UK Sustainable Housing Boosted Against Mixed Backdrop
Latest GRESB real estate benchmark shows embodied carbon emissions are missing from most net zero plans.
Real estate investors with an eye on environmental and social impact got an uplift this week after the UK government announced £550 million (US$714.5 million) in commitments to “get Britain building again”.
Schroders, Man Group and Resonance were named as asset managers backing the government’s ambition to increase access to social and environmentally sustainable housing, as well as providing support for the homeless.
Man Group announced a £100 million investment for housing across England, 90% of which will be designated as affordable with a low-carbon footprint.
Meanwhile Schroders Capital Real Estate Impact Fund, which invests in properties that deliver a positive social and environmental impact, received a £50 million investment from Homes England, a government agency.
The announcement coincides with real estate reports that paint a mixed of the industry’s efforts to better incorporate environmental and social factors, including transitioning to net zero by 2050.
This year’s Global Real Estate Sustainability Benchmark (GRESB) results, which covers US$7 trillion in gross asset value, highlight “significant progress in energy savings, emissions reduction, water conservation, and the enhancement of human well-being”.
GRESB also reported that 65% of participants have set net zero goals, which represents a 15% increase on last year.
Further, 94% of participants were found to be incorporating resilience into their climate strategies.
GRESB provides standardised and validated ESG data to financial market participants, including benchmarks for sustainable real estate and infrastructure investments. This year’s benchmarks covered 2,223 real estate and 887 infrastructure participants globally.
Embodied carbon reporting gap
According to GRESB, just 29% of real estate participants have incorporated embodied carbon – which refers to greenhouse gas (GHG) emissions generated during the construction process – into their net zero plans.
According to Ollie Morris, Sustainability Asset Advisory Lead at real estate investor CBRE, the failure to take account of embodied carbon will make a material difference to achieving net zero.
“Historically, investors in the built environment have focused on reducing operational carbon emissions, which currently account for 70% of a building’s emissions. As these emissions reduce through tightening regulation and the decarbonisation of global energy grids, embodied carbon emissions begin to contribute a much larger share – over 50% by 2035.”
Since the embodied carbon of their built assets is often the biggest emissions reporting gap for companies, “it is essential to identify and address the associated embodied carbon emissions of buildings in order to deliver against both organisational and national net zero carbon commitments”, said Morris.
Charles van Thiel, Director of Real Estate Standards at GRESB, said the board is focused on helping its members measure and mitigate embodied carbon in the future.
He said: “Embodied carbon is certainly a topic that requires a lot more attention in the industry. We have new suite of more than 10 changes across all three components of the [GRESB] standards, with a particular focus on measurements of embodied carbon and disclosure of those measurements.”
Stranded assets
A second recent real estate report identified further green transition challenges for the sector.
ESG data intelligence provider Deepki surveyed more than 250 commercial real estate firms across Europe, finding that just 20% of asset managers describe their understanding of the carbon footprint and energy efficiency of their portfolios as “excellent”, while 46% said it is “good”.
The remaining third of respondents said their appreciation of their portfolio’s environmental impact is “average”, which Deepki says suggests “real estate managers across Europe would need to up their game if they are to comply with the raft of new standards and regulations sweeping the continent”.
These include the Energy Performance of Buildings Directive (EPBD), which provides a framework for member states to reduce emissions and energy use in buildings.
The Deepki report makes clear the financial impact of a failure to upgrade building stock.
Almost all survey respondents (94%) said that the level of financial risk faced by organisations was high either in terms of reduced asset value, or from difficulty in finding tenants willing to rent properties with sub-standard ESG credentials.
Around half of respondents said that more than 30% of their assets are currently stranded due to loss of value from poor energy performance.
Time to deliver
CBRE’s Morris said the UK and EU’s real estate sectors were taking steps to both understand and improve their carbon emissions.
“Growing recognition around the importance of embodied carbon in addressing the climate emergency and delivering net zero, supported by increasing research, dedicated working groups and industry initiatives, is driving real change in how we perceive ‘sustainable’ buildings.”
Morris said the real estate sector is well equipped to address net zero targets and become more sustainable through a combination of top-down regulation and businesses addressing embodied carbon to minimise reputational and commercial risk.
“This is increasing reporting across the UK and in EU member states. It is now time to ratchet up the work and start delivering against the commitments so many have made,” he added.
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