Real estate: our pathway to net-zero carbon

Georgie Nelson and Dan Grandage,
Private Markets Environmental, Social and Governance

Climate change is one of the largest threats to the planet and society today. Carbon emissions make up approximately 75% of the harmful greenhouse gas emissions that cause warming in the earth’s atmosphere. Real estate is carbon intensive and contributes to approximately 40% of global greenhouse gas emissions. This is because of the materials used in construction and the energy used in utilities.

Aberdeen Standard Investments (ASI) is committed to playing a constructive role in the decarbonisation of the global economy. We believe that this is in the long-term interests of our clients and we incorporate this into our investment decisions. We plan to tackle the transition risks associated with climate change by targeting net-zero carbon by 2050 for our real estate investments. This includes all direct real estate, new real estate funds and acquisitions over that time period. As such, we have set out a detailed framework for how we will achieve this.

We plan to tackle the transition risks associated with climate change by targeting net-zero carbon by 2050 for our real estate investments

What is net-zero carbon?

Net-zero carbon is when greenhouse gas emissions into the atmosphere can be balanced by their removal over a specific time period. The Paris Agreement has set this goal at 2050. For real estate, this means that carbon emissions – as a result of all activities associated with the development, ownership and servicing of a building – are zero or negative.

Our net-zero carbon journey didn’t just start this year, though. It has been a continuous evolution, with a long-standing focus on reducing energy consumption and carbon emissions. We do this through our energy-management programme, procuring renewable energy, installing on-site renewable energy generation, and implementing new energy-efficient technologies.

Achieving net-zero carbon

Our framework sets out the strategic actions we are taking at both the ASI and fund level. ASI’s direct real estate portfolio is global and diverse across multiple funds, with approximately 1600 properties. Given the size and complexity of our real estate business, we designed the framework as an instruction manual for our funds to follow. It sets the direction of travel and the rules of engagement. However, each fund can define its own journey and pathway to net-zero carbon.

We expect that some of our funds will move faster than others and some funds may want to set an earlier net-zero target. But all funds must follow the framework to ensure a level playing field and comparability with the wider market. To ensure the necessary focus and momentum, all funds must produce their own net-zero carbon pathway by the end of 2025.

Benchmarking our progress

In order to understand whether our buildings are on track with a 2050 net-zero carbon pathway, it is important to compare their carbon intensities to third-party benchmarks. We use the Carbon Risk Real Estate Monitor (CRREM) as the primary tool to understand how our properties are faring. The CRREM tool has mapped out the carbon intensity pathway to meet net-zero carbon requirements for each country in Europe. It covers multiple property types and will expand over time to cover countries outside Europe. It assesses many asset types and it takes grid decarbonisation into account.

The challenges of achieving net-zero carbon

We are at the start of a transformational journey. We do not yet have all of the answers and we may not have all of the questions, either. However, we are aware of some key challenges that we and the wider industry need to overcome.

One of the main challenges is understanding and measuring our carbon footprint. Landlords are not always in direct control of the operational carbon emissions associated with the assets they own and manage. There are also issues with collecting data from occupiers and with the current estimation benchmarks not covering all property types or geographies. Other challenges include a lack of definition and agreement in the real estate industry over a net-zero definition. And there are problems associated with carbon offsetting and the lack of a formal net-zero carbon certificate or consistent building guidance for the industry.

In short, it is up to each landlord or developer to work out how they will achieve their own net-zero carbon targets. The global and diverse nature of ASI’s business makes this challenging. We need to find models and standards that we can apply across all assets and jurisdictions. We believe this framework is the keystone to achieving net-zero carbon positions across all our real estate assets by 2050.

RISK WARNING

The value of investments, and the income from them, can go down as well as up and you may get back less than amount invested.

The views and conclusions expressed in this communication are for general interest only and should not be taken as investment advice or as an invitation to purchase or sell any specific security.

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Risk Warning

Risk Warning - The value of investments, and the income from them, can go down as well as up and you may get back less than amount invested.