Insights: ESG filter could help level up UK project opportunities, report argues

31/01/2023

By Ben Vogel - Environmental, social and governance (ESG) property valuation techniques could help to unlock development opportunities for the construction industry outside urban centres, according to new research from the Centre for Economics and Business Research (CEBR).

The Sustainable Buildings Monitor: Redefining Value report for contractor ISG, released earlier today, argues that a "reframing of property valuations and a readjustment of hierarchies in the built environment sector will ensure that key voices are heard at the earliest stages".

It adds: "A key practicality in this ambition will be consideration of time, and how contractors, customers and the supply chain can all agree early on project drivers, desired outcomes, design intent and buildability, and more."

By showing developers, asset owners and local authority decision-makers that building ethically will unlock ESG-linked capital investment, ISG stated that the report highlights "a significant regional opportunity for organisations looking to find aspiring locations beyond simple proximity to urban centres".

It adds: "Growth across regions is starting to mirror and reflect ambitious new location strategies from emerging industries that are an essential part of the UK's growth strategy."

Researchers not only measured development opportunities in each local authority area and region against financial, commercial and workforce factors, but they also assessed them against 12 environmental and social metrics such as renewable energy potential.

London still emerged as the best-performing region but its aggregate "holistic property value" score of 51.5 was lower than the 71.1 using traditional urban-centric valuation methods.

The broader methodology in the report delivers a distinct levelling-up effect, with the North East (48.2 compared with 13.8 using traditional methods) narrowing the gap with the capital.

"This is due to relatively lower construction costs, and proximity to enterprise zones (owing to numerous regional Local Enterprise Partnerships)," the report notes.

It adds: "The North could see promising investment by leveraging its relative strength on the financial and commercial pillar and investing in the people and workforce factors."

Scotland (48.9), Yorkshire & the Humber (47.6) and North West England (47.3) also scored near London's total, and even Wales - the worst-performing region at 45.9 - was 30 points higher than using traditional metrics.

Southern England outperformed the North in environmental and social metrics, and people and workforce metrics, but it fell behind in the financial and commercial metrics due to higher input costs.

CEBR economist Pushpin Singh, one of the co-authors of the report, told Construction News there was a "positive relationship between regional investment levels in infrastructure and the holistic property value index score, which can help provide some basis for the need to secure government and private support for infrastructure investment to help create value".

Looking broadly at the regional results, Singh described how the environmental, social, people and workforce factors "exhibit strong negative correlations" with the financial and commercial factors metric.

While this "by no means suggests a causality", he added that the data suggests that stronger financial and commercial performance tends to result in poorer environmental and social outcomes.