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Over the last 30 years the political focus for energy and environmental policy has changed greatly and with it the mechanisms for achieving these goals. The energy crisis of the 1970s stressed the need for security of supply but by the late 80s and early 90s policies broadened to embrace the global agenda, culminating in the Kyoto Protocol. Throughout this period there has been a shift from strong detailed regulatory intervention towards less prescriptive and more flexible mechanisms which instead rely on fixed targets and a timetable for reductions in emissions.

As a rule of thumb the building sector uses 40% of all energy produced and causes 40% of all CO2 emissions. The government has identified energy efficiency as having the biggest cost-effective potential for reducing these levels. However to have a significant impact on the built environment requires influencing literally millions of individuals, unlike big industry where the overall number of players is small.

By introducing the Energy Performance of 星空传媒s Directive (EPD) the EU is looking to provide market driven mechanisms to improve energy efficiency, in other words put an economic value on energy conservation.

A step in the right direction
Key to the EPD will be the ability to systematically assess a building's energy performance, and issue it with an energy label. This certificate will come into play whenever a building is constructed, sold or occupied by a new tenant, or if it undergoes a major renovation (major being 25% of the building envelope or 25% of the property's value, though which value and whether the certificate applies to the whole building or only the renovated portion is still unclear). The aim is to provide investors and corporate decision-makers with comparable information on a building's energy use, effectively providing a means of differentiating a good building from a bad one. But will the introduction of an energy label on its own be enough to motivate the property market?

Ilari Aho of Motiva, the company charged with activating the market for energy efficiency and renewables in Finland, believes it can. "If you look at the voluntary energy labelling of household appliances the impact it had on transforming both supply and demand has been immense. Even though the building sector as a whole has a lot more inertia there will eventually be a shift in the market and it will reflect the investment to property managers." The certificate will have a validity of 10 years, "something of a compromise between what can be done and what should be done," says Aho. In Finland there are currently around 1000 trained auditors, of which 200 are active. "Even to meet this 10 year period we need to multiply that number of trained auditors significantly".

When it comes to selling or renting a space if an audit hasn't been carried out in the last 10 years one will need to be completed before it can go ahead. In Denmark, where energy auditing is mandatory, figures suggest only 50% of buildings are actually certified.

Investment attitudes are changing as a result of both legislation and incentives. Property advisers are going to have to increasingly account for sustainability.

Philip Parnell of property consultants Drivers Jonas believes that the property market may appear to be slow to take up the cause of sustainability. However, "investment attitudes are changing as a result of both legislation and incentives, accordingly property advisers are going to have to increasingly show and account for sustainability and be able to demonstrate good practice."

Nick Cullen of Hoare Lea Research & Development is supportive of the directive, however he believes that from a consumer point of view it only provides some of the answers. "No one buys or rents a building because of its energy performance alone." Cullen makes a case for a more holistic, broader labelling system, but unlike BREEAM would be more transparent and less designer focussed. "What we need to do is extend it to include data on other environmental impacts, construction, location, social, what it provides in terms of indoor climate. A simple energy comparator without the other factors placed alongside it is distorting at best but at worst will simply be ignored by consumers. The energy label could drive this change."

Up to now the property industry has primarily focussed on the single bottom line, with investors relying on the cost savings of more energy efficient buildings increasing tenant demand, and enhanced rental values. But the concept of the triple bottom line, encompassing social, economic and environmental issues, is becoming more universally accepted amongst those in the sector.

The growing importance placed on corporate governance is effecting the way in which institutional investors behave. The recent amendment to the UK's Pensions Act of 1995 for example means that all occupational schemes must publicly state their stance on socially responsible investment issues, whether they are positively engaging or not. USS, the UK's third largest pension scheme is one company that has set up its own in-house socially responsible investment advisory team. "We can see through a combination of mandatory requirements and simple market pressures the business case is starting to effect investors, the property industry's clients," says Parnell.

The problem for evaluators is putting a price on sustainability. "At present it is virtually impossible to calculate exactly what elements of a property are contributed to by sustainability factors," says Parnell. "The introduction of energy certificates as set out in the new directive would provide greater transparency and aid occupiers and investors in responding to key components of socially responsible investors."

Cullen believes holistic labelling would help companies express the environmental aspect of their portfolios and if they felt the need, modify that portfolio. "Labelling will allow investors and building users to demonstrate to their shareholders and lobby groups that the claims made in their environmental policy statements are being acted upon," he says.

Despite this Parnell doesn't see energy labelling having an impact on day one values. "This is partly due to the valuation methodology shortfalls but fundamentally I don't see that the market will adjust in such a way as to create a two tier market." This would suggest screening against some forms of investment, which could in turn act to the detriment of existing property portfolios, consigning some buildings to the scrap heap.