The UAE Beyond Labels: From Runways to Rooftops How the ‘E’ in ESG can create a Stylish Affair in the Construction of Luxury Properties
Climate, Energy & Utilities Focus
The global energy sector is pivoting towards sustainable and environmentally friendly sources of energy in response to the urgent need to find alternatives to conventional fossil fuels.
Law Update: Issue 372 - Climate, Energy & Utilities Focus
Raneem SalhaTrainee Solicitor,Corporate Commercial / Employment
The UAE is renowned for its opulent way of life, featuring numerous upscale dining establishments, top-tier hotels, and exclusive shopping venues. The country showcases iconic landmarks like Dubai's Burj Al Arab and Abu Dhabi's Emirates Palace. The former having approximately 137 five-star hotels and the latter depicted as having the highest concentration of five-star hotels in the world.[1] It is no surprise that the UAE is (and has been for quite some time) a hub for luxury, attracting both tourists and foreign investors. As a result, we have seen the UAE align their regulations and legislation with international best practice to optimise the country’s position as a leading investment destination for locals and foreigners alike. A prominent aspect of this alignment is the environmental standards and endeavours of the nation. Enter, the commitment to the Paris Agreement to limit global temperature increase to less than 1.5°C in 2015, Zero Carbon Buildings in 2019, and COP28 in 2023
These are only a few of the actions taken by the UAE to pivot towards a more environmentally friendly and sustainable nation. This shift is essential given the rapid rate of development that the nation is experiencing in all industries including property, construction, and fashion.
In 2010, we saw one of the first collaboration between these industries with the opening of Armani Hotel Dubai and Armani Residences in Burj Khalifa, that was made possible through the collaboration of Italian fashion house Giorgio Armani and developer Emaar Properties.
Since then, we have seen a growing number of similar type developments such as Palazzo Versace, Elie Saab Maison, Fendi Homes, and most recently Burj Binghatti Jacob & Co. residences – set to be the tallest residential building in the world.
The UAE's commitment to luxury extends beyond aesthetics, placing an emphasis on sustainable practices. Beyond the country’s green initiatives, the landscape of luxury brands is evolving. It is starting to emphasise the rising significance of sustainability as a strategic imperative. High end brands are adapting to changing consumer expectations by incorporating environmentally conscious practices into their business models.
Innovative collaborations between luxury brands and the property/development industry will need to commit to sustainable methods when embarking on these ventures as it gradually becomes a necessity from a commercial and legal perspective.
To mitigate the risk of noncompliance, cost of retrofitting, high costs of construction, maintenance, and adverse reputation of the brand, it is suggested that these collaborations start implementing environmental clauses in their agreements that will help action sustainable developments.
Buildings are structures that are highly susceptible to being impacted by climate change in the UAE. Severe weather conditions could very well affect the value of real estate. Where significant expenditure has been incurred developing branded buildings, the projected return on investment needs to be protected. It is important that industries involved in such developments start taking steps to attenuate the effects of the climate crisis.
The UAE has issued mandatory regulations that apply to developers to ameliorate climate change, with a high probability for more to come in the near future. In 2010, Abu Dhabi introduced the Pearl Rating System (PRS) a framework used to advance Estidama – a sustainable urban planning initiative developed by the Abu Dhabi Department of Urban Planning and Municipalities (DPM) – for sustainable design, construction and operation of communities, buildings, and villas. All buildings must achieve a Pearl rating of 1. Government buildings must achieve a pearl rating of 2.
Those that wish to develop in Masdar – an eco-city – will need to achieve a Pearl Rating of 3. The highest Pearl rating that can be achieved is 5. The PRS focuses on energy efficiency, water conservation, and waste management, amongst other factors to promote sustainable developments within the Emirate.
In Dubai, Al Sa’fat – Dubai Green Building System is a set of mandatory requirements that all new buildings must reach, at least the Silver Sa’fa. Achieving higher performance is possible through a set of additional requirements to achieve the Golden or Platinum Sa’fa. Al Sa’fat fosters innovation to seamlessly integrate green systems and technologies into building design, resulting in enhanced performance, decreased energy consumption, and improved efficiency of electrical and mechanical systems, consequently reducing carbon footprint. In Ras Al Khaimah (RAK), the Barjeel Green Building Regulations were launched in 2019. Barjeel’s requirements are across 5 categories that must be met these include energy and water efficiency, renewable energy, recyclable materials and resources, and comfort and wellbeing.
The rating systems and green regulations mentioned above are only one aspect of the environmental laws and regulations issued in the UAE. For owners and developers to reach these standards and beyond, it is good practice to include environmental clauses in agreements.
Beyond government imposed environmental requirements, major developers in the UAE have begun implementing their own sustainability requirements when dealing with contractors and procurers. The likes of which include, Aldar and Majid Al Futtaim. As such, the incorporation of environmental clauses into construction agreements is gaining momentum.
