Transition Risk Objectives:

Perspective 1):

To achieve the net-zero emission goal in 2022, conducting carbon auditing, purchasing carbon
credits and carbon quotas, conducting impact investments, as well as refining the strategy of the
property investments are suggested.

For carbon auditing, it is basically deep-through research on the equipment and procurement
involved in the assets. For example, given a 10-year-old fridge used in the office has an energy
consumption of 100W under normal conditions, if updating it to a fridge with modern technology
could lead to a 20% decrease in the electricity consumption, the carbon-auditing firm would dive
into the cost and benefit analysis of conducting these measures. Therefore, after the process of
carbon auditing, the cost, and benefits of improving the climate protection of the equipment and the
status of the assets are evaluated and it can give the company a full picture of the current situation
for the purpose of achieving net-zero in 2022. The additional cost of carbon-auditing would be the
potential cost of leakage of confidential information of the company to the third-party auditing
company. Additionally, auditing costs could not be neglected because conducting a deep carbon-
auditing in Greater London is costly, considering the concept of Carbon-Auditing is relatively new.

For carbon quota trading and investments, due to the issue of Brexit, the rules for carbon quota
trading in the UK has experienced update in 20211. From the UK ETS auctions, the auction clearing
price is the price of the bid at which the sum of the volumes bid matches or exceeds the volume of
allowances auctioned. Where the price calculated through this methodology would be significantly
below the price on the secondary market prevailing during and immediately before the bidding
window, the auction clearing price becomes the price of the lowest bid that is not significantly below
the prevailing secondary market price. Before the auction starts, the auction platform must decide
on the methodology for determining whether the clearing price is significantly below the prevailing
secondary market price, determine the prevailing price in the secondary market and consult the
auctioneer (BEIS) and notify the FCA about this methodology. The methodology used by the auction
platform is not public information, but instead from government statistics. There is also an auction
reserve price, currently set at £22, below which bids will not be accepted. The whole process
dictates that the carbon quota trading requires a sales and trading team from the sell-side of the
investment banks, to provide liquidity for trading carbon quotas. Nevertheless, carbon quota trading
is still in line with the net-zero aim of the company, which aims to reduce the carbon emission as
quick as possible, therefore, carbon quota investments and procurements is a valid decision.

For impact investments, it is a risk-averse activity to conduct in the financial markets, which
currently exists a lot of tools for such purposes, such as investment in green bonds and related
assets, investments into green technologies R&D, as well as reforestation investments. The UK
government is currently considering a large investment in the UK, with the target of planting around
75000 acres of woodland each year by 20252. These projects are in the financing stage, which may
involve SPAC listing, the sale of Green Gilt Insurance, as well as government funding and the green
bonds issued by the central bank of the UK - Bank of England, according to the UK Government
Green Financing Framework3. For the cost of impact investments, it may have a low annual rate of
return compared to other forms of investments. For property investments, the annual rate of return
for renting out an apartment or an office is typically around 2-5% in real terms, whereas for green

1
https://www.gov.uk/government/publications/uk-emissions-trading-scheme-markets/uk-emissions-trading-scheme-markets
2
https://www.pbs.org/newshour/show/britain-invests-in-planting-forests-to-fight-climate-change
3 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1002578/20210630_UK_Government_Green_Financing_Framework.pdf
bonds, the annual rate of return is usually 0.65% in real terms, reaching as high as 1.30% over a
three-year term4, averaged below the inflation rate of the country. Therefore, in real terms, the
value of the green bonds might be deteriorating, which means that green bonds may not be a good
investment choice in terms of annual growth. However, as tax initiatives are considering by the UK
government in the future, the annual return in investing into green bonds may experience an
increase, followed by a surge in demand for the green bonds.5

Regarding the property investments, it is suggested to diversify the portfolio by investing in the
countryside of Greater London, or even in nearby cities, to diversify the climate risk of these
properties. For these purposes, as there are more uncertainties and instability of the economy
outside Greater London, such as political, social, and economic perspectives, the company may have
to pay a higher information cost to select the suitable assets to invest in. This additional cost
includes agency, for agents to make recommendations tailored to the aims and goals of the
company – reduce GHG emissions and the climate transition risk throughout the process. In
addition, the board must develop clear criteria with Key Performance Indicators for procurements of
these office assets, to determine the GHG emissions and environmental impacts of these assets,
such as green facilities, such as the use of air-conditioner, upgrade of the waste management
system, solar panel and green rooftop, Low-Emissivity Coating Windows etc. These criteria require
additional human capital costs for measurements and confirmation. Besides, the decoration and
maintenance fee of these office assets will rise, due to a higher maintenance and installation cost of
these green factifies.

