Report: Real estate sector’s inaction on climate change could increase costs by $2.5trn

Costs could rapidly rack up without proper climate mitigation and adaptation

That is according to a new briefing for investors published today (15 February) by ShareAction.

The responsible investment charity’s new ‘Decarbonising Real Estate: Foundations for Success’ briefing outlines how a ten-year delay in action on climate mitigation and adaptation across the global real estate sector would result in trillions of dollars of additional costs. Sources of costs include physical damage to buildings from extreme weather events; higher utility bills; stranded assets and retrofitting.

While noting that many large real estate businesses are front-loading the action on decarbonisation needed – often due to pressure from their investors or from policy, as the global net-zero movement gathers momentum – the report warns that many firms are not acting quickly enough to comply with new climate regulations, which in some cases are not even Paris-Agreement aligned.

Specifically, it highlights the ways in which the UK’s Future Homes Standard and EU frameworks including the Energy Performance of Buildings Directive are “raising the bar” on requirements for businesses across the property life-cycle, from construction to operation. ShareAction is warning that companies which fail to meet the “high bar” set by stricter climate policy will “likely be a loss-making investment”.

Voluntary standards are also being rapidly and broadly adopted as best-practice across the sector, the briefing highlights. The World Green Building Council’s (WorldGBC) Net Zero Carbon Buildings commitment calls on signatories to deliver buildings that are net-zero in operational carbon by 2030 and to advocate for a global sector that is net-zero on a lifecycle basis by 2050. ShareAction notes that if these targets are to be met, the embodied carbon of all new buildings will need to fall by 40% by 2030 and that 5% of the global stock of existing buildings will need to be retrofitted every year.

Call to action from investors

ShareAction works specifically with investors and, as such, the briefing outlines how they can engage with real estate firms in their portfolios to help accelerate the transition to a low-carbon, climate-resilient built environment.

It recommends that investors require all firms in the buildings value chain to set net-zero targets for 2050 at the latest, covering emissions from all scopes and backed up with short-term and mid-term milestones.

Such targets should form part of broader, “plausible” climate strategies, ShareAction states. It defines plausibility in terms of connection to overall business strategy and spending plans, plus consideration of scenario analysis on climate risk and likely carbon pricing trajectories.

Scenario analysis is a key facet of the Task Force on Climate-related Financial Disclosures’ (TCFD) framework of recommendations. Disclosure in line with this framework is being mandated for certain businesses in some geographies, including the UK, but the Task Force has warned that many firms with commitments are not following recommendations in full.

ShareAction’s report summarises: “Investors will need to position themselves to avoid headwinds, but also to harness new opportunities resulting from the transition. Engaging with companies along the value chain is a key tool that investors have at their disposal to ensure the viability of holdings in a net-zero carbon future.”

Mission Possible: Achieving a green recovery for the built environment

edie’s Mission Possible campaign has evolved to focus on the green recovery, with a new series of reports outlining the challenges that businesses in key sectors face in relation to the coronavirus pandemic, and the opportunities that the green recovery will bring. 

One of the sectors highlighted is the built environment. The Mission Possible: Green Recovery report for this sector is supported by E.ON and features an exclusive viewpoint from UK Research and Innovation. It outlines and analyses the results of edie’s green recovery survey of 243 sustainability and energy professionals and also summarises in-depth discussions with a steering panel of sustainability experts from some of the world’s most respected construction and built environment firms in the vanguard of sustainability leadership.

Click here to download the free Mission Possible report. 

Sarah George

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