The Race Against Time: Decarbonizing the Commercial Real Estate Industry

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.

While the world continues to grapple with the devastating effects of a global pandemic, humanity faces another looming threat: a climate that’s warming even faster than we previously realized. A startling new report by the Intergovernmental Panel on Climate Change (IPCC) warned of more extreme weather events to come as the temperature continues to rise. 

The IPCC projects that to limit the global temperature rise to 1.5°C (or roughly 2.7°F) and prevent the worst predicted effects on the world’s population, global carbon emissions will have to reduce 45 percent by 2030 and ultimately reach net-zero by approximately 2050, using a baseline of 2010. However, the authors of the latest report predict the Earth will hit that upper limit by 2040 if CO2 emissions aren’t drastically reduced in the next few years. 

The authors have identified only one scenario that can reverse the trend—and that scenario requires getting to net-zero global emissions by 2050. This presents a number of daunting challenges and unique opportunities for commercial real estate—an industry responsible for roughly 40 percent of all carbon emissions. 

Increasing concern among investors and regulators

With such a significant share of the world’s total emissions, it’s no surprise that eyes are on commercial real estate and its collective efforts to decarbonize. Not only are real assets subject to the most physical harm due to extreme weather events, but they also have the potential to do a lot of damage to the environment throughout their lifespan—from materials sourcing and construction to the amount of energy consumed to heat and cool the buildings over time. Owners and operators need to keep all of these factors in mind when collecting data and allocating resources toward projects to decrease or offset their emissions.

“The real estate industry is the climate culprit that has been hiding in plain sight,” said Brendan Wallace, co-founder and partner at Fifth Wall, in a recent article. The venture capital firm is raising a $500 million fund to invest in climate technology for the real estate industry. “We’re entering a world where a building’s carbon footprint is going to be one of the most focused-on numbers in the industry,” Wallace continued. 

Investors are increasingly uniting to demand more accountability and action from the real assets in which they own and invest. Representing over $6.6 trillion assets under management, the United Nations-convened Net-Zero Asset Owner Alliance shows united investor action to align portfolios with a 1.5°C scenario. Another group, Climate Action 100+, comprises more than 500 global investors with over $47 trillion in assets, requires companies in which they invest to commit to decarbonization strategies and disclose their climate-related risks in line with the Task Force on Climate Related Financial Disclosures (TCFD) recommendations.

On a regional level, lawmakers are also turning attention toward decarbonization. Countries including New Zealand and the UK have passed legislation aimed at achieving net zero emissions by 2050. Regulations also exist in the US at city and state levels: the New York’s Climate Mobilization Act and Los Angeles’ New Green Deal, for example, put the real estate sector at the center of their decarbonization strategies.

Building a net zero pathway

What can real estate owners start doing right now to begin decarbonizing their portfolios? Essential to building a strategy is identifying the lowest performing buildings (from a sustainability perspective) so that companies can allocate resources toward projects that actually improve energy efficiency and carbon emissions over time. Without those insights, owners may waste valuable time on sustainability programs that aren’t making an impact, or focus time and effort on the wrong assets. 

Real estate owners are faced with the challenge of calculating and tracking not only direct emissions from building energy use (Scope 1) but also indirect emissions from purchased electricity, steam, heating and cooling (Scope 2) as well as indirect emissions that occur throughout a company’s supply chain (Scope 3). Gathering and continuously analyzing this information is crucial, but it’s impossible to do this manually, even if your firm has a dedicated sustainability team in-house. Firms need a tech-forward solution that will help them build data coverage, completeness, and accuracy.

CRE owners also need to track their existing projects and certifications so they can gauge the success of their ongoing efforts, and build stakeholder confidence that their portfolios are moving in the right direction. Creating and moving toward concrete, realistic intermediate goals is key to staying on track and building momentum. And accurate, reliable data is the glue that binds these efforts together.

Disclosure is key

Staying accountable is critical. On the reporting front, real estate owners have several frameworks to consider. The Task Force on Climate-related Financial Disclosures (TCFD) framework is gaining momentum and is now mandatory for large companies in the UK and New Zealand. GRESB is still the go-to benchmark for many real estate owners, while other organizations choose to report to frameworks like SASB, CDP, and GRI. 

Regardless of how real estate owners will choose to report, they’ll need access to a foundation of trustworthy, investment grade data on their ESG performance, improvement, and ongoing activities. 

Some real estate owners who are newer to ESG are hesitant to go public with their information, for fear that they may not score well their first time reporting. However, as the net zero deadline looms, failing to report will no longer be an option. Above all, investors are expecting owners to stay accountable and show evidence that they’re working to improve their ESG performance. The goal here is progress, not perfection—and owners will find that showing evidence of improvement each year backed by accurate, timely data is a far better scenario than not disclosing at all. 

This article was written by Amanda Davis, Content Marketing Manager at Measurabl

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