Then, of course, there's the clean energy program and everything we try to do around our RE100 commitments and trying to source clean renewable energy for all of our operations, which can be tricky, we're in some challenging markets in that space, but there are options. We, of course, in our property portfolio, we are talking about Scope 1 and 2 emissions. So we have some quite strong targets to meet on that front. But that's a very important part of the journey. So we can't do it without procuring as much clean energy as possible. And also maintaining the appetite, making sure that there are enough decarbonizing projects in our markets, whether you can buy them directly or indirectly, making sure that there's interest in this appetite and people like us to investors and to programs out there is an important part of that. There are other elements as well such as being clever about what we do with our data center functions. Do we have them in-house or colo. There's an impact either way, either it's in-house or outsourced. It's -- we're still responsible for it. It's not that's -- that doesn't go away. But there are -- or it can be more efficient ways of doing that and making sure that we're getting the right service provision for both ourselves and our clients. And then, of course, we're looking for like a 90% reduction on our 2018 baseline. And our target currently is 2025. So we've only got a couple of years to go, but I'm glad to say that so far, we are on track.

That's okay.

Yes, I just wanted to jump back in, actually on what something -- a couple of things that Darren said there, which I've really noticed well, I've been at COP, one is -- when I speak to corporate occupiers, the big companies with portfolios all over the world. And they know I'm from real estate and property, they go, property [ agent ] at least we know what we've got to do with property, right? Because they're so worried about Scope 3 and the huge supply chain, which is an enormous part of their footprint. But they really want easy wins. And what's really interesting is they see property is an easy win, not everywhere, Darren, as you say, there are some places in the world, they're really hard. But actually, the developed world is someone that's really quite easy to transition real estate. Whereas I speak to investors, and they think it's so hard to do, right? Because actually, we haven't worked out how to pay for it. We know what we've got to do. We do some work to had to pay for it. So I think that's the first thing. And these targets, as Darren talked about 2025 and often 2030. This is all going to happen this decade. I mean the corporate real estate and occupiers, they want to decarbonize their estate this decade. It's happening right now, right? The supply chain will happen over a longer period. And the other thing that Darren mentioned was data centers. There's been a lot of chat here in Dubai about data centers because I haven't realized just how enormous that carbon footprint is and how much bigger it's getting. So just put it in context, someone told me, aviation, all the flights in the world, and let's face it, how much do we talk about aviation is 3% of the total carbon footprint. Data centers currently is just under 2%. So over the next few years, there is a chance that it might overtake right? That's one real estate asset for us. So just to put into perspective what a role we've got to play in the built environment in real estate and as sort of some other industries come down through aviation fuel and other things, actually data centers. I know that's a big challenge.

Well, Guy, I love the perspective you're bringing. We're in this real estate space, a lot of us so much. So seeing it from the outside in is really always enlightening. And Darren, I want to come back to you because you're making these kind of corporate type decisions around which spaces you're leasing, right, these corporates that Guy is referring to. Yes, help us unpack that a little bit more what the kind of sustainability considerations are for Standard Chartered, when you think about which buildings, which spaces you're going to keep lease, let go of.

Yes, sure. I mean it's incredibly important at the moment. It's never been more prevalent on the agenda than it is now. We have a mixed portfolio, part-leased, part-owned, majority is leased. So when it comes to the existing portfolio that we have now, I mentioned before about what we're doing with our real estate, how we are trying to optimize and make it best-in-class for our customers and our colleagues. So there's lots of optics around lease renewals, for example. Do we stay? Do we go? Do we re-lease? Do we divest? Do we invest? Lease renewals are a really important stage in that plan because it allows you to open up a negotiation with the landlord and potentially discuss what we both want to do, what our appetite is for the buildings that we stay. We want to know what the landlord's appetite is. Do they have a vested interest in maintaining perhaps -- perhaps we're a part tenant. What are they doing with the entire building to make out -- which will help our own numbers. So there are very important lease events in the stage of occupation in that phase. We want to use those opportunities to tell the landlords that we will self-improve. We will make our own investments to make the space better. But we also want to work together in that space as well. So definitely an opportunity with the existing portfolio. When it comes to new spaces, new portfolio that we would invest in, we have a quite strong weighted score with sustainability now, much more so than it used to be. So you mentioned climate risk earlier. That plays a big part, but while I'm -- well, what the property function you're looking for in particular is the sustainable commitments around the buildings that we're looking to invest in. Or indeed, if we're building, working with the developer to make sure that the goals that we want to achieve can be achieved together. It's a crucial stage of the negotiation. And as I said, it has a lot more weighted average than it used to as well as looking at location with climate risk and heat gain impact, for example. We're also looking at location for transport and how that can help our colleagues. And of course, location is incredibly important for our customers, right? So we want to have spaces in the right place for our customers as well. And lastly, I would say that I'd like to think that we're a desirable tenant. So hopefully, there's a little bit of leverage in that front as well that we can say we want to stay somewhere or we want to be here, work with us together, so that we can achieve these shared outcomes.