The Chancery Lane Project (“TCLP”) is a group formed of lawyers from all over the world that have come together to create climate clauses that can be implemented into agreements to propel decarbonisation. The following is a summary of model clauses for construction contracts within the luxury branded-build sector, the full clauses can be found on TCLP’s website. Although the clauses will need to be tested in real-world applications, with careful planning, their inclusion can help mitigate climate-related risks, ensure regulatory compliance, uphold high standards of social responsibility, and guide businesses in the sector toward achieving net-zero carbon goals in a commercially viable manner:
GREEN PROJECT MODIFICATIONS (BASED ON LUNA'S CLAUSE): This clause aims to encourage contractors to incorporate green modifications into the design and development of a project. The approval process outlined in this model clause necessitates a shift in the terminology used to evaluate the environmental and social impacts on the project’s schedule, costs, and any necessary third-party approvals, such as planning permissions.
NET ZERO CONSTRUCTION STANDARDS (BASED ON ESTELLE'S CLAUSE): This clause aims to implement green amendments to the standard of care regarding best industry practices. These amendments address every phase of the development process, from construction to occupation and operation. Additionally, the clause requires contractors to report on their progress in achieving the established green objectives.
CONSTRUCTION MATERIALS: PROCUREMENT (BASED ON TRISTAN'S CLAUSE): This clause seeks to establish obligations for the Contractor to procure materials in the most sustainable manner, referencing the Carbon Budget. It requires the Contractor to submit a list of suppliers and manufacturers, along with an assessment of the transportation impacts relative to the Carbon Budget, while encouraging the use of local materials whenever possible. Compliance with the Carbon Budget will be evaluated by an independent Carbon Consultant, similar to the role of an Employer's Agent. The clause outlines a system where non-compliance may result in liquidated damages, while successful attainment of the Carbon Budget could lead to financial incentives, promoting accountability and encouraging sustainable practices.
MODERN METHODS OF CONSTRUCTION (MMC) AND NET ZERO PROVISIONS FOR CONSTRUCTION OR DEVELOPMENT AGREEMENTS (BASED ON MADHAVI'S CLAUSE): This clause integrates sustainable practices and net-zero provisions specifically tailored for Modern Methods of Construction (MMC) contracts. MMC encompasses innovative construction techniques that improve efficiency and reduce waste, such as off-site fabrication, modular construction, and the use of advanced materials and technologies. These methods not only enhance the speed of construction but also minimise environmental impact. The clause allows contracting parties to embed their sustainability vision into agreements while capitalizing on the cost-effectiveness and efficiency benefits that MMC provides. By promoting the use of MMC, the clause fosters a commitment to sustainable development within the framework of modern construction techniques, encouraging practices that align with net-zero goals.
GREEN INCENTIVE BONUS (BASED ON ASHKAN'S CLAUSE): This clause aims to encourage engagement with established industry standards by requiring the parties to agree on clear and specific practices from the beginning that lead to energy savings or other beneficial environmental impacts during the construction phase. Green incentives can include financial bonuses or rewards for achieving specific sustainability targets, such as reducing energy consumption, utilising renewable materials, or minimising waste. By incorporating these incentives, the clause motivates all parties to adopt environmentally friendly practices, fostering a collaborative approach to sustainability and ensuring that the project aligns with broader environmental goals. This proactive engagement not only enhances the project's ecological footprint but also promotes a culture of responsibility within the construction industry.
In essence, weaving such environmental clauses into collaborative agreements between luxury brands and developers signifies a proactive stride towards a more sustainable and responsible future in the realm of high-end real estate.
A rise in exposure due to social media and increased coverage has increased the awareness of end-users. This is prompting governments and corporations alike to be more accountable. It is safe to say the average consumer now will no longer choose a product solely for its use or the luxury that is associated with subscribing to a certain brand. They look to purchase and support brands that align with their moral values. Sustainability being one of their core values. Over the past 5 years, 36% of consumers have made a modest change towards investing in more sustainable brands, 27% have made a significant change. This shift in consumers mentality should prompt corporations to invest in sustainable practices so they may reap the benefits of attracting and retaining clients. More than the possibility of boosting profits and building a reputation that exhibits innovative and benevolent leadership, climate-friendly commitments in the development industry prove to be cost efficient to both the developer and consumer. Finally, for major brands and developers to successfully partner, they must align with these environmental initiatives, as both parties are increasingly integrating sustainable practices within their own organisations. This shared commitment to sustainability creates a foundation for collaboration; there is little room for partnerships with entities that do not uphold the same policies, as it risks undermining their collective goals and values in addressing environmental challenges and adhering to regulations.
For further information,please contact Raneem Salha.
Published in December 2024
