View materials, including a recording of the Net Zero: from Ambition to Reality webinar, open to all AREF members and well attended ‘virtually’ by over 160 members on 25th November 2020.
Sam Carson, Director of Sustainability, at Carbon Intelligence, was joined by a expert panel:
- Panellist: Fernanda Amemiya, Sustainability Reporting Manager at Landsec
- Panellist: Sophie Carruth, Head of Sustainability - Europe at LaSalle
- Panellist: Stanley Kwong, Associate Director, ESG Origination and Impact, Real Assets at Aviva Investors
- Panellist: Georgie Nelson, ESG Manager, Real Estate at Aberdeen Standard
The panel shared insight into how their organisations have approached the challenge of net zero through innovative solutions and discussed the main challenges they’ve faced in securing buy-in for their strategy, fighting against greenwash, disparity of definitions in the industry and having to account for multiple asset classes across multiple geographies.
Net Zero has come into focus in 2020 as the key sustainability objective for Commercial Real Estate, even with the backdrop of COVID-19 and related economic uncertainties.
The reason is clear, with the UK’s commitment to Net Zero by 2050, this theory has 30 years to become a reality. The sweeping changes required for the transition to a zero carbon economy will create winners and losers, so developing a plan has become a priority for many.
The definition of net zero
Before we start, what is our definition of net zero? It is to reduce company and value chain greenhouse gas emissions in line with limiting warming to 1.5 degrees, and to balance any remaining emissions by enhancing carbon sinks which remove carbon dioxide from the atmosphere. For Commercial Real Estate this means shifting to all electric energy, powered by renewable sources, and reducing usage in line with the asset’s share of forecasted green energy.
“A net zero carbon building is a building that is highly energy efficient and fully powered from on-site and/or off-site renewable energy sources”
- World Green Building Council
Why it matters
The transition to a net zero world in a deliberate and cost efficient way will require a long term strategy. A Net Zero roadmap is vital for managing the costs and reputational impacts of the climate crisis, and how to reduce the risk of assets losing value because they are not future-proof. For real estate, not adapting to the climate crisis will risk buildings becoming obsolete, and losing value because they are unattractive to let or purchase.
The way many organisations are approaching this is to make these long-term commitments through the BBP and WorldGBC Public Commitment Frameworks. Real Estate is in a fortunate position that these 2 frameworks exist to help coordinate decarbonisation activities across the sector.
In this webinar Sam focused on the BBP Commitment as all the panelists are currently responding to that.
+£300b global AUM of initial signatories, +11,000 assets
- 1.2m tonnes of CO2 associated with the commitment
- In 2020 the 25 organisations committed to BBP will publish their individual net zero carbon pathways
- Operational carbon covering whole building performance
- Embodied carbon of development, refurbishment and fit-out works
- Follow principles of the energy hierarchy
- Annually disclose progress towards their net zero carbon pathways.
- Publicly disclose energy performance of their portfolios. As a minimum at a portfolio level by geography, and ideally at a property level. Also support the development of industry benchmarks.
- 2022: Develop comprehensive climate change resilience strategies for their portfolios and work together to develop consistent industry disclosure on climate change risks.
This framework normalises the discussion of net zero and encourages it to be a considered factor throughout the market and in decision making. It also demands that signatories have active decarbonisation plans which will help catalyse real systemic change throughout the real estate sector.
Decarbonising buildings using green tariffs and offsets alone is possible but expensive. What we need is to improve the energy efficiency of the built environment collectively so that everyone can utilise the finite amount of green energy available. Sam set out 3 key challenges of achieving a net zero portfolio
- Embodied carbon: Measuring and reducing overtime. Includes developments, refurbishments, maintenance and fit-out
- Demand reduction: Energy efficiency in assets, reducing in line with share of green energy available on the grid
- Decarbonisation of Operations: Removing fossils fuels from assets and shifting to zero carbon sources of electricity, in both landlord and tenant areas
Sam then moderated a panel discussion to dig into the panelist organisation’s different approaches to decarbonisation.
Landsec have committed to becoming a net zero business across their 12b portfolio by 2030. Fernanda gave insight into their 5 step plan to achieve this goal.
Step 1. Reducing operational emissions and consumption in line with their science-based target so reducing emissions by 70% by 2030.
Step 2. Increasing investment in renewables to procure 100% renewable electricity and looking to move their procurement towards corporate PPAs. As well as achieve 3 megawatt of on-site electricity capacity across their portfolio.
Step 3. Landsec have set an internal shadow price of carbon of £80 per tonne that they are using in their investment decision to help drive low carbon alternative investments.
Step 4. Reducing carbon emissions when developing new assets. Each new development has a specific embodied carbon reduction target.
Step 5. Once Landsec have reduced their carbon emissions as much as possible they will balance the remaining emissions using offsets.
LaSalle is a global real estate investment management house with $65billion AUM. Their portfolio is made of many different types of investments which makes achieving net zero challenging. LaSalle has adopted a 2-pronged approach. They are currently preparing the net zero pathway for their direct part of their European portfolio to be published in 2020. In parallel they are working on a wider global carbon strategy to move them to net zero.
Sophie highlighted the challenge of there being different drivers for net zero in different regions and implementing a strategy can be more or less challenging depending on the type of real estate investment you’re dealing with directly. For example indirect debt investments remove the physical assets further and further away from direct control so the strategy of decarbonising those assets becomes more challenging.
Georgie shared insight into Aberdeen Standard Investment, who have approximately 40 billion euros of assets under management within real estate - which covers 1600 properties. The BBP Climate Commitment applies to those 1600 properties as they’re within their direct management and as it’s a diverse global portfolio - this has proven quite a challenge.
Aberdeen Standard are using a framework to set their strategy but at the house level that follows the lifecycle of the building and the BBP energy hierarchy. They then provide the ‘instruction manual’ for each of their funds to then carry out their own specific net zero carbon pathway. This means that the whole fund team, who are the experts in that fund and understand it best then work with their ESG team and use the wider framework to apply the best net zero carbon pathway for them.
This approach helps Aberdeen Standard tackle the challenge of trying to apply a one-size fits all approach to their very diversified portfolio as it provides flexibility between funds.
Aviva has approximately £44b AUM again spanning a diverse portfolio. Aviva Investors are currently developing a top-down and bottom-up approach to their net zero investment strategy. The challenge they’re facing is how to shift their investment strategy so they start originating and targeting assets which fit along their net zero pathway whilst also looking at the back book to see what they can do about their existing emissions. Stanley talked through Aviva’s forward looking strategy to enhance their net zero approach and integrate into their ESG origination and impact life cycle and mentioned their hope to develop product off the back of this net zero focus.