That's great. There's so much there, these different variables, all these different criteria and things that go into decision making. Lisette, I want to bring you on like maybe one of the specific ones. You mentioned valuation earlier, right, as a part of this decision making. And there's a lot of discussion around green premiums, right? And just kind of demand that these lower carbon spaces can have. So yes, speak to us a bit more about that, how you're seeing that valuation changing right now or potentially going to change in the future?

Yes. I think so far, honestly speaking, the discussion on green premiums or brown discounts has been somewhat misleading. Because it's often been very blurred with the location of the building, the quality of the tenant, how new the building is and that kind of obviously all impacts valuation. And it's also very hard to distinguish between the different things. But I do think it's very important to distinguish between that. We've done quite some work as part of ULI C Change program to identify just the transition risk element in valuations, but we're only in early stages there. I think what Darren was saying is really interesting because I'm bringing everything he said, it's about partnership between landlords and occupiers. And obviously, that's not been the reality in many cases in the past. And actually, as part of our [indiscernible] work, we've also looked at the collaboration between occupier landlords and you need to work together on this. It's not either one of them who can make it work. And we've interviewed quite a few occupiers as part of that work. And what we see, so very positively is exactly what Darren was saying, that willingness to collaborate and seeing that. And actually, from the landlord perspective, we hear a lot about green premiums. How I can increase the [indiscernible] if I do the work. And what we saw from the occupier side was very much like -- just we're very happy because in some way, we are decreasing our total occupancy costs if the building is more energy efficient, then obviously, we save on the energy costs. But if the -- or the landlord immediately comes in from, I will take all of that benefit in increased rent, what is the partnership idea. So that almost paralyzes the conversation immediately, and it doesn't reflect the partnership approach. And that I think is so important. If you look at the long-term relationship. And as that also helps justify the investment that needs to be made and I think the occupiers at least the more sophisticated ones are very aware of that and realize that if this is my wish list, and I want it to be implemented, I need to have that long-term perspective to also allow for the landlord to have the proper return on investment for that. And too much still, I think, discussions about green premiums, and I take the profit of your [indiscernible] saving, blur that composition and doesn't help the overall relationship building.

Interesting. Yes, it's great. And I want to bring in some recent -- relatively recently released research from JLL. And Guy, I'll give you the kind of stat conclusion because I want you to really just help us unpack it in terms of what this means for this conversation right now. So the findings were after studying 20 major global office markets, that only 34% of future demand for low-carbon workspaces will be met in the next several years, right? In other words, for every 3 square meters of demand, only 1 square meter is in the current pipeline. So there's a mismatch there. How does that inform this business case conversation? What can people take away from that actionably?

Yes. Well, it's funny. I was on a panel yesterday with senior executive from the RICS, who had just done a survey with investors that said 76% of their investors couldn't justify the return on investment for the CapEx in transitioning an asset to net-zero carbon. But yet when we look at the data, there's a massive undersupply. There are not enough buildings to fulfill the requirements of Darren and other corporates out there. And so I think, actually, when you look at the data and the evidence in terms of future pipeline, you can make a really strong case. And but it is all about getting -- meeting those targets that Darren talked about. It is not just about having a certification. In fact, I'm not a massive fan of certifications because it's a moment in time. It's about actually creating the right energy supply. It's around creating a very energy-efficient building because that's what occupiers want. They measure themselves on quite strict KPIs on energy efficiency. And it's about entering into that partnership over a long period of time. I mean in the old days, they secure real estate investment would be a long lease with an income. I actually think that's troubled at the moment because you can't intervene in those, and you can't actually do the works that are necessary. I think a secure investment going forward is one way you've got an amazing partnership with the tenant. I mean when those lease renewals come up, the first question that Darren is going to be asking is how comes my partnership with this landlord? Are we going to be able to get to where we want to get to because they're a good partner. And if they are, then I'm sure you're more likely to renew. Okay, building needs to be in the right place and doing the right things, but that partnership is going to become more important. So we've just done the analysis on offices. It's really interesting because no city is the same. So you've got different dynamics in different parts of the world. We're now doing it with logistics. And I was at a dinner last night, where a -- actually, it was an ex hedge fund manager, who've never invested in real estate investment before is now setting up a real estate fund, transition fund, purely because they can see just by supply and demand, that there are not enough low carbon buildings out there to fulfill demand. In fact, he pointed to the U.S. market saying, that on their analysis, there are only eight multifamily buildings in the whole of the United States, that are net-zero carbon. So they're anticipating much more demand in the future, whether it be from commercial tenants or customers, residential customers, but they're actually going to place some value on these buildings themselves. And so the commercial case exists. And I actually think 2024 is going to be the moment in time when the brave investors are going to commit and they're going to win. And the longer in action takes place with the followers, the more they'll miss out. So I mean, I would say this. I know it's a bit self-serving, but with the price adjustment that we've had with the continued push from corporate tenants, particularly with science-based targets in these 2025 and 2030 targets, the demand is outstripping supply, and demand supply is the language of real estate investment. So I really think the business case is getting much stronger with every month that goes by.