Perspective 2):

List of properties that is graded ‘F’:

1. 147, Blythe Road (Address), London (City), W14 0HL (Postal Code)
2. 3, Wearside Road (Address), London (City), SE13 7UN (Postal Code)
3. 33, Leonard Street (Address), London (City), E16 2DT (Postal Code)
4. Top Flat, 1 Battledean Road (Address), London (City), N5 1UX (Postal Code)
5. First Floor Flat, 2 Princess Road(Address), London (City), NW1 8JJ (Postal Code)

Property 1:

Geographical location: The West of

London City Centre, North of Thames
River.

As the location is quite dense, it is not

feasible to use renewable energy,
such as wind power, solar power etc.
With the flatland, it is suggested to
install a double or even triple glazing
window to boost the score by 10
points. As the building is around 50
years old, adding an intelligent
thermostat and replacing the old
boiler may help.

4
https://www.bloomberg.com/news/articles/2022-02-15/u-k-doubles-interest-rate-on-green-retail-bond-after-boe-hikes
5
https://publications.parliament.uk/pa/cm5801/cmselect/cmenvaud/347/34707.htm
Property 2:

Geographical location: South-West

Side of London City Centre, south side
of Thames River.

As the building is quite new, it is not

suggested to upgrade the appliances
of the assets. Instead, long-term
planning, such as installation of loft
insulation, solar panels, and use of
wind power may be possible. Wind
power is possible without any
barriers because Southern London is
often windier than Northern London,
according to the met office.

Property 3:

Geographical Location: North-East

side of London City Centre, North of
Thames Reiver

As the buildings on the surroundings

are higher than the previous, wind
power should not be a good choice.
As the building locates in the old
town in London, it is suggested to
implement basic measures, such as
replacing the boiler, wall insulation,
double or triple glazing windows, as
well as efficient secondary heating
source

Property 4:

Geographical Location: North-West of

London City Centre, North of Thames
River

Surrounded by Universities and

Emirates Stadium, the population flow
is high. Therefore, costly measures,
such as installation of solar panels,
choosing an eco-friendly boiler,
introducing new heating technologies
such as smart thermostats can help to
improve the EPC score of this rating
for an attractive annual rate of return.
 Property 5:

Geographical Location: Countryside

(Northern London)

As this is the only properties ranked

as ‘G’, several measures, such as
installation of solar panels, choosing
an eco-friendly boiler, use of new
heating technologies, wall and loft
insulation as well as installation of
double or even triple glazed windows
should be done simultaneously to
significantly boost the EPC rating of
the properties to allow transaction
and rental of the asset.

Costs associated with the proposal: As these 4 assets rated as ‘F’ in EPC have different geographical
locations, therefore their course of action is different. But Overall, the costs, besides implementation
cost, are the rise in maintenance cost, carbon auditing cost and cost of applying for a new EPC,
which is between £60 and £120. Therefore, to control the cost, the course of actions suggested are
suitable for a maximized cost and benefit analysis basis.
Perspective 3):

A Toal of 19 properties are ranked as ‘D’ and ‘E’ and requires a jump to ‘C’ by 2028, according to the
UK CCC 2020 Report6.

List of Properties ranked as ‘D’ and ‘E’:

Property ID Address City Postal EPC

2 94 Deodar Road London SW15 2NJ D
4 12, Ballast Quay London SE10 9PD D
7 8c Princess Road London W13 9AS E
11 217 Roxwell Studios, Argall Avenue London E10 7QY E
13 Flat 12 Cornwall Mansions, Blythe Road London W14 0HF E
16 48b Blythe Road London W14 0HJ E
17 Flat 1, 14-22, Leathwell Road London SE8 4JL E
22 3 Garford Street London E14 8JG D
23 29a Penwith Road London SW18 4PU D
25 31 Wearside Road London SE13 7UL D
28 Flat 1, Kai House 2B, Saville Road London E16 DS D
29 7 Niagara Close London N1 7HF D
30 Flat 79, Sylvia Court, Cavendish Street London N1 7PH D
32 15 Bankton Road London SW2 1BP E
33 10 Hambledon Place London SE21 7EY D
35 26 Trothy Road London SE1 5RR D
38 5 Beaconsfield Lodge, 110 Aberdeen Park London N5 2BP D
40 18 Richmond Avenue London N1 0NF E

6
https://www.theccc.org.uk/wp-content/uploads/2020/12/Sector-summary-Buildings.pdf
Costs to bring them up to a minimum rating of ‘C’:

To bring them up to a minimum rating of ‘C’, getting a score of 69 points is desired. And for safety
purposes, the target should be set at 75 points. As the Green Homes Grant was stopped for new
applications in March 2021, the cost is assumed to raise, with no government subsidies. The costs
involve the cheaper procedures in perspective 4, such as an upgrade to LED bulbs, installing wall and
roof insulation and replacing windows with double or triple glazing, which causes less than £10000
per asset.

