23 September 2024
Kitty Greenwood, Senior Sustainability & Energy Consultant
The transition towards a sustainable, low-carbon economy is a strategic priority for asset managers. In real estate, where assets have long life cycles and substantial environmental footprints, greenhouse gas (GHG) accounting and the development of a net zero carbon strategy are no longer optional—they are critical for both operational resilience and long-term asset value.
A well-executed net zero carbon strategy has a direct impact on asset valuation. Buildings with low or net zero carbon footprints are increasingly seen as premium assets, attracting higher rental yields and lower vacancy rates. Conversely, buildings that fail to meet evolving sustainability standards may suffer from reduced demand, lower rents, and higher operating costs, leading to diminished asset values.
Moreover, regulatory frameworks and investor expectations are shifting towards greater accountability for environmental impacts. Assets that align with net zero strategies are more likely to comply with future regulations, reducing the risk of penalties or retrofitting costs. Additionally, sustainable assets are often more resilient to climate-related risks, which can enhance their long-term value and reduce insurance costs.
Asset managers who proactively embrace these practices will not only contribute to global climate goals but will also enhance asset value, attract responsible investors, and ensure long-term market competitiveness. As the real estate industry continues to evolve, those who lead in sustainability will be best positioned to succeed.
GHG accounting
Greenhouse gas accounting is the first step in understanding the carbon footprint of real estate assets and portfolios. This process involves quantifying emissions across scopes 1, 2, and 3, which include direct emissions from owned or controlled sources, indirect emissions from the generation of purchased energy, and all other indirect emissions that occur in a company’s value chain, respectively. Accurate GHG accounting allows asset managers to pinpoint emission hotspots, identify reduction opportunities, and track progress over time.
Without reliable GHG data, asset managers risk misjudging their environmental impact, which could lead to inefficiencies, missed opportunities, and non-compliance with increasingly stringent regulations. Moreover, investors are placing greater emphasis on ESG (Environmental, Social, and Governance) criteria, with GHG accounting serving as a crucial component of environmental performance. Therefore, transparent GHG reporting can enhance investor confidence and help attract capital.
Crafting a Net Zero Carbon Strategy
Developing a robust net zero carbon strategy is essential for aligning real estate assets with global climate goals, particularly the targets set forth by the Paris Agreement. Asset managers need to take a holistic approach that encompasses several key components:
- Aligning to a Net Zero Carbon Framework: A well-structured net zero carbon framework provides a roadmap for achieving carbon neutrality. It offers guidelines on setting science-based targets, implementing energy efficiency measures, and integrating renewable energy solutions. Aligning with established targets, such as those offered by the Science Based Targets initiative (SBTi) or the Carbon Risk Real Estate Monitor (CRREM), ensures that strategies are scientifically sound and aligned with industry best practices.
- Assessing Alignment to Industry Targets: To remain competitive, asset managers must ensure that their portfolios align with industry targets. This requires benchmarking asset performance against peers and assessing the alignment with industry decarbonization pathways. Failure to do so could result in assets becoming stranded, leading to significant financial losses.
- Decarbonising Assets: Decarbonisation is a cornerstone of any net zero strategy. This involves retrofitting existing buildings to improve energy efficiency, upgrading HVAC systems, improving insulation, and adopting smart building technologies. For new developments, designing with sustainability in mind—from materials selection to energy systems—is critical. By decarbonizing assets, managers can reduce operational costs and increase asset attractiveness to tenants and investors who prioritise sustainability. Our building optimisation team can offer detailed net zero carbon audits and bespoke implementation and capex plans to ensure alignment with industry targets.
- Generating and Procuring Renewable Energy: Transitioning to renewable energy is essential for reducing scope 2 emissions. Asset managers can explore on-site renewable energy generation, such as solar panels, or off-site procurement through power purchase agreements (PPAs). Renewable energy not only contributes to emissions reduction but can also offer long-term cost stability and enhance energy security.
- Offsetting Emissions: Even with aggressive decarbonisation, some emissions may be unavoidable. Offsetting these residual emissions through verified carbon credits or investments in carbon capture projects can bridge the gap to net zero. However, offsets should be used strategically and sparingly, as a complement to, not a substitute for, direct emission reductions.
- Implementing an Internal Carbon Pricing Strategy: Internal carbon pricing is a powerful tool for driving decarbonization. By assigning a monetary value to carbon emissions, asset managers can incentivize emission reductions across the portfolio. This strategy also prepares assets for future regulatory changes and carbon pricing mechanisms that may be implemented by governments
Longevity Partners can support you wherever you are in your net zero carbon journey. We can support with your entire end-to-end strategy, or support with individual elements if you have already made a start. Please get in touch and we can discuss your needs and how we can support you!