That's great. Peter, I want to bring you a chance to come in here and then we really want to talk about how we increase the supply. And I'll put this question that came in through the chat and whether Peter or anyone else wants to tackle this. This great question around seeing these different portfolios, especially better across different regions and areas and how these premiums are talking about -- how these leasing actors are talking about are differing in regions and areas where you have government-sponsored energy efficiency or decarbonization centers. Making some policy there. So we need to deep dive, but Peter, any closing thoughts on this topic around kind of supply and demand and how you're seeing variations regionally on that?

Yes. Thank you, James. Yes, we're seeing this happening. I mean, as Guy was alluding to, I mentioned earlier, we are seeing, a lot of our corporate occupiers are asking these questions now. Like Darren mentioned when you have a lease renewal coming up here in the Midtown Manhattan office tower, and that suddenly is a topic that no one would have asked you 2 or 3 years ago, but it is now and where we're seeing that for tenants who are repositioning themselves, so we're going opening up a new office and moving to a new location that is a hard requirement. And we've had two recent examples where, on the one hand, a large tech firm was willing to pay a 7% premium on the rent that was otherwise agreed for specific net-zero profile. For new lease in Germany, we saw that interestingly, the whole net-zero profile was somewhat amalgamated with the Class A profile that tenant was looking for. So it was hard in that example to differentiate whether it was just for the net-zero profile. But the result was 25% premium to what our team previously had considered as rent levels to be expected. So I think that scarcity aspect is really something that can become quite powerful over time. And with regards to the question of ours, to what extent it depends on regulation, interestingly, in the examples, we're seeing -- it's not even that closely tied to the regulation, at least for now, but we do expect this to become a more prominent feature as in markets like here in New York, where we are now starting to see this coming into leases and where the question needs to be discussed who is paying for the penalties on the Local Law 97 if you don't comply. And this goes back to the point we have made earlier about the partnership between tenants and owners, which we feel will become ever stronger. And for us being in 380 cities around the world, it's always been the mantra that's really critical to not just outsource your tenant relationships to a third-party agent or someone else. But for us, being there is critical. And we think it's an opportunity for both sides really, because also for the owner if you can't agree something with your turn, if you don't have this data, you don't get them to cooperate, you just have no chance of getting to net-zero for your building because tenant emissions typically are between 80% to 90% of [indiscernible].

Well, let's get into it because as we've all just made very clear, there is a need for more low carbon buildings. And the way to go about that is retrofitting, right, is a critical strategy to get there. And just to give some numbers, again, behind that, that need some previous JLL research found that over 1 billion square meters of office space will need to be retrofitted by 2050. And that's just office space, right? So retrofitting rates must exceed 3% to meet the 2050 decarbonization targets. And we're currently only looking at 1 to 2. So the question of how do we respond to that, that need for more supply is kind of what I want to get into. Lisette, can I start with you on how you're seeing the market responding to that need.

