Carbon accounting in real estate

Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.

Carbon accounting has emerged as a critical tool in the fight against climate change. Buildings are responsible for a significant portion of global carbon emissions, and as regulations tighten and stakeholders demand more transparency, the need for accurate carbon accounting has never been greater. But how does this process work in the real estate sector, and what role do data platforms play in making it effective?

Carbon accounting refers to the process of measuring and reporting the (equivalent) amount of carbon dioxide and other greenhouse gasses that a building or real estate portfolio emit over a certain period. This includes both direct emissions, such as those from on-site fuel combustion, and indirect emissions, such as those associated with electricity use and embodied carbon in construction materials.

Carbon accounting for real estate companies and funds typically involves the following steps:

1. Data collection

This entails gathering data on energy consumption, material usage, transportation, and other relevant activities. Data collection must occur across various stakeholders, including property managers, asset managers, and fund managers, as this data is often not initially organized for non-financial reporting. Streamlining this workflow across multiple stakeholders needs a lot of knowledge sharing and collaboration.

Therefore, a software platform with a user experience that works for all these different stakeholders is crucial, the only way to ensure that all parties understand the importance of accurate data collection and are equipped to gather the necessary information effectively.

2. Emission calculation

Calculations use standardized methodologies such as the Greenhouse Gas (GHG) Protocol to convert this data into carbon equivalent emissions. However, emission calculations for real estate often require careful consideration of various exclusions and deviations. For example, if an asset is only occupied for a few months each year, the data must be normalized to reflect this, and also for you to make the correct data-driven decisions.

When comparing the GHG intensity of buildings, factors like weather patterns, vacancy rates, and the time component of the collected energy consumption (e.g., only 6 out of 12 months of energy consumption was collected) must be taken into account. Additionally, carbon emissions need to be allocated across Scope 1, 2, and 3. Some entities even report Scope 4 emissions, which represent carbon emissions avoided due to specific measures implemented in the buildings.

3. Reporting

Communicating the results to stakeholders, including investors, regulators, and the public, according to regulations such as CSRD, SFDR, SDR, SECR and the AFRS in Australia and/or frameworks like GRI, SASB, CDP, CRREM, GRESB and INREV SDDS.

4. Reduction strategies

This applies to identifying opportunities to reduce emissions, such as improving energy efficiency, using renewable energy, or selecting low-carbon materials. Additionally, following GHG reduction pathways provided by initiatives like the Carbon Risk Real Estate Monitor (CRREM) helps align with the goal of achieving net-zero emissions by 2050 or earlier. Again, it’s important to choose a platform where all stakeholders can input, analyze and report their reduction commitments, energy/GHG targets, energy reduction measures, or renewable energy initiatives.

Carbon accounting in real estate is increasingly being modeled after financial accounting, which has long-established practices for accuracy, transparency, and accountability. To ensure that carbon accounting is equally robust, it is essential to implement similar processes:

• Data quality checks: Just as financial accounting requires meticulous data entry and validation, carbon accounting must include rigorous data quality checks. The foundation of credible carbon reporting is ensuring that the data collected is accurate and reliable. A data platform with algorithms to check your data directly when inputted ensures the data quality challenge is tackled at the beginning of the process, rather than at the end. This helps users of clients to reduce the costs of auditors (especially important with the audit requirement in the CSRD regulation) as you will have an explanation for all the triggered data alarms from the person responsible for entering the data.
• Process flows and sign-offs: In financial accounting, processes are well defined, and data must go through multiple levels of review and sign-off before it is finalized. Similarly, in carbon accounting, there should be clear process flows where data is collected, reviewed, and approved by designated personnel to ensure accuracy and accountability. Obviously, automating the data flow where possible through a data platform will make this process more efficient.
• Adherence to the GHG Protocol: Processing data according to the GHG Protocol is crucial. This especially holds in the real estate sector, where specific rules must be taken into account, such as considering the unique characteristics of different types of buildings and operations, and the appropriate categorization of direct and indirect emissions.
• Transparent reporting: As with financial statements, carbon reports need to be transparent and easily understandable. This transparency is essential for auditors to verify the data and for stakeholders to trust the reported figures. Any exclusions or rectifications should be reported and communicated to the stakeholders.

A data platform designed for carbon accounting in real estate can significantly enhance the efficiency and accuracy of these processes. Here’s how it works:

1. Centralized data collection

A data platform can integrate data from various sources, such as energy bills, building management systems, and procurement records, into a single repository. This centralization streamlines the data collection process and makes it easier to perform quality checks.

2. Automated emission calculations

Once the data is collected, the platform can automatically calculate carbon emissions using standardized methodologies, including those from the GHG Protocol. This automation reduces the potential for human error and ensures consistency across different buildings and time periods.

3. Process flows and approvals

The platform can be configured to mirror financial accounting processes, ensuring that data flows through the necessary channels for review and approval before being finalized. This ensures that all data entering the system is vetted and approved by the appropriate parties.

4. Real-time monitoring and quality control

Modern data platforms often offer real-time monitoring capabilities, allowing property managers to track emissions as they occur. Built-in quality control checks can flag any anomalies or inconsistencies, reducing the likelihood of errors.

5. Benchmarking and reporting

The platform can provide benchmarking tools, enabling property owners to compare the performance of their buildings against industry standards or regulatory requirements. Customized reports can be generated for different stakeholders, ensuring that the right information is communicated in the right way.

6. Auditor efficiency and cost reduction

Having a robust data platform in place simplifies the auditing process. With transparent data flows, clear documentation, and automated processes, auditors can quickly verify the accuracy of carbon reports. This reduces the time needed for audits, minimizing internal and external costs associated with quality control questions and corrections.

As the real estate industry continues to evolve, carbon accounting will become increasingly important. By mimicking the rigor of financial accounting processes, carbon accounting can achieve the same level of accuracy, transparency, and trustworthiness. Data platforms will play a central role in this transformation, making it easier to measure, manage, and reduce carbon emissions. With the right tools in place, property owners and managers not only meet regulatory requirements but also contribute to a more sustainable future.

It should be taken into account that carbon accounting in real estate is not just about compliance, it’s about driving meaningful change. By leveraging data platforms and adopting rigorous processes similar to those in financial accounting, the industry can take significant steps toward reducing its carbon footprint and mitigating the impacts of climate change. As we look to the future, the integration of technology, accountability, and sustainability will be key to building a greener world.

This article was written by Luc van de Boom, Co-Founder & Chief Business Officer at Scaler.