CRREM makes Decarbonisation pathways for real estate available for public consultation

Green city

Carbon Risk Real Estate Monitor (CRREM) has released its decarbonisation pathways for the global real estate sector and the finalised the tool to identify and manage transition risks for individual assets. 

The pathways will help market participants meet the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The downscaling pathways published today on the CRREM website identify annual energy- and carbon-intensity trajectories until 2050 across real estate markets and sectors that are consistent with keeping global warming below two degrees Celsius. This is a policy goal endorsed by most municipal and national governments and thereby constitutes a plausible scenario against which future climate-related transition risk can be assessed. 

The major investors supporting CRREM aim to establish it as a global standard for developing long-term decarbonisation pathways in the real estate sector based on a transparent and scientifically rigorous methodology. CRREM covers 28 countries in Europe, North America and Asia-Pacific across the commercial real estate sector, including retail, offices, and logistics, as well as the residential sector. GRESB, the ESG benchmark for real assets, is integrating the decarbonisation pathways into its range of information resources covering ESG risks in real estate markets, and the European Commission’s high-level expert group referenced CRREM in its final report on the upcoming EU Taxonomy on sustainable finance in March. 

Real estate plays a major role in combatting climate change. The construction and operation of buildings accounts for 39 per cent of energy-related greenhouse gas emissions globally, and much higher percentages in densely populated urban centres. This exposes the real estate sector to significant climate-related transition risk as governments have started to impose increasingly stringent regulations on energy use and emissions from buildings to meet their own climate goals. 

Regulatory risk around energy and carbon is shaping market and technology trends in the real estate sector. As temperature is projected to rise 3.8 degrees Celsius under current legislation, the decarbonisation pathways aligned with 1.5 and 2.0-degree global carbon budgets reflect significant reduction requirements beyond current legislative requirements. CRREM estimates that the carbon-intensity of the building sector will globally have to decline from currently approximately 52 kgCO2e/m2/pa to below 10 kgCO2e/m2/pa by 2050 in order to be in line with the 2-degree global carbon budget. 

Such a scenario would have significant implications for long-term asset planning and risk management in the sector – especially for developed countries which in some cases are facing 100 kgCO2e/m2/pa as a starting point for office buildings (based on a whole-building approach). Calculation of the global reduction targets and the derived national targets for different asset classes in the real estate sector create added-value for investors. Added value for example includes the transparent analysis of carbon risks, calculation of the abatement costs and analysing the correct timing of retrofit measures that are needed to minimise climate-related transition risk. 

Besides the pathways, CRREM also finalised the development of a tool to manage stranding risk for individual buildings. All information required is aligned with the information GRESB collects at the asset level in order to assess and benchmark the performance of real asset portfolios. The software is Excel-based and has undergone a significant testing phase. It is available on the website. 

The decarbonisation pathways were developed by the Austria-based Institute for Real Estate Economics (IIÖ), with technical support from GRESB. They were developed with the oversight of the newly instituted CRREM Scientific Advisory Committee, comprised of carefully selected academic experts with backgrounds in real estate and environmental sustainability across European, North American, and Asian markets. 

The initiative was funded by APG, PGGM and Norges Bank Investment Management (NBIM) and received further support from Japan’s Government Pension Investment Fund and Ivanhoé Cambridge. It builds on an initial project focusing on the commercial real estate sector in the European Union, which was funded by the European Commission. The Scientific Advisory Committee is comprised of the following members: Dr. Georgia Warren-Myers who is Senior Lecturer in Property at the Melbourne School of Design, Prof. Andy van den Dobbelsteen (PhD MSc) who is Professor of Climate Design & Sustainability at the Delft University of Technology and Dr. Paul Mathew who is a Staff Scientist and Department Head of Whole Building System at the Lawrence Berkeley National Laboratory (LBNL). 

CRREM calls on all relevant market participants, including investors, managers, real estate investment trusts (REITs), green rating systems and other stakeholders, to share their views on the methodology of the decarbonisation pathways and their usefulness in understanding and managing long-term climate-related transition risk in the global real estate sector.