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Thu, 29/06/2023 - 12:00
· 4 min read

Investors Planning for Uncertain Emissions Targets Should Focus on the End Game: Q&A

The UK’s Minimum Energy Efficiency Standards (MEES) is the government’s flagship policy for cutting emissions from commercial buildings, but it could be years before the next stage of them is voted into legislation. Donna Rourke, Head of ESG and Sustainability at BNP Paribas Real Estate, explains recent changes to the proposals and offers strategies for investors seeking to future-proof their property portfolios.

Hi Donna, there’s been some uncertainty in recent months over the next deadlines landlords must hit to comply with MEES. There has even been some speculation that the system may be overhauled altogether. What can you share about the outlook for the regulations?

Well, MEES is underpinned by Energy Performance Certificates, which rate buildings from A and G depending on their potential energy efficiency. In April it became unlawful to let properties with F or G ratings.

Flaws with EPC certificates have been well documented – they measure a building’s potential efficiency rather than its real-world performance, and the differences between the two can be significant. There were rumours that MEES might be scrapped as part of the post-Brexit ‘bonfire’ of regulations, particularly around the time Liz Truss was in power, but everything we’ve been told by government in recent weeks has made it clear that MEES is here to stay. 

So what is the next deadline landlords should be aware of? As of late last year, the proposals suggested that it would be unlawful to let a building with an EPC rating lower than C from 2027. Is that still the case?

The next stage of the legislation is still technically under consultation. The latest version of the ‘Minimum Energy Efficiency of Buildings Bill’ was introduced to parliament in March and will have its second reading in November, when it will be debated by MPs. The much-flagged deadline of EPC C by 2027 didn’t appear, so we suspect we may move straight to all buildings expected to be at ‘B’ by 2030. That won’t make a huge amount of difference for property owners. If you were going to upgrade your building to a ‘C’ by 2027, it would have made sense to be planning for ‘B’ anyway.

It is worth adding that there isn’t a huge amount of time left in this parliament. It’s very possible that the legislation isn’t passed before the next election, which would be January 2025 at the very latest. That could mean that we still don’t have clarity before at least 2026.

How should property owners be planning, given the amount of uncertainty? Is it your view that they should be planning as if this is going to be voted into legislation?

The path is still a little uncertain, but the destination is clear: given the impacts we are seeing from fossil fuel air pollution, we are going to be increasingly held accountable for our environmental impacts. Reducing emissions is only going to get more important, so whatever form any legislation takes, landlords should be planning their upgrade works with this in mind.

Going further, it is vital not to focus on MEES in silo. Energy costs and net zero readiness will be equally, if not more, important to occupiers than a building’s EPC rating.

BNP Paribas Real Estate have shared practical advice for property owners that we’ll share at the bottom of this article. But for landlords that haven’t started tackling this yet, what are the first steps they should be taking?

Firstly, we suggest doing an EPC+ report. It assesses a given building and suggests upgrades that will push its rating to various levels, plus the potential costs. It’s also useful for investors that are considering making purchases.

We don’t just look at the journey through EPC ratings, either. We consider various upgrades within the context of a building’s path to net zero, because it’s likely that both the landlord and occupier will have net zero targets in place. The result is a plan of upgrades that meet various targets simultaneously - you can read more about our framework here

The options can seem overwhelming, but again I’d emphasise a focus on the destination. The momentum is clearly in favour of more accountability, reduced impact, and a greater focus on operational efficiency. It makes sense to begin a gradual, carefully planned approach that moves with those forces, rather than focussing too much on the next deadline or the prevailing focus on just EPCs.

BNP Paribas Real Estate produces information sheets for clients tackling MEES regulations. For a more detailed overview of the technical aspects of EPC certificates and actions to take to meet potential deadlines, plus our view on the long-run outlook for MEES, click here.

For everything else, our ESG & Sustainability teams are on hand to give expert advice in delivering sustainable real estate and land solutions.

You can read a simple breakdown of the current regulations and those proposed up until 2030 below.

Investors Planning for Uncertain Emissions Targets Should Focus on the End Game: Q&A