London Property Giant Enters The Murky World Of Carbon Offsetting

Let’s get straight to the point: Carbon offsetting has a bad rep. So why has one of London’s biggest and best-regarded property companies just announced it is bringing forward by five years its plans to start offsetting its carbon emissions?

“We recognise that the carbon offset market is nascent, but the stance we’re taking is we’ve got a climate emergency, and we can’t wait until it’s a perfect functioning market,” Tor Burrows, Grosvenor Britain & Ireland’s executive director of Sustainability and Innovation, told Bisnow. “We’ve got to be part of making it better. We’re going in to this with our eyes open.”

Grosvenor, which owns £6.7B of property directly and manages another £3.4B, is one of the many companies that in the past few years has set out a target to become net-zero carbon, meaning its portfolio removes as much carbon from the atmosphere as it emits, in its case by 2030. And it is one of the firms that is most openly and visibly wrestling with a fact that is not often acknowledged in the debate about how real estate can play its part in cutting global emissions: reducing emissions is going to be hard and messy, and it will involve contradictions, mistakes and difficult decisions about when to compromise and when to shoot for the moon. 

Carbon offsetting is the perfect example. As Olivier Elamine, chief executive of German office landlord Alastria, pointed out on Bisnow’s Office Politics podcast earlier this year, it can be a bit misleading, even dangerous, when property companies say they are going to become net zero. It is impossible for a real estate owner to entirely eliminate its carbon emissions: If you build or operate a building, you’re putting carbon into the air. To pretend otherwise is a type of greenwashing, Elamine said. 

So to become carbon neutral, to take out of the atmosphere as much carbon as you put in, real estate firms need to get into the world of carbon offsetting. But that world is opaque at best, and some argue it actually hinders rather than helps the effort to reduce emissions.

What is carbon offsetting? For a detailed explanation take a look here. But in short, it is funding any project that takes carbon out of the atmosphere. Since trees remove carbon from the air and store it, schemes that plant or preserve forests play a big role in the carbon offset world. There are also schemes that fund new technology aimed at removing carbon from the atmosphere. 

A carbon offset market has developed in recent years, and companies can now just buy an offset to counteract a certain amount of carbon they will emit, without really knowing how that offset will go about its aim. 

Both Greenpeace and Friends of the Earth say a big chunk of the carbon offset projects that companies can fund are pretty useless. Friends of the Earth pointed to a study by the European Commission that showed that about three-quarters of the carbon offset projects it examined would have happened even if they weren’t funded through an offset scheme, meaning no additional carbon was being removed from the atmosphere as a result of the offsets companies had paid for. Only about 2% of the schemes it looked at had a high chance of taking additional carbon from the air.

And even if new forests are planted, it can take 20 years for trees to mature and start achieving the carbon reductions promised by offset schemes. And if trees burn down or are chopped down, they release all their carbon back into the atmosphere anyway.

“You could cover the whole world in trees and it wouldn’t be enough,” Burrows said. 

Where offsetting becomes actively dangerous is in the way it can influence behaviour and perception.

“Heathrow and BP would love for everyone to think they can continue with business as usual with no cost to the climate,” Greenpeace Campaigns and Communications Officer Alia Al Ghussain wrote. “But the truth is that the need to cut carbon emissions means they will have to change the way they operate — and there’s no way around that.”

If people think they can just offset the carbon they emit, they will be less bothered about actually reducing their emissions, she argues. 

The offsetting plan that Grosvenor announced last week lays out the complexity of the choices that will need to be made if the world is going to reduce carbon emissions to the point where global warming does not have a cataclysmic impact. 

It was previously planning to offset all of the emissions it cannot cut by 2030, but it has brought that date forward to 2025.

“We know we’re going to have to offset some emissions, so why wait?” Burrows said.

By the end of 2021 it will have offset all of the carbon it emits as a business, such as those from operating its own corporate offices. And by the end of 2025 it wants to have offset all of the emissions it can’t reduce from the buildings it builds and operates, and from its supply chain. 

Burrows said the company is fully aware of the argument that offsetting emissions means you might not be incentivised to cut them.

“Reduction is still paramount,” she said. “If you’re happy just being carbon neutral then you’re not going to focus on reducing your emissions. It’s not credible just to offset and say you’re carbon neutral.”

With that in mind, Burrows said the company is on track to hit its target of reducing its emissions by 52% by 2030, and it will offset the rest. Grosvenor said that its emissions dropped by 20% in 2020 compared to 2019, but she said pandemic-induced lockdowns played a big part in that drop.

So how to go about offsetting the emissions in a way that drives real change? Burrows said Grosvenor is in the process of picking a partner to provide advice on how to offset in a legitimate way, and she said it will be transparent about the offsetting projects it chooses. 

She said Grosvenor will align itself with the University of Oxford principles of what constitutes a good quality offset. One problem with the carbon offsetting market is that it is unregulated and there is no agreed-upon definition of what constitutes an effective offset, but Burrows said leadership at Grosvenor feels this is a good standard to adhere to.

The company has said that it wants to make sure the offsets it undertakes can be accurately verified and aren’t double counted, for instance where two companies claim the same offset. It added that it wanted to make sure its investments are genuinely additional, i.e. it is not investing in a scheme or a technology that was going to happen anyway. And it said it wants to invest in schemes that have an additional benefit for the community where they are happening. 

Burrows said many of the offsets Grosvenor undertakes will have a focus on nature, such as tree planting, forest fire prevention or soil carbon enhancement. Some of this will happen on its own rural land holdings, some external to the company’s holdings.

But it will also make venture capital-style investments in companies that are pioneering technology that takes carbon out of the atmosphere, or are working on solutions to make the built environment more sustainable, such as low-carbon cement. Burrows said these would not form the main plank of its offsetting activities, because they carry the risk of not working — but if they did work, the potential benefits for the environment are huge. 

There is a hard-nosed business reason for bringing forward Grosvenor’s offsetting plans, Burrows said. As well as helping the carbon offset market to mature, by getting in early, Grosvenor also thinks it will save itself some money. Carbon offsetting, she said, is something the real estate industry is going to have to engage with, whether it wants to or not. 

“The main point is that we just need to reduce our carbon footprint as much as we can because there's a climate emergency,” she said. “But governments are working on their own carbon budgets, and it is inevitable that there will be more legislation around this.”

Burrows laid out the maths. Currently a good quality carbon offset will cost you about £20 per tonne (she added that offsets could be purchased for about £3 per tonne, a figure which she said is “embarrassingly cheap”). 

Grosvenor said it anticipates that, as the market matures and more companies start utilising offsets, increased demand could push that price up toward £85 per tonne by 2030. By funding offset projects now and locking in that lower price, it is saving money in the longer term.

“We know we’re going to have to do this,” Burrows said.