We’ve heard it before: The built environment is responsible for roughly 40% of the world’s carbon emissions.
In order to maximize chances of limiting rising temperatures to 1.5 degrees Celsius — a critical step to achieving a Net Zero Carbon (NZC) future by 2050 — the world’s buildings must slash emissions 50% by 2030.
With this deadline rapidly approaching, we’re now in a ‘decisive decade’ for reaching this goal. Climate model projections clearly illustrate that global warming beyond 1.5 °C will increase the threat of extreme weather events, creating dire consequences for the world at large.
Fortunately, the real estate industry’s commitment to NZC has increased, as exemplified by the adoption of ESG strategies across a range of sectors and companies. While progress is being made, time is still of the essence and more players must take urgent action to introduce robust sustainability practices, including:
1. Fortifying older buildings against climate risks to build long-term resilience:
Managing risk in real estate is not a new concept, however, the ongoing climate crisis presents the industry with fresh challenges. To ensure resilience, real estate companies must find ways to assess direct and indirect physical risks to property such as flooding, wildfires and other natural disasters. This is especially important for older buildings. Eighty percent of existing buildings will still stand in 2050, so it’s critical that we retrofit and refurbish them accordingly.
For example, the Union of Concerned Scientists predicts that by 2045, coastal flooding in the U.S. will cause damages to commercial and residential property costing $136 billion. In order to mitigate these damages, real estate developers and asset managers must take steps to fortify their properties against unpredictable weather events.
2. Providing investors with strong building performance metrics to secure capital for sustainable improvements:
The expectations of key stakeholders are evolving. When real estate companies fail to address the compounding significance of climate change, they run the risk of discouraging investors, who are becoming increasingly conscious of the environmental impact of their assets.
Sustainable investments have historically been viewed as providing a low ROI — particularly in the U.S. However, we’ve seen this mindset shift as investors are now requiring the tracking and reporting of ESG performance. This reporting has demonstrated that buildings with sustainability measures in place generate more long-term revenue than those without them. According to research firm Verdantix, ESG and sustainability consulting-oriented spending by investors is projected to grow by 17% to reach $16 billion by 2027. This growth is largely driven by new regulations and realizations that strong sustainability strategies can help ensure long-term gains.
Sustainable investing correlates with higher equity returns and a reduction in downside risk. To tap this potential, real estate companies must provide investors with a clear ROI and a compelling business case. Sharing progress towards ESG and NZC benchmarks through accurate, comprehensive building performance metrics will help asset owners secure the capital necessary to move forward with portfolio-wide sustainable improvements.
3. Integrating smart technology into properties:
Smart technology solutions will help position the real estate industry to meet its NZC goals. These solutions create opportunities to customize spaces according to occupant needs, while also optimizing building operations.
Smart building technology has the potential to reduce consumption and drive greater energy efficiency, ultimately helping to deliver more sustainable buildings. Modern technology with built-in systems that provide data can help support requests for voluntary reporting, making these assets more likely to receive funding from investors. Incorporating advanced sensor technology, 5G and IoT-connected devices enables data analysis that can help identify pathways to increasing energy efficiency and reducing waste.
4. Strengthening relationships with occupiers to collaborate on sustainability goals:
Owners and occupiers often differ in their views of how to manage and operate buildings. However, partnerships between these two groups can lead to the adoption of ESG solutions.
For example, many owners and occupiers are choosing to engage in ‘green leases’. This term refers to commercial or residential leases that offer financial incentives for reaching carbon reduction and energy efficiency goals, enabling owners to monitor their tenants’ consumption. The Institute for Market Transformation (IMT) estimates the U.S. office market could save $3.3 billion annually if every leased building implemented green leases. By analyzing the data collected, owners and occupiers can work together to set measurable goals and achieve sustainable outcomes.