Perspective 4):

Decarbonization Report: Several Measures regarding the carbon footprints of the assets in Greater
London are suggested in this report. These measures are often at a low cost and is estimated to cost
no more than £100000 per asset, bringing the total upgrading cost to less than £4M in total.

Upgrade to LED Light Bulbs

One of the easiest and least labour-intensive ways of improving the EPC rating is to switch your old light
bulbs for modern LED bulbs. LED light bulbs are more energy-efficient and eco-friendly than traditional
halogen bulbs and will provide immediate savings on energy bills. In the long-term, LED light bulbs will
need replacing less often too. It is estimated that an LED bulb will last 20 times longer than a filament
bulb, lasting up to 20,000 hours, whilst using only using 5 watts of power, compared to 40
watts. According to Simply LED7, an LED bulb would cost just £19 during its lifetime compared to an
incandescent bulb that would cost £152 over the same period. The cost per asset is estimated to be £190.

Install Wall and Roof Insulation

Another way of improving energy efficiency and long-term energy savings is by investing in an additional
wall, roof or cavity insulation. This low-cost measure significantly reduces the loss of energy from your
home, resulting in significant improvements in the EPC rating. Increasing loft insulation thickness to at
least 270mm can dramatically reduce energy waste. An uninsulated or poorly insulated loft
conversion will lose heat up to a third faster than a fully insulated one8. Previously, the recommended
depth of insulation was as low as 100mm, before rising to 200mm (or higher). It is likely that older homes
with fewer renovations will not be well insulated if insulated at all. From no insulation to 270mm can
improve the EPC rating by 10-15 points, whilst a top-up of existing insulation will typically add 2-5
points. Cavity insulations can increase EPC ratings will by 5-10 points. Adding insulation will cost around
£200 for each two-storey wall which will vary according to the size Detached houses will incur greater
costs in comparison to terraced houses and bungalows. The cost per asset is estimated to be £2000.

Replace Windows with Double or Triple Glazing

Most modern homes will have double glazing as standard, but it is necessary to check as new double
glazing or even triple glazing can add up to 10 points on the EPC rating. In the UK, the average price for
white 1x1m UPVC double glazed windows is £300. For apartments, prices can range from £1,550 to
£2,750, while prices for semi-detached or smaller detached houses can cost between £3000 and £7000
9
for new double glazing. Therefore, the cost per asset is estimated to be £4500.

7
https://www.simplyled.co.uk/info/led-savings/
8
https://www.chancellors.co.uk/resource-centre/useful-information-for-sellers/does-a-loft-conversion-add-value
9
https://www.homehow.co.uk/costs/double-glazing
Install Solar Panels and Invest in Renewables

Investing in renewables can be more expensive than other options listed here but by doing so, you can
improve the EPC rating significantly. For example, a system of 16 solar panels can add up to 10 points to
your EPC rating. Also, you can choose to put renewable electricity back into the national grid in a scheme
known as the Smart Export Guarantee (SEG)10. Big energy companies offer tariffs to customers who are
part of this scheme. The excessive electricity generated could sell to the electricity network of the district
and reduce the electricity cost overall. The saving amount varies widely depending on the electricity
company in that district. The cost of installing solar panels can vary considerably. The average home solar
panel system will cost around £4,80011. When choosing a system it is important to opt for one which is
suitable for your location and circumstances. It is important to shop around and get a variety of quotes to
find your best option before proceeding. The cost is assumed to be £6,000 per asset.

As well as solar panel installation, the board could consider the following renewable energy options to
improve the EPC rating of the assets:

1. Air source heat pumps. These pumps take energy from the air outside and convert it into heat for
your home. They produce fewer carbon emissions than most boiler systems and help your home
waste less energy
2. A ground source heat pump system. This pump system absorbs heat from pipes buried in your
garden and transports it into your home. A well-installed system can be as much as 400% more
efficient in electricity usage
3. Storage heaters. These heaters can precisely control your heating, making for better usage of
your heating system

Use a Smart Meter

Smart meters can influence the way the tenant use energy, leading to reduced costs and greater energy
efficiency. A smart meter will provide our tenant with a live reading of the day-to-day energy usage and
reveal the times when the tenant is using more energy than might be necessary. Also, by using a smart
meter, there is no need to submit another meter reading to the supplier again. A smart meter can be
installed by the electricity supplier at no extra cost and some suppliers will provide incentives to get one
installed12. The cost will be assumed to be £50 per asset which can be neglected.

