Across the world, numerous industries are ramping up their sustainability efforts. Buildings often represent one of the most significant contributors to an organization’s carbon footprint – which is why Planon and KPMG are joining forces to support companies to leverage their built environment to tackle climate change.
No time to waste
There is simply no time to waste in the battle against climate change. Although the Paris Climate Agreement was viewed as a watershed moment in the drive for environmental sustainability, global carbon emissions continue to put us on a dangerous path. In August 2021, for example, the United Nation’s Intergovernmental Panel on Climate Change issued a report stating that humanity had already warmed the planet by approximately 1.1 degrees Celsius and that the 1.5 degrees Celsius threshold was likely to be reached, or exceeded, in the next two decades without performing drastic changes.
The world’s sustainability initiatives will undoubtedly receive an extra push following the COP26 conference. The conference’s four main aims (to accelerate the phase-out of coal; to curtail deforestation; to speed up the switch to electric vehicles; to encourage investment in renewables) are to be welcomed, but goals should first be achieved before they are lauded; actions speak louder than words.
And one area where action could have a significant impact is the building sector. The real estate (RE) industry is responsible for approximately 40% of global carbon emissions. Although initiatives are already taken to reduce the impact of the built environment, such as the World Green Building Council’s Net Zero Carbon Buildings Commitment, these may not be enough.
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Key drivers for RE sustainability
Fortunately, a more sustainable future for the RE industry seems possible – in fact, it is already in progress. Key drivers of sustainability in this industry are changing demands from corporate real estate occupiers, who are requesting better climate performance from their buildings. Increasingly, corporate real estate occupiers recognize the importance of sustainable buildings for employee satisfaction and well-being.
At the same time, greater awareness of the environmental impact of buildings and greater ESG expectations from shareholders and stakeholders are supercharging the green push within the RE space. Capital markets are already committed to the green transition and will continue to insist on better carbon performance. In response to COP26, for example, the UN High Level Climate Action Champions issued a report indicating that the private sector could deliver 70% of the total investment needed to meet net-zero goals. Brands like ING, Rabobank, ABN AMRO, HSBC, and many others are already committed to this goal. An environment in which investment in sustainable assets is surging will, undoubtedly, stimulate more RE planners and building managers to take sustainability seriously.
Regulations are also of vital importance in creating a more sustainable RE industry. For example, EU taxonomy regulations, adopted in June 2020, set out criteria and terminology around sustainability providing the RE industry with a clearer path towards net zero by 2030.
Outside the EU, however, increasing legislation and differing net-zero commitments in various countries are creating a rather fragmented mess for portfolio managers to keep track of. Establishing a clear basis for sustainability in the RE space, such as through the adoption of the KPMG Net Zero Readiness Index (NZRI), could be one way of simplifying and streamlining the built environment’s sustainability journey.
The NZRI compares the actions of 32 countries in reducing their greenhouse gas (GHG) emissions and assesses their ability to achieve net-zero carbon emissions by 2050. The index has found that the sustainable initiatives of many countries are already having a significant impact – with the RE industry playing a prominent role.
Building (or retrofitting) a greener future
Since much of the focus around sustainability centres on government initiatives, efforts to tackle climate change are often hindered, disregarding the profound impact that the private sector can have (and already had) on GHG emissions. As KPMG’s NZRI report concludes, mandatory reporting around carbon emissions can accelerate the net-zero transition and provide the necessary data for investors and lenders to make greener decisions.
Although nations are performing adequately in constructing new low-energy buildings, they continue to struggle to decarbonize existing real estate. The NZRI concludes that all countries outside of the UK have underdeveloped retrofit markets, with inertia, capital cost and a lack of awareness around the benefits among their main challenges.
Across the real estate value chain, including developers, investors, owner/occupiers and lenders, each stakeholder has an important role to play in meeting the net-zero ambition during the journey to develop and retrofit green buildings. In Canada, for example, where the building sector has been labelled as requiring a green transition, it has been determined that the building sector GHG emissions could be cut by 17% compared to 2005 levels by constructing all new large buildings to zero-carbon standards from 2017 through to 2030. Alternatively, the same emissions could be reduced by a maximum of 51% by retrofitting existing buildings with green solutions.
Fundamentally, value-chain stakeholders must stand shoulder to shoulder to tackle climate change – either in funding new construction projects or in retrofitting existing buildings. Based on the 2020 Real Estate Assessment Results from GRESB (Global ESG Benchmark for financial markets), this appears to be happening, with accelerating investor demands for ESG data stimulating participation in the assessment by 22%.
Landlords, investors and corporate occupiers have to join forces to explore short-term and long-term investments in the energy transition. While tenants usually think less than five years ahead, building owners and landlords generally operate within a 15-to-30-year time frame. Both outlooks will be vital.
Hopefully, this first blog has made you aware of the significant role building owners and property managers will play on our journey towards global sustainability. In my next blog, I will elaborate on the specific challenges for the real estate value chain on this journey, diving into, for example, the lack of reliable data for sustainability reporting.
If you’d like some interesting reading in the meantime, take a look at this research paper from KPMG that might inspire you to explore opportunities to transition to a more sustainable future.