Understanding Real Estate Carbon Target Setting

Table of Contents

Analysing real estate carbon target setting as a means to grow your business

Reduction of industry Carbon footprints is our new normal. All business communities are making changes to meet their targets, and though the public currently focuses on obvious sectors like fossil fuel, the real estate industry must make considerations for the huge impact it holds now in advance of turning opinions. Many directives are already being implemented globally, as building co2 emissions and scientifically assessed directives are taken into account when limiting direct and indirect emissions.

However; unlike industries such as fossil fuel, the real estate market can actually grow and prosper as it works towards net-zero without seeing damage to its revenue in the long-term. But how is that possible?

Co2 emissions from buildings 2022

How much does real estate contribute to carbon emissions?

The building sector’s carbon footprint is one of the largest in the world – The industry is responsible for consumption of around 40% of the world’s energy, renewable or otherwise, and 30% of global annual greenhouse gas (GHG) emissions are due to construction.  As construction is a major contributor to global Co2, it has to be a key factor to consider when undertaking carbon target setting.

Embodied carbon - construction carbon target setting

The industry suffers from a problem labelled as ‘embodied carbon’. According to CBRE; ‘embodied carbon is defined by LETI and the UK Green Building Council as the carbon emissions of a building created by its materials: their extraction, transportation, construction, maintenance, replacement, and end of life treatment. The embodied carbon associated with buildings contributes 11% of global carbon emissions and represents 28% of emissions originating from the built environment.’

Operational vs Embodied

Whereas operational carbon standards can change and adapt to suit the times, embodied carbon with traditional materials such as steel and concrete is an immovable absolute: the amount of embodied carbon used in the construction process cannot be addressed at a later point in the same way that insulation and energy efficiency (as examples of operational carbon) can be altered or improved over time. 


Whilst we can build sustainable properties to ESG standards we have to also examine the initial outlay there is to any new project on both a financial but also an environmental standard. More environmentally friendly, sustainable materials are important, as the more commercial interest there is the lower the prices will fall in line with competition.  Furthermore, the growing industry for reclaimed or repurposed materials is a surefire environmental boon and a costcutter that no longer has the stigma previously associated with used goods. We’ll be looking at this further in a coming post, but for now we’ll look directly at carbon target settings.

Industry Carbon target setting examples

We know our industry is a major contributor to carbon emissions. This doesn’t mean the future needs to be bleak however. The carbon targets being set (specifically those developers are aiming for) are often above the required call as a means to future proof the industry and the planet. For example, British land’s net-zero policy is a response to how in April 2021, the UK government announced the world’s most ambitious climate change target to reduce emissions by 78% by 2035 compared to 1990 levels, building on its commitment to help the world reach net zero by 2050. 

 

British land state how because the challenge now is delivery, businesses will be at the forefront of this, if the UK is to hit their net-zero target by 2030. They seem to be leading the way, working with sustainable, recycled building materials and have completed the award winning 100 Liverpool Street premises far ahead of their original schedule. 


Lendlease is aiming even higher, with an intention to reach net-zero by 2025 and to be fully carbon free by 2040. They’re currently removing all gas and diesel use from their operations, with a move to entirely renewable electricity before 2030. Lendlease have also been an early adopter of eco-policies, including joining responsible-steel; an organisation with the knock on effect of lowering emissions from steel production.

Long-term financial efficiency

Recent research by JLL found that the additional costs of residential and office properties being built to new climate friendly standards, while an uplift is noticeable in some cases, are often offset by the long term benefits making the property more desirable and cost efficient, such as a “rental value increase of 6-11% and a lower void rate”.

 

New fixtures such as heat pumps replacing gas boilers, better insulation and the like all mean lower overhead costs in terms of running the building after it is occupied. Therefore, a company that focuses on green targets is looking to the long-term not just for sustainability on an ecological level, but also a commercial one. The revenue generated by the buildings ‘future proof’ aspects make it a more desirable property in terms of both sale and rental values.