Yes. I think on paper, I think it's a no brainer and everybody is convinced about the need for it, especially looking at a whole life carbon from that perspective, where obviously, it's much more efficient to reuse what we already have. In practice it's obviously is far more difficult with all kinds of barriers, whether it's from a planning perspective, financing perspective, especially now, and even the structural building perspective where ceiling heights and all kinds of things stand in the way of reusing existing buildings. We see more and more examples of it coming through. And I think what is -- it's not meant to be, but again, bringing up the partnership perspective because I think here strong collaboration is needed to be between public and private sector to make things happen, where I think planning can help in feeding our processes, facilitating, also change of use for buildings. We talk a lot about abundant office space, obsolete office space that needs to be reused, but some of it we might not need as offices anymore, what might have better value to be used for residential, for example, where there is a big need for. So I think across the board, people really see the added value and a need for it. But in practice, it's really about working together. And we see that also from the financing side coming more and more that banks put in requirements to kind of bring assets from brown to green and focus more on financing the existing real estate than building new. And especially in Europe, I think what we're starting to see as well is, for example, London, Brussels, and other cities, where it has become virtually impossible to knock down a building and start again. You have to have exhausted all the options to reuse the existing structure. And I think that's a really good thing. But on the other hand, the industry needs incentives, too.

Well, I'd just jump in there because I think finance could play a key role. As we know, debt is attached to many, many buildings for real estate investors. And I think without transition pathways, or indeed pathways to make sure that the buildings are fitting with policy, particularly around EPCs, which I know are not directly related to carbon footprint. But yes, there's a real shift in finance to make sure that buildings are compliant in many ways. And actually, there is real evidence in the marketplace now that some asset managers that have just renewed a lease for another 10 years that actually needs intervention in that building. It's actually decreased the value, and it's detracted quite a few of the banks from lending on that asset because it won't fit in with the 2030 pathway, either for EPC or for decarbonization. So I think actually lending is going to play a critical role. And I'm starting to see a few green shoots. I'll be interested Peter if you're experiencing the same thing because you'll have debt on yours. And it's definitely happening in Europe first. That's for sure. But we're seeing a lot more scrutiny and diligence on refinancing deals where we didn't a few years ago.

Yes, it is happening more now. I mean when I used to manage our European core funds, it was something we built in [ green houses ] into loan agreements already then, but it was almost more for compliance in and the willingness to really get a discount or a different pricing was not yet very prevalent, but we're starting to see that shift because banks are risk financials in some shape or form as well, and they realize that as assets may trend or just not be compliant with our coming costs anymore, the prospects in the leasing markets are partially different. The immediate requirement and for bigger retrofits at a future uncertain point in time create just a lot of uncertainty. So it's not all banks, but we're starting to see a small cohort is willing to move more progressively.

And Peter, let's stick with you because like help us get really more practical about this. What are your lessons learned that you've seen or the successes that you would recommend people scale when they're trying to tackle this increase in decarbonization.

So on the one hand, we are seeing that on the technical side with buildings that across markets very often and the effort doesn't go quite far enough. People are very happy to approach the low-hanging fruit, whether that's slightly more insulation or other things that can be easily done. And that's great. Even electrification sometimes is a low-hanging fruit, but what we're seeing with some of our pilot projects, both here in New York and in Europe as well, is that it's really about the deeper systems retrofit, which includes all of the above plus putting in sophisticated heat recovery system, so a circular systems approach, geothermal and all of the technology, many of which has been tried and tested, but very rarely to put together in a really holistic way. And we're seeing that once you do that, the increases, sort of the reductions you can increase and your emissions profile are much bigger and you really put yourself on the path to net-zero, if not already there. So that's something we're trying to encourage, but at the same time, we're seeing that the commercial evaluation isn't fully there. So Lisette talked about the C Change program of the ULI earlier, which is a really smart concept to make sure all of the commercial aspects are being considered and valued. It's not straightforward with all of them, but it's really a great concept of getting the industry to understand just the multitude of factors that are at play here. And then when it comes to scaling all of that, we found that, that really is the biggest problem to solve in a way, especially for global occupiers like Standard Chartered or global investors, it is spending across different markets with very different context where you need to build a standardized global data infrastructure, which is so critical, but then really investing the time and trying to multiply the technical expertise you give that at the cutting edge. That's what we're doing with having set up not only the team that focuses on decarbonization, but also having a conceptual construction group that's active across the world, but also time that together then with investment strategies that apply across the world and the various implementation teams. So it's really a very comprehensive change management effort. And that's not silver bullet in that, that we're seeing, but it's really the recognition of the scale and complexity of the process and the investment that, that requires in data systems, people and skills.

Peter, you kind of took this up. And Darren, I'm wondering if you can help expand on it. We've got and we talked about energy efficiency. We're talking about net-zero. And there's a great question coming in on even that is contextualized within sustainability and then really be able to just sustainability into [ net-zero ] positive. So there this even bigger lens to all this. And yes, again, wondering your experience there and just how you're, again, making kind of practical action to this broader market we've set the stage with?