Replace an Inefficient Boiler and Heating

The boiler and heating system are two of the most important factors in the EPC rating. By upgrading an
old boiler to a modern condensing model, it can add up to 20 points to the EPC score, depending on the
age of the boiler. A boiler replacement can reduce electricity costs by as much as £315 per year. The age
of the boiler can also be a significant point of consideration in the property valuation process13.

Combi and conventional boilers are the most common boilers in the UK. These systems can cost generally
cost between £500 and £2,000. Condensing boilers cost around £2,500, whereas a biomass boiler can
cost up to £19,00014. Higher performance boilers will incur greater costs, but usually with a guarantee of
greater performance and better energy efficiency. The cost is assumed to be £5,000 per asset.

10
https://www.ofgem.gov.uk/environmental-and-social-schemes/smart-export-guarantee-seg
11
https://www.moneysavingexpert.com/utilities/free-solar-panels/
12
https://www.gov.uk/guidance/smart-meters-how-they-work
13
https://www.chancellors.co.uk/valuations/online-valuation
14
https://www.greenmatch.co.uk/blog/2015/02/how-much-does-a-biomass-boiler-cost
Physical Risk Objectives
1): Several properties are at risk of potential flooding, either because of the trend of rising in rainfall
or due to the low altitude of the properties. The risk of flooding also depends on the infrastructure
nearby, whether there are frequent inspections and reconstructions of the drainage system, the
progress of flood control projects etc. To assess these risks, a geographical information system (GIS)
could help to analyse the aforementioned perspectives of risk assessment. With the analysis from
the Google map, we found that there is two district with exposure to flooding risk which needs to be
handled on a case by case basis.

Case 1: Directly located at the side of the turning point of the River Thames à high risk of flooding,
outdated drainage system ( Property ID: 3, 4, 6, 19, 20, 21)

Case 2: Directly located at the side of the turning point of the River Thames à high risk of flooding,
out-dated drainage system (Property ID: 1,2)

These 6 properties have a surface of ‘low’ and ‘very low’ respectively, and they are at the side of the
River Thames.

Figure 1: Case 1 Figure 1: Case 2

For case 1, all 6 properties located at the side of the river Thames has a ‘low’ or ‘very low’ surface,
which reflects a very high risk of flooding during heavy rainfall. And for case 2, Property 1 has a low
surface. According the Environmental Agency, properties in these 2 cases are exposed to a one-

in-1000 risk of tidal flooding without the Thames

Barrier and associated Tidal Walls. Although the
government has estimated that the Thames Barrier
would not fail until the 2070s, under severe climate
change, very heavy rainfall could damage the barrier,
which could translate into wide tidal flooding as
shown in the figure. It is estimated that 24,000
properties would be in a significant threat, including
the properties mentioned above, according to the
experts in the London Assembly environment
committee15.

15
https://www.london.gov.uk/about-us/about-us/london-assembly/london-assembly-publications/flood-risks-london
2): Physical Costs associated with different physical risks as mentioned above can be simulated by a
Monte Carlo Simulation. According to a research conducted by the National Oceanic and
Atmospheric Administration in the US16, the sea level may rise up to 30cm by 2050.

According to the figure above17, the 8 properties in the spreadsheet are located at south west of the
figure. The number of high or medium tidal risk properties are up to 1230, which refers to annual
risk larger than 1 in 100. For London, the UK Climate Impacts Programme (UKCIP) has downscaled
the global mean sea-level rise scenarios of the Intergovernmental Panel on Climate Change (IPCC,
2001), suggesting a rise of 0.26-0.8m sea-level by 2050, associated with the consumption of 200,000
properties would be flooded additionally for every 0.5 m of sea-level rise. Assuming an exponential
distribution of the effects of sea-level rise, the constant k in an exponential function e^(kx) = 200000
would be equal to 24.412 if x = 0.5. Therefore, the result of the Monte Carlo Analysis would be an
additional 1516 properties falling into the category of high risk, or even proceeds to the 1 in 10
annual risk scale. The percentage rise in the properties exposed to a high risk would be 50%, in
which we could estimate the percentage rise in the medium, low category and the very low category
to be higher than 50%, in some occasions may be up to 125%.

Risk Annual Risk London properties Percentage rise(%)

High At Least 1 in 30 4,516 50

Medium 1 in 100 to 1 in 30 5,775 75

Low 1 in 1000 to 1 in 100 796,000 100

Very Low 0 to 1 in 1000 6,750,000 125

16
https://www.noaa.gov/news-release/us-coastline-to-see-up-to-foot-of-sea-level-rise-by-2050
17
https://www.slideshare.net/LondonAssembly/14-0407flood-risk-slide-pack-final
Climate Risk Dashboard