Decarbonising real estate assets and portfolios

The world’s future is uncertain unless we act now. What is certain is that, with the right approach, there is the opportunity for huge gains within real estate to those with the business savvy to capitalise on a changing market that can also continue to grow.

 

Incorporating potential climate change risks into your asset and portfolio valuations will protect you from possible future regulatory actions that could hinder a business working to old standards. This requires you and your company to work on building the metacognitive and analytical capabilities that will help you understand both direct and indirect physical and transition risks.

 

Decarbonizing your real-estate assets and portfolios is a further way to future proof both your business and your practices so that you successfully create new revenue streams and sources of value for investors, tenants, and communities alike.

FAQ

What is an overview of the plan for combating Climate change?

Agreed at the Paris Accord, irrespective of industry, the current shared goal for our world is to limit the overall temperature increase of the planet by no more than 1.5°C, while cutting out further greenhouse gas emissions so that by the year 2050 the world has reached net-zero and dispensed with unstable forms of living and practices from the past, projects and building operations.

What are carbon reduction goals?

Put simply, a carbon reduction goal is an official target put in place that will help that business or individual contribute towards net-zero by 2050. Our shared carbon reduction goal is net-zero, we all need to set our own carbon reduction goals within our business practices so that we can work towards that target. These targets are defined as acceptably science-based if they are in line with the scale of reductions required to keep global temperature increase below 1.5°C above pre-industrial temperatures.

How can real estate reduce its carbon footprint?

Reducing greenhouse gas emissions involves making strategic carbon abatement and investment choices. In order to meet targets, businesses need to examine everything within their remit including energy efficiency, electrification of energy sources, deployment of new technologies, new building design, and innovation in the building materials used.

Procurement, financing, accounting, and tax implications are an assured part of defining and deploying these choices. Innovation is the key.

What is ESG in real estate?

Environmental, Social and Governance (ESG) is a newly created value driver for real estate. It is now a defining  business consideration for real estate and construction all around the world. ESG requirements are how all successful future construction will be gauged, and by default therefore also the future of your business growth.

What are carbon neutrality targets within real estate and construction?

Due to the importance of the situation, regulators and investors alike have requested companies report their emissions based on the framework developed by Greenhouse Gas Protocol (“GGP”) despite it not being a legal requirement. These standards are broken into 3 ‘scopes’ that we’ll look at in another post further in the future:

  1. Scope 1 (direct): Emissions related to building operations
  2. Scope 2 (upstream): Emissions caused by energy consumed at the property
  3. Scope 3 (indirect): Emissions from all other activities

Which cities are currently aiming for carbon neutrality?

25 mega-cities have all pledged their intended carbon neutrality by 2050. These cities include New York, Paris, London, Milan, Oslo, Rio de Janeiro, Mexico City, Melbourne, Cape Town, Buenos Aires, Caracas, Copenhagen, and Vancouver. Multiple locations are expected to follow suit in the coming years.

What's the difference between net zero and carbon neutrality?

Carbon neutrality is a more limited policy compared to net zero goals. Carbon Neutrality is the term used to describe the state of an entity (be it a company, service, product or event), where the carbon emissions caused by them have been balanced out by funding an equivalent amount of carbon savings elsewhere in the world. Instead of  decreasing carbon emissions through the cutting of an individual or businesses personal carbon footprint the carbon reduction is created through offsets from other endeavours such as planting trees to offset Co2, subsidies to other companies and countries so they use less to accommodate for the continued usage of the business or individual in question. 

Carbon offsetting is widely criticised as being ‘greenwashing’, something that gives the indication of ecological change without the concerted effort to actually do so, meaning that while net zero carbon means making changes to reduce carbon emissions to the lowest amount – and is therefore more of a considered task, it nonetheless means that offsetting should be used as a last resort in the goal of net-zero.

Final Thoughts

Climate change is a worrying issue for everyone, but despite the contributory factors the construction and real estate industry make, we have the potential to change our emissions and make a better world while also growing our business in the process. So long as we look to what we can make of the future, rather than what we have made of the past, we will excel.