Derwent London
May 2023
By Vert Asset Management and Muzhen Shen, Sustainable Finance Researcher
“The ongoing flight to quality we see across the London office market aligns with our long-standing commitment to sustainability and our signature brand of ‘long-life, loose-fit, low-carbon’ buildings.” – Derwent 1
Ticker
DLN(LSE)2
Headquarters
London, UK
Market Cap
GBP £2.3 billion
Company History
1984 Derwent Valley Holdings
1999 Joined the FTSE EPRA/NAREIT Index
2007 Merged with London Merchant Securities plc
Properties
70 office properties
Total Sq. Ft.
5.5 million
Green Building Certifications
13% of portfolio LEED
34% of portfolio BREEAM
*Data as of September 30, 2022.
Recent Awards
Index Constituent Member Since 2003
Global Real Estate Sustainability Benchmark 2022 Green Star Development 5 Stars Standing Assets 4 Stars
CDP 2022 Climate change 2022 ‘B’ rating
London Calling
Greater London is roughly double the size of New York with 9.5 million people in 50 square miles. The city has been occupied for over 2000 years and has been witness to countless historical and cultural events. The city is a showcase of both centuries’ old buildings and new skyscrapers. The cosmopolitan city appeals to international workers and multinational companies.
Over the last 20 years the city has invested in infrastructure to encourage Londoners to commute by bike. There is now a vast network of cycle paths traversing the city. Curbing climate change and enhancing human wellbeing go hand in hand since short lived climate pollutants such as methane, black carbon, and hydrofluorocarbons have detrimental effects for both public health and environmental health.3
The Mayor of London often sets the tone for what’s next in the city. The Mayor has committed London to be a zero carbon city.4 London’s buildings contribute around 76% of the capital’s greenhouse gases. The new, and stricter, Minimum Energy Efficiency Standard (MEES) requires commercial buildings to achieve an Energy Performance Rating of ‘C’ by 2027, and then a ‘B’ rating by 2030 to be eligible to be rented. The change is estimated to affect around 85% of the UK’s commercial rented stock, equating to around one million properties.5
Derwent is a London-focused office REIT with 99% of the company’s portfolio is in central London.6 It is a world leader on decarbonization. In February 2020, the company committed to become a net zero carbon by 2030, in line with a 1.5°C climate warming scenario. Derwent were the first UK REIT to publish a pathway to net zero, detailing their framework of principles and actions with the Science-Based Targets Initiative (SBTi) and in their own annual reporting.
Derwent’s Decarbonization Strategy
Derwent recognizes that climate change is a material issue for their business. The Board has overall accountability for climate-related risks and opportunities, which it factors into its strategy discussions.
They are focused on three main strategies to reduce carbon in their building portfolio:
- Reduce Operational Energy Use
- Reduce Embodied Carbon
- Invest in Renewable Energy
Reduce Operational Energy Use7
Derwent’s Net Zero Pathway includes Scope 1, 2, and 3 emissions. Scope 1 refers to company’s direct emissions that come from company owned property including properties and vehicles. Scope 2 are indirect emissions from purchasing power for heat or electricity. Most property owners including Derwent attribute nearly half of their emissions to Scope 3 which come from tenant activities they have no direct control over. Reducing the energy consumption of tenants is pivotal to their 2030 net zero carbon commitment.
Derwent identifies opportunities for savings with the building manager, property manager, asset manager and engineering contractors at each property. They examine the feasibility of electrification of heating, i.e. moving from gas to air source heat pumps, and installing LEDs and infra-red sensors for energy-efficient lighting.
They also engage their tenants via green leasing. Many of their tenants are multinational companies like Boston Consulting Group, Burberry, Capital One, and Sony Pictures, who have strong sustainability goals of their own. 63% of their tenants have adopted energy efficiency measures and 45% favor ‘greener’ clauses in their leases or a ‘green partnership’ agreement that focuses on reducing emissions alongside Derwent.
Reduce Embodied Carbon8
Investment in Renewable Energy9
Derwent’s strategy for renewable energy is two-fold; procure clean energy from existing utilities and build capacity with new developments.
Derwent is a member of RE100 – a corporate group committed to getting to 100% renewable energy. In 2022, Derwent procured 98% of its electricity from Renewable Energy Guarantees of Origin (REGO) and 79% of its gas came from Renewable Green Gas Origin (RGGO) tariffs. Together, 92% of energy (electricity and gas combined) purchased in 2022 was from green contracts.
In 2021, Derwent submitted an application to Glasgow City Council for a giant solar park that could meet up to 43% of the company’s electricity needs. The plans call for the installation of over 60,000 photovoltaic panels across 100 acres of farmland whilst still allowing for sheep grazing. Derwent is also installing a photovoltaic array of around 200 solar panels onto a former barn they are converting to an office. Once in use, the array will render the building net zero carbon both in construction and operation.
Project Spotlight: Brunel Building10
The Brunel Building is centrally located near Paddington Station. The office tenants include Sony Pictures, Premier League, and Coach.
The building was designed to achieve a 71% improvement in operational energy consumption compared to a similar size office buildings. Low carbon heating and cooling is achieved with an aquifer thermal energy storage (ATES) system. This uses two 180 meter deep boreholes to take advantage of stable underground temperatures. Grey water from the showers is recycled and used to flush the toilets to reduce the potable water demand by up to 30%.
Derwent also lowered embodied carbon by reducing the amount of materials used. They exposed the suspended ceilings which saved 540 tCO2e of embodied carbon, fly ash replacement in the concrete saved over 1,000 tCO2e, and the use of self-finishing concrete saved 18 tCO2e.
The building achieved LEED Gold and BREEAM 2014 Excellent & Wired Platinum.
1 Derwent London. (2023) “Responsibility Report 2022: Making a Material Difference.” https://reports.derwentlondon.com/responsibility-2022
2 Derwent London, Inc is 0.37% of the Vert Global Sustainable Real Estate Fund (VGSRX) as of March 31, 2023.
3 Katherine Ross and Jessica Seddon, “Curbing Climate Change and Preventing Deaths from Air Pollution Go Hand-in-Hand,” World Resources Institute, October 29, 2018, https://www.wri.org/insights/curbing-climate-change-and-preventing-deaths-air-pollution-go-hand-hand
4 Farnell, B. (2023 January 4.) “United Kingdom: It’s all about the MEES.” Baker McKenzie. https://insightplus.bakermckenzie.com/bm/real-estate_1/united-kingdom-its-all-about-mees
5 Mayor of London. (n.d.). “London Building Stock Model’. Mayor of London. https://www.london.gov.uk/programmes-and-strategies/environment-and-climate-change/energy/energy-buildings/london-building-stock-model
6 Derwent London. (2023) “Responsibility Report 2022: Making a Material Difference.” https://reports.derwentlondon.com/responsibility-2022
7 Derwent London. (2023) “Responsibility Report 2022: Making a Material Difference.” https://reports.derwentlondon.com/responsibility-2022
8 Derwent London. (2023) “Responsibility Report 2022: Making a Material Difference.” https://reports.derwentlondon.com/responsibility-2022
9 Derwent London. (2023) “Responsibility Report 2022: Making a Material Difference.” https://reports.derwentlondon.com/responsibility-2022
10 Derwent. (n.d.). “Brunel Building, 2 Canalside Walk W2”. Derwent London. https://www.derwentlondon.com/properties/brunel-building
Please refer to the Prospectus for full risk disclosures. All data as of March 31, 2023 and subject to change daily.