The climate change report that the United Nations issued this week – outlining a grim and accelerated forecast for the pace of climate change – should not have come as a surprise to anyone.
The Intergovernmental Panel on Climate Change report noted that human-induced climate change is already driving many weather and climate extremes in every region across the globe. Such extremes have been relentless during this year’s “nightmarish summer” – in the words of Greek prime minister Kyriakos Mitsotakis – marked by record-breaking heat waves, wildfires and flooding that have caused devastation worldwide.
Significant reductions in carbon – “reaching at least net zero CO2 emissions”– and other greenhouse gas emissions in the coming decades, will be needed to limit global warming beyond 1.5-2 degrees, to prevent even more severe effects of climate change, the report said.
The real estate industry, as one of the biggest carbon emitters, has ostensibly pledged to do its part in lowering global greenhouse gas emissions. Currently the sector is responsible for 38 percent of all energy-related CO2 emissions, with emissions levels hitting a record high in 2019, according to the UN Environment Programme.
Indeed, many of private real estate’s biggest managers and investors – including AXA, Allianz, California Public Employees’ Retirement System, Brookfield and BlackRock, have committed their investment portfolios to net-zero greenhouse gas emissions by 2050, as members of groups such as the Net-Zero Asset Owner Alliance, the Institutional Investors Group on Climate Change and Net Zero Asset Managers Initiative.
But these commitments are not enough to prove that the industry is making significant progress toward significantly reducing carbon emissions. As one decarbonization consultant told us this week, “there is still a lot of ‘greenwashing’ going on,” noting that most managers that have made carbon neutral pledges typically focus on eliminating operational emissions rather than embodied emissions – carbon emitted during the construction or demolition of buildings – which account for the lion’s share of real estate-related emissions.
Indeed, in its 2021 Emerging Trends in Real Estate report, pwc and Urban Land Institute suggested that greenwashing gives “the appearance of decarbonizing for reasons of brand and to attract capital, while actually focusing on only part of the story.” Speaking to PERE this week, one real estate manager ventured that most carbon neutral pledges are lofty and unachievable goals set by people who will not be around to be held accountable when those target dates arrive.
Of course, the challenges with achieving net zero emissions are formidable, including a lack of data collected on building energy usage during both construction and operation. There is also the difficulty of forming and executing an effective decarbonization strategy, given the complexity of developing, owning and managing real estate. Moreover, some argue that the current technology for solar panels, heat pumps and other energy components does not allow for buildings to be efficient enough to truly be net zero.
But those challenges are no reason to kick the can down the road and focus on the low-hanging fruit of making buildings operationally net zero. This is especially the case because building operations are expected to become net-zero carbon by default as electricity on the grid is increasingly generated through renewable sources in many countries.
If managers and investors are serious about reducing carbon emissions, they should not only focus on total emissions but also on repurposing existing buildings, because even the most energy-efficient new building cannot offset the carbon emissions created during the demolition of the previous asset and construction of the new property. While achieving operational net zero is an easier box to check, aiming to reduce overall carbon emissions – even if the building owner does not ultimately reach its net zero goal – is the far more impactful approach.