Will There Be Any Takers For Carbon-Belching Buildings? 4 Key Takeaways From The COP26 Climate Conference
The UN COP26 Climate Change Conference in Glasgow, UK, ended at the weekend. The annual event sees politicians, business leaders and climate activists gather in an attempt to agree policies and initiatives to reduce carbon emissions and limit global warming.
With the built environment accounting for around 40% of carbon emissions globally, in the form of construction of buildings and emissions from building operations, the real estate sector is central to the effort toward global decarbonisation. Here are four key takeaways from the conference that everyone in real estate needs to know.
Private Sector Finance Has A Big Opportunity To Capitalise
Government policies will define the targets that owners need to hit when it comes to decarbonising buildings — how much emissions will need to be reduced and by when. But a lot of the cost of meeting these targets will fall on the private sector. For instance, UK innovation body the Connected Places Catapult estimated it will require £206B to decarbonise the UK’s 12 largest cities alone. Imagine that figure on a global scale.
Fortunately, the money is there to follow through, and the private sector increasingly sees the outlay as an opportunity, not a cost. During the first week of COP26, it was announced there is now $130 trillion of private sector finance aligned with net-zero targets. “The financing is available for the transition,” UK Green Building Council Director of Membership and Partnerships Munish Dutta said on a podcast hosted by business media brand Edie.
If Your Asset Isn’t Sustainable, It May Already Be Stranded
While governments will set the targets building owners need to hit, investors in real estate also have their own carbon-reduction commitments. That is leading them to make investment choices based on sustainability performance, which is increasingly seen as indistinguishable from financial performance. Real estate leaders who attended the conference said it is increasingly clear assets that can’t be brought up to scratch when it comes to sustainability will soon become unlettable and thus unsellable, dubbed a "stranded asset."
“On podiums and in side conversations, my peers were challenged about this stranded asset risk: whether these assets will be modernised or sold, how decisions will be taken and plans implemented, building by building, street by street,” FORE Partnership Managing Partner Basil Demeroutis said. “And not only how, but if this is even possible. From what I heard, while there are initiatives being considered, there are few if any detailed plans in place to deal with potentially stranded assets, nor have these assets even been fully identified within large portfolios."
Treating the inevitable pain that will be inflicted by stranded assets will be a growing theme going forward, he added, "as much as will be giving the booster shot to positive green initiatives.”
Embodied Carbon Rises Up The Agenda
FORE's Demeroutis also identified a shift in focus when it comes to carbon emissions created by the built environment. Until now, a lot of the focus has been on reducing the carbon emitted by a building during its operation — by the HVAC systems, for instance. But between 50% and 70% of the carbon emitted during a building’s lifetime comes from its construction and demolition, including the concrete and steel used to build it. The UK Green Building Council published its whole life carbon roadmap during the conference, something investors across the world can use to set a path for reducing the carbon emitted not just during a building’s operations, but during its construction and demolition as well.
As the conference was taking place, in a potential sign of what is to come on this front, the UK government denied planning permission for a new skyscraper-height viewing tower in the City of London because it would produce a lot of embