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. Please refer to official GRESB documents for assessment related guidance.
Faced with ever-increasing pollution and greenhouse gas (GHG) emissions, the world is currently in a phase of global warming. The question is no longer how to avoid this trend, but how to curb it and adapt as well as possible. Regulations are emerging on a European scale (ex: Green Taxonomy) and at national levels: the Tertiary Decree in France, the Dutch Building Decree, Germany’s law on boiler replacement, etc.
We’re also seeing more pressure from the market, where there’s a growing awareness of issues around ESG (Environmental, Social and Governance) and an increasing focus on assets’ extra-financial value. Given this reality, building ESG criteria into your global strategy has become essential – to limit environmental risks as well as the economic and health problems they pose. Today we aim at breaking down the concept of carbon neutrality and its challenges.
A growing awareness of carbon risk
To be resilient in their activity, economic actors must take carbon risk into account. Carbon risk reflects an entity’s exposure to the effects of global warming, anticipating future CO2 emissions and the regulatory risks of related climate policies. Climate change is perceived as an environmental externality, exposing companies to a variety of risks.
Associated climate change risks
The rise in GHG emissions generated by business activity is a major factor in global warming. The IPCC (Intergovernmental Panel on Climate Change) report predicts an average temperature increase of 1.5 to 5.6°C by 2100, which would entail significant threats:
- Environmental risks, including a potentially significant increase in flooding and a drastic decline in biodiversity
- Health risks, with a possible spike in infectious diseases and epidemics affecting supply and demand
- Regulatory risk, a liability that shouldn’t be ignored. Economic actors must anticipate the regulatory side effects of climate change, as strict environmental policies are expected to emerge in the coming years.
New international regulations to limit the risk
Policies introduced on a global scale are forcing companies to reduce their environmental externalities.
Among the most impactful of these is the UNFCCC (United Nations Framework Convention on Climate Change), which has set the following objectives:
- Stabilizing greenhouse gas concentrations at a level that will prevent dangerous anthropogenic interference with the climate system
- Achieving this level within a time frame that allows ecosystems to adapt naturally to climate change
- Ensuring the sustainability of economic development and food production
Did you know?
The UNFCCC is the first international treaty on climate change. Adopted in 1992 at the Earth Summit in Rio, it came into effect in 1994 and has been signed by 197 parties.
At the COP21 conference in 2015, the UNFCCC signed the Paris Agreement to accelerate the fight against climate change. A key focus of the agreement centers on carbon neutrality and caps on global emissions.
Another major agreement aimed at limiting carbon risk is the Kyoto Protocol, signed in 1997 by many member countries of the OECD (Organization for Economic Cooperation and Development). Its aim was to reduce GHG emissions by 5.2% compared to 1990 levels, for the period of 2008-2012.
Corporate carbon responsibility
Within the context of these challenges, corporate carbon responsibility takes on its full meaning. Guided by the principles of CSR (Corporate Social Responsibility), companies have a major role to play in achieving carbon neutrality.
From now on, companies must manage the carbon risk associated with their activity, while also anticipating future environmental policies. The time has come to integrate ESG criteria into your global strategy, using the effective tools available today to reduce your GHG emissions.
Carbon neutrality by 2050 in Europe
In 2018, the European Commission set the goal of achieving carbon neutrality in Europe by 2050. But as many scientists have pointed out, setting thresholds is not enough. It is imperative that we aim for “zero carbon”, to effectively curb greenhouse gas emissions and respect the +2°C ceiling set by the IPCC.
Achieving carbon neutrality means offsetting human-caused CO2 emissions with their removal from the atmosphere. We refer to “net zero emissions” when there’s a balance – or zero difference – between emissions produced and removed.
Did you know?
CO2 can be removed from the atmosphere in a number of ways:
– By restoring or strengthening the absorption capacity of natural carbon sinks like forests, soil and oceans
– By using “negative emission technologies” (NETs)
For the moment, the efforts of European countries are insufficient and must be intensified. The European Union has initiated a Recovery plan and a Green Deal, to accelerate and synchronize the transition to carbon neutrality.
Helpful tools moving forward
Given all of the above, it’s clear that real estate players must take on climate risk management using all the levers at their disposal. Aside from GRESB, there is strong support available today to help you curb your carbon emissions and guide your transition to responsible real estate. For instance, the CRREM (Carbon Risk Real Estate Monitor) helps anticipate the extra-financial value of your assets and ensure that carbon trajectories are properly monitored.
Whether you’re focused on regulation compliance or voluntary initiatives like GRESB and CRREM, the very first step is collecting and checking your data so that it can be used accordingly. This is often a complex and tedious endeavor, but recruiting the right support will help you automate the process, save time, avoid errors and maximize positive impact.
This article was written by Bastien Halary and Paul Bonifacio at Deepki