In this analysis, Victoria MacLean, Associate Fund Manager at WHEB Asset Management, looks at some of the challenges faced by the real estate sector as it tries to achieve sustainability targets
Tottenham Hotspur Stadium, which in 2021 hosted the first net-zero football match – #GameZero – was an unlikely venue for a Capital Markets Day last year. The state-of-the-art stadium has become a symbol of sustainable building, an especially pressing problem given that building emissions account for over a quarter of global carbon emissions1.
To help the club deliver its sustainability goals, the stadium embedded Schneider Electric’s EcoStruxure platform. The system combines electrical hardware with software to digitise and simplify electrical distribution systems. It enables analytics which feed into efficiency improvements, predictive maintenance, and safety. It also embeds cybersecurity tools which are becoming increasingly critical to green infrastructure.
Schneider Electric – a provider of electrical products and systems used in energy management and automation – partnered with Tottenham Hotspur FC as the energy management supplier for its stadium. This company focuses on improving customers’ sustainability and uses this as a competitive advantage to win market share. Schneider Electric has has been a leader in an industry that has delivered significant technological innovation in enabling the use of renewable energy and improving efficiency in buildings and construction. Notwithstanding this progress, the sector still needs to do more to achieve net-zero carbon emissions by 2050.
So, what’s preventing the roll out of more solutions like the Schneider Electric / Tottenham Hotspur Stadium example?
One increasingly prevalent headwind is the perceived cost of this energy transformation. Politically, this is often used as a brake on innovations. The prominent example in the UK was Rishi Sunak rowing back on green targets because, he said, it would impose too high a cost on the consumer.2
Building sustainability
In a quantitative study of building decarbonisation technologies, Schneider Electric suggests that one solution to the cost problem is increasing digitisation. This allows more flexible management of resources, for example planning usage to match periods of higher electricity supply or feeding excess capacity back to the grid from storage technology. This is particularly important as the share of renewables grows because supply becomes increasingly variable.
What’s great about the Schneider story is that the same technology can have benefits that go beyond environmental. EcoStruxure for Healthcare is one example delivering a wide range of benefits and Moorfields Eye Hospital is a good case study. The building is over a century old and EcoStruxure allowed Moorfields to integrate multiple systems and provide critical environment and power information essential to patient safety during surgeries. This led to reduced operating expenses and improved staff productivity, both valuable at a time when the health system is under such pressure.
There are some surprising stocks that contribute to building decarbonisation with cost-effective solutions. Autodesk sells design and simulation software which spans architecture, construction, and materials manufacturing. The company’s technology contributes to more efficient design, lower material wastage and better recyclability.
Silicon Labs Is another example. The company is the only pure-play connectivity semiconductor company. Connectivity is at the heart of Internet of Things (IoT) as it enables monitoring of energy usage and building performance. Silicon Lab’s competitive advantage lies in their ability to provide customers with efficient, reliable, and secure products at a cost low enough to allow for deployment at scale. The company is able to provide industry-leading performance at an average selling price of $1, which is essential for a product where volumes are predicted to grow to 50 billion units in the next decade.3
Grid infrastructure
Another emerging area of interest with strong cost – and carbon – saving credentials is Schneider Electric’s role in addressing increased demand on the electrical grid in the shift to electrification. Schneider’s grid project with Enel – Italy’s largest power company with the second largest installed generation capacity in Europe – illustrates one solution to the supply-demand imbalance and increasing use of electricity.
Thanks to Schneider’s grid solutions, Enel has access to more accurate data and a system that can predict the impact of generation peaks as well as streamlining energy production. In combination that’s resulted in savings of roughly 75,000 tCO2 equivalent per year, 4 the equivalent of over 13,000 homes’ annual electricity use.5
Impact measurement
As well as being a leader in sustainable technology, we see Schneider as a leader in impact measurement and reporting. The company has developed the Schneider Sustainable Impact (SSI) program with six long-term positive impact commitments backed by 11 key indicators. Schneider also publishes a comprehensive methodology to measure emissions savings. This has several parallels with our own impact engine methodology, including a detailed analysis of what the relevant baseline for comparison should be.
Schneider is taking its expertise and deploying it with customers. The company recently published a framework for sustainability reporting for data centres. The aim is to help data centre customers develop key metrics and priorities for mitigating negative climate impacts. With the exponential growth in data centres, this is becoming a pressing issue. Data centresalready account for almost 2% of global emissions6 and are growing at a dramatic pace.
Schmeider’s metrics are increasingly important in meeting the demands of regulators and investors. From our engagement with companies, we know how difficult the process of analysing baseline emissions data can be, and it’s critical in setting credible climate targets. Schneider Electric is benefiting from growing demand as many companies don’t have the internal expertise.
Investors will also benefit from the growing availability of impact data. Regulations like UK’s Sustainability Disclosure Requirements (SDR) require impact managers to set KPIs for impact and measure progress against them, which requires data from the underlying investments. Even non-impact focused managers are being asked to report on emissions metrics.
We believe this will broaden out to cover a wider range of environmental considerations, including biodiversity and water. It’s important to think ahead about measurement and reporting. It’s not a straightforward process and places a growing burden on both companies and asset managers. WHEB is proactive in getting involved in early conversations on regulation, and benefits from the broader perspective we get from investing in companies like Schneider. As a result, we think we’re well positioned in an evolving sustainable investment landscape.
