Why Decarbonization Strategies have the potential to transform the real estate market
Published on 18 March 2020
The two central pieces of the Paris Climate Agreement, limiting the average global temperature rise to 1.5°C and becoming a carbon-neutral economy by 2050, are starting to hit the real estate industry. While the majority of the ESG-activities in the past years have been focused on laying out the foundations – such as internal policy developments, change management among staff members, general stakeholder engagement and the beginning of data management processes – the industry seems to have greatly neglected action on a substantial CO2-footprint reduction. The most recent GRESB-data underlines that with just a 2.66% CO2-reduction amongst all participants.
Already in 2017, the World Green Building Council called for an ambitious transformation towards a completely zero-carbon built environment in its publication called “From Thousands to Billions – Coordinated Action towards 100% Net Zero Carbon Buildings By 2050”. Since then local green building councils and industry leaders have started picking up the concept of Net Zero with the two central goals being:
All new buildings must operate at Net Zero carbon from 2030.
100% of buildings must operate at Net Zero carbon by 2050.
The past 12 months in the real estate industry have shown that Net Zero has become one of the hottest topics in the discussions around ESG. This has an impact on investors, fund and asset managers in terms of their risk analysis. CO2 has finally taken shape as a transition risk to a low carbon economy. Through decarbonization strategies for funds and assets, this risk can be evaluated and properly managed. The following simplified diagram shows how such a strategy could look and which elements it requires:
When setting up such a long-term strategy — including science-based CO2 reduction targets — for an asset, or for a whole fund, the range of possible actions and initiatives goes beyond current asset management activities with a typical horizon of five, ten or 15 years. It also considers long-term impacts, such as the development of energy infrastructure at certain locations the building is connected to or could be connected to any time in the future. The chances offered by necessary replacements of building parts at the end of their lifecycle can also be considered in this type of strategy.
Introducing the concept of decarbonization strategies into standard fund and asset management practices will ultimately lead to more proactive than reactive management of buildings and has, therefore, a true potential to transform the market.
But is Net Zero really the ultimate goal?
Just to achieve a Net Zero built environment as a whole, will mean that quite a number of buildings will have to be positive rather than just zero. There will always be buildings and specific circumstances that can restrict a Net Zero pathway. Therefore other buildings have to step up and close the gap. This will become even more challenging if the embodied carbon of the new construction sector is also taken into consideration. We will have to intensify the discussion around proactive management of the existing building stock and around the amount of new construction that will actually be needed. Wherever these discussions will lead us in the upcoming years, to achieve healthy sustainable spaces for everyone, we have to go beyond Net Zero and have to find solutions for truly positive buildings beyond just carbon. In the end, it is the people in buildings that matter.
If you would like to discuss your Net Zero/decarbonization strategy or any of the other topics in this article, please contact the ES team, who will be happy to talk to you.
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