29 July: Sustainability is now at the core of many business strategies. ICAEW talks to Landsec to find out why finance and sustainability teams make a perfect match, not just for the planet but also for future business growth.

With COVID-19 plunging businesses across the globe into crisis, this year has illustrated the importance of thinking ahead and future-proofing business. And as part of this process, finance teams are well-positioned to be involved as they are equipped not only with business oversight but also the financial skills needed for longer-term decision-making. 

But while the impact of coronavirus may be at the forefront of most business considerations at the moment, over the last few years many businesses have realised the importance of including sustainability into their business strategies, which has not only become vital to protect the planet but also the assets of businesses, such as those of Landsec.

Nick Bell works as a Senior Commercial Accountant at the UK-based property development and investment company, which owns multiple property assets across the UK, including Trinity Leeds, Gunwharf Quays in Portsmouth and the White Rose shopping centre in Leeds. 

Alongside another team member, Bell was responsible for embedding the 

Task Force on Climate-related Financial Disclosure Approach into Landsec’s decision- making process. Bell, who joined Landsec in 2014 from PwC, got involved in the project because “there’s a strong overlap between finance and sustainability and I saw an opportunity to link the two teams together”. 

Bell believes that a lot of what sustainability does is driven by numbers and credits his degree in geography for his interest in the subject. 

Understanding the impact of climate change

With the effects of climate change becoming an increasing issue, Landsec’s goal was to understand its impact on their assets and consider what environmental and socially sustainable decisions need to be made to ensure future investments are secure while still achieving sustainable growth. 

Landsec commissioned external consultants Willis Tower Watson to carry out the climatic modelling analysis to determine which of their properties could be vulnerable to climatic issues in the next few decades, including rising sea levels, strong winds or temperature change. A change in temperature, for example, could have an impact on the demand for gas and electricity for cooling systems, while strong winds could damage an asset just as much as rising sea levels.

While Landsec’s sustainability team may have led this project, the involvement of the finance team has been crucial to its success. “Any of these sustainability initiatives involve financial decisions,” explains Bell. A decision has to be made on how much investment in a building is required to make it sustainable in the future, which then impacts on its value and costs in the future. 

He adds, “finance underpins all decisions being made in relation to sustainability. Support from the finance team is invaluable because it enables companies to clarify any decisions with regards to potential future costs or income streams.”

Financial modelling

Finance teams understand the nature of the cost base for any financial modelling and consequently can look at possible solutions. This not only includes any current costs but also estimations for potential future spending. Using the example of Landsec’s Brighton Marina, Bell explains there might be fixed costs associated with building sea defences, and then there are the variable costs associated with ongoing maintenance. 

One of the crucial skills finance teams possess is the ability to conceptualise both fixed and variable costs, to do budgeting and future planning to work out current costs as well as what they might look in the future. 

Ultimately, finance can help with managing the risks for unexpected costs. Landsec, for instance, used the climate data to assign a risk rating to each of its assets, determining the risk of future climatic events which could then potentially affect its insurance strategy.

Another aspect to consider is the investment in the right kind of heating and cooling systems. With global warming a certain risk, Landsec used the climate model’s predictions to calculate costs for the most efficient cooling and ventilation systems for their assets, as the wrong system could increase operational costs of their assets while efficient systems could lead to a reduction in costs, which could ultimately be passed on to Landsec’s tenants. 

Client benefits

Future-proofing assets not only involves increasing the efficiency of cost calculations and protection from unexpected costs due to environmental damage, but it also includes meeting the needs of Landsec’s clients. Retail space counts for the largest proportion of Landsec’s portfolio and tenants are keen to understand what savings could be made, especially during tough economic times. 

In 2017, Landsec installed solar panels on the roof of its White Rose shopping centre in Leeds, a project Bell looked into recently to determine its benefits. He explains that “having an understanding of the solar panels, the income they can generate and the energy they can save is important when doing the service charge budget planning.” In this case, it allowed Landsec to educate its tenants on the benefits of solar panels and how they can contribute to cost savings. 

Bell reiterates that sustainability plays a big role in Landsec’s corporate agenda, and new CEO Mark Allan is heavily involved in the sustainability agenda. “‘As a business, we recognise the crucial importance of sustainability, not only for the long term prosperity of the business but also to ensure we are doing the right thing to support our communities and the wider environment,” he says.

Ultimately, the finance department’s collaboration with the sustainability team seems a natural fit. Bell notes the hardest part for him was “stepping away from the day job” as well as understanding the technical jargon and familiarising himself with the climate models. However, as he concludes, “more than anything it was enjoyable”.