The Intergovernmental Panel on Climate Change’s recent report gave a stark warning that current pledges from governments are not enough to avoid dangerous levels of climate change. In order to avoid this, we need to be aiming for a maximum of 1.5 degrees of warming above pre-industrial levels.
Current INDCs (Intended Nationally Determined Contributions) to 2030 mean that we are on a pathway to 4 degrees of warming by the end of the century. This would be truly catastrophic. The process for achieving 1.5 degrees is clear – reduce global carbon emissions to net zero by the middle of the century.
Such a pathway will require a complete transformation in behavior and those changes need to begin today. Truly transformative businesses will be able to leverage the opportunities arising from a transition to zero. As tenants, investors, employees, governments and other relevant stakeholders engage in climate change seriously, the effectiveness of a company’s response will be valued. This offers scope for true differentiation, value enhancement and the launch of new products and services for tenants and landlords.
So how can businesses prepare for a zero carbon world and ensure that their response is effective? And what role does the setting of effective performance targets have on this transition to zero carbon?
Following the Paris Agreement, a great stall was put in science-based targets as an appropriate method for determining whether corporate commitments would actually result in a pathway towards a 2-degree scenario. The methodology most commonly adopted by companies setting science-based targets has been the Science-Based Targets Initiative’s (SBTi) sectoral decarbonization approach (SDA). This allows organizations to set carbon reduction targets that depend on the sector in which their business operates. The real estate sector benefits from this methodology by being a relatively low emissions-intensive subsector, captured alongside a wider set of more carbon-intensive activities such as healthcare and catering.
Climate Coin Toss
However, a more fundamental challenge is that the method is not based on a robust decarbonization pathway. SBTi have confirmed that the current pathway will only result in a 50% chance of achieving 2 degrees of warming. In our recent ‘Climate Coin Toss ’ video, we at Verco advocated for businesses to push beyond the 2°C scenario used as the basis for the science-based target’s movement and adopt a 1.5°C pathway. We are aware that the SBTI are looking at the implications of the IPCC report, and expect to publish revised guidance in early 2019.
Does this mean that setting corporate targets has now become more straightforward and that business should simply commit to achieving zero carbon instead of adopting traditional reduction targets? The winds certainly seem to be blowing in that direction. However, if businesses do want to meet such targets they need to put in place appropriate programmes to ensure that they will be achieved.
Verco’s Aim for Zero (A4Z) model provides businesses with an assessment of the feasibility and predicted timeframe to achieve net zero. In the real estate sector, this involves modeling portfolio performance, the policy landscape, and possible carbon-reduction interventions to estimate future performance and to understand the likely “carbon gap” that will need to be eliminated in order to achieve a pathway to zero. Interim medium-term targets that follow a predicted pathway to net zero carbon, can then be set at the organizational or fund level.
Choosing the right metrics
One approach to achieving this is by adopting asset-level targets in a bottom-up method. In the UK, policy has been predominately driven by EPCs which give a false picture of actual building performance, as they are based on the design of a building as opposed to its actual usage. This has not resulted in a clear correlation between building design and building performance.
In Australia, the NABERs rating system is based on actual building performance and has led to market transformation where the NABERS rating is now priced into the value of the building. A higher NABERS rating, demonstrating a more energy efficient building, will achieve higher rental values.
Therefore proponents of net-zero buildings would do well to start by embracing the highest level of existing metrics for an asset’s operational performance, such as DEC A for whole building energy use and NABERS or LER 5.5 stars for base building energy. These are achievable today, but only a handful of assets outside of Australia have got there so far. Setting asset-level targets that aim for achieving the highest possible operational performance is a useful first step towards achieving a net zero portfolio.
With the drumbeat of catastrophic climate change sounding ever louder it is imperative that businesses begin to seriously plan for achieving zero carbon by the middle of this century. Whilst working out what a trajectory to zero carbon looks like may be straightforward, by plotting a straight line from today’s carbon footprint to zero, businesses need to understand how they can realistically achieve this.
Top-down absolute corporate carbon targets will allow businesses to monitor how they are faring on their zero-carbon trajectory at any time; bottom-up asset-level targets will allow them to aim for specific operational reductions in order to achieve the zero carbon goal.
It may seem a daunting prospect in 2018, but realizing a zero carbon transition is certainly within reach over the next couple of decades and will be achievable with careful strategic planning. Businesses who undertake this planning now, and who relish the challenge of transitioning to zero will truly differentiate themselves from the pack.