Sure. Well sustainability means so many different things to different people, right? So that's it. I mean, that question is interesting because, yes, we've made some hard commitments around carbon. But we are also taking a much wider view on what we're doing with our spaces in a retrofit environment. I mentioned earlier about fit for purpose. We want colleagues to come to the office for the right reasons. We want customers to come in, obviously, for the right reasons. So we want it to be a place which is attractive. A part of that actually has involved a number of roof gardens and we've got a number of -- we have a number of schemes, especially across South Asia, where the colleagues have a planting group, and there's products that colleagues take home. I mean it's been a real success, right? Things like that, we don't fit in a sustainable bracket, but it's very hard to measure. No one is going to put a target on something like that, but we do recognize how important it is, whatever space you want to tag it, well-being or wellness or whether it's a green garden, it also has, by the way, efficiency improvements to that, a green roof garden is a successful [indiscernible]. So there's a number of different things. It's absolutely right. It's much wider than just as I mentioned earlier, Scope 1 and 2, clean energy, electrification, there's a lot more to it. We also have a vested interest in waste and recycling, water efficiency, water-stressed areas, not impacting biodiverse -- biodiversity and zero landfill. So lots of many metrics that come under the sustainability banner, yes.

That's great. I think this is really compelling. I want to dive a little bit deeper. I also want to take a moment to say there's some great questions coming into the chat. So please continue to bring your questions in. We're going to try to get to some more. We want to move into risk, but Guy was that -- what are you hearing on? This is a really interesting other side to this around nature. And I think that's increasingly a part of the conversation.

Well, I know a lot of sustainability professionals tune in and listen to these types of webinars. And I just want to reassure them here at [indiscernible] and biodiversity is a huge topic. It's not just about carbon. I think the interesting thing is carbon is very measurable, and you can really relate it to value. I think with nature, it's more nuanced. And I think what I'm seeing here at COP is actually the developing nations and their focus on nature is probably more prevalent than some of the developed nations because they want to reinstate some of the damage that's been done, particularly around reforestation and definitely around water. I mean, Darren, you made the point around water. And I think for corporates now, water is as, if not more important, than carbon in terms of measurement and as a sort of scarce resource, and we underestimates how much water a lot of our buildings do use, whether it's kind of data centers, obviously, labs, hotels, but all of them. And I think that's going to be far, far more important as well as biodiversity and nature for well-being, for people's well-being but also to connect with communities. So actually, one of the great things about COP is you hear from the smaller nations and they've given a big platform. And they tell inspiring stories about whole towns coming out to plant trees and they're really engaging the community in the built environment, which is something I'd say in developed cities, we don't feel quite so much. So I think there are lessons for us to learn in the development world from the developing nations. But Lisette I know, it's in your space as well.

Yes, I would like to make two comments. One is we talk about real estate predominantly as a financial asset. And I kind of at the time line, we try to pull up back in the community element. We shouldn't forget that real estate is where we live, work and play. And sort of using our common sense, it's if we take well care, good care of those people living there, working there, using those buildings, ultimately, it's good for our return as well. It might not exactly fit the return on investments, short-term formula that we're using right now. And maybe we need to develop a new vocabulary or metrics on that, where it's also about indeed well-being. It's about tenant turnover and a lot of that. And the other thing I wanted to say, I was in Copenhagen 2 weeks ago. I'm actually spoke to a local architect very much involved in a project just outside the city center of Copenhagen, a new to-be built neighborhood, and actually it is greenfield right now. And they've been working with the local government, nature groups and all of that. And actually, what they've been able to do is through the real estate investment and a very thoughtful strategy around biodiversity, increase the biodiversity over the longer term for the project. So by making that investment, that can also be the funds to then improve nature versus the status quo position now. So we should not just think about sort of real estate development and nature being an opposing forces, but they can also really well go together if we take a holistic, integrated approach to it, and I think that this is just early days, but we really need to work together to get those examples out and learning by doing, I think.

Yes. This is great. I mean this is such of the cutting-edge conversation of kind of what's coming. But let me bring it back around this business case, and we're really running out of time, so I'm going to call this a lightning round here. But one of the critical things we've teed up is around risk. And I want to make sure we use this remaining time in a really practical sense. Lisette kick us off, talk to us about how these companies are gauging and evaluating risk, both physical and transition risks in their decision-making and business models right now.

I think what we're seeing, obviously, a bit from the sideline, more and more is the assessment being made of both transition risk and physical climate risk. I think what is still missing to a certain extent, is the integration of the two, because we should kind of remind ourselves constantly why are we doing all this decarbonization. To limit the temperature rise. And hopefully, as a result of that, limit the extreme weather events that might damage your buildings. And I haven't seen any numbers on it, to be totally honest, but what I think we can see if we are able to decarbonize appropriately within time line set, that saving on potential damage from extreme weather events is so much bigger than now kind now in the margin trying to figure out the business case for the decarbonization. And that link is often not made. I haven't seen it. It's obviously also not that easy to make. But I think we should really keep that in mind. And at some point, insurance will stop paying. That's probably another thing to remind ourselves about as well because, to a large extent, we still rely on insurance to cover us, and we already start seeing signals that, that is not happening, for example, in California or elsewhere. So what I also haven't seen yet is the real decisions in, for example, areas with very high flood risk that investors, even very sophisticated investors on the topic, have said, I'm not investing there anymore. And obviously, that is a really difficult decision to make. But I think that might not be that far away yet. So everyone, I think, is trying to kind of assess the risks now, but I haven't seen actions on it yet.

I suppose I might be controversial, [indiscernible]. We're coming to the end, so I'll throw a controversial one there. So I challenge anyone that says to me, I can't make the business case work to invest in a building to transition it to net-zero carbon over a period of time, I would say, either you're underestimating the risk that currently embedded in the value of the asset or you're underestimating the value that you're going to create at the end of it. And I actually think at the moment, too many people are underestimating the value piece. I just don't believe. Because we've historically been wired to look at evidence is available now to make our decisions. They don't actually believe how valuable these assets could be. So I think one way or another, I would say anyone who can't make the business where you're either undercooking the risk that's already embedded. In other words, you're valuing it too high in your books, and that's not down to a value. You can work that out itself, or you're underestimating value on the upside. Because ultimately, Lisette, you're absolutely right like this isn't a choice, right? You're either not going to be able to get finance on it or you're not going to get insurance on that at some point. So it's kind of not an option, you've got to make the business case work. So I know there's hard choices in there, but don't underestimate the value -- the real entrepreneurs that are making business cases work at the moment are putting eye watering increases value on the assets. And you've got to be brave to do that.

I think, Guy, the reason for that is fairly simple. The industry has been so accustomed to the way of value in buildings and so focused on lagging indicators for a very long time. And in every conversation of many conversations we all have, I suppose, is always, I can't see the evidence yet and the rents over the prices. And there's not enough focus on the leading indicators. And the research your team has done Guy I think, is hugely insightful there. But it's also looking at the net -- not just the net-zero commitment of investors, but looking at the leading edge of what we're seeing happening now with large sophisticated investors and some of the European cities. And we're seeing that as well. Interestingly, the current market with a lot less activity offers investors the chance to price in a better decarbonization pathway because there are not a whole lot of fires around. So in some ways, it may actually, in some places, be helpful. And that's what we're seeing. We've done a couple of transactions in our oil price in the full pathway discounts of 4% to 5% on what we were prepared to pay previously. So I think the market will come around eventually, but it feels like we're still in this slow motion moment.

Darren?

So for us, it's a -- [indiscernible] risk is incredibly important. So we have to look at building resilience. And one thing I always say is that resilience will top sustainability because it's more important to get the lights on and this is operational. So our operational risk around climate events is accelerating the way we look at it, the way we score it, the way we consider it, but also, there's also a risk on some of the claims that we're making around net zero, et cetera. So we're incredibly conscious of the products that we buy around the RE100 scheme I mentioned earlier and anything to do with clean energy, the voluntary carbon market, et cetera. This is something that we are incredibly conscious of, and building a lot of controls around operational risk in making sure the products are doing what they say they do. It's a big growth area at the moment.

Fantastic. We covered so much together today. I want to thank each of the panelists for sharing your insights, your lessons learned. You're really I think today, the conversation was just so timely with the context of COP, and Guy bringing live feedback really the cutting edge of how this conversation is evolving. So again, thank you to our panelists. Also thank you to everybody that joined. Thank you for joining. We hope that you enjoy the session. We will be sending out a copy of the recording along with some of the research these reports that JLL has done, which are just so incredibly insightful and valuable for making the business case for buildings becoming more sustainable. Again, thank you all for joining. Have a wonderful rest of your day, and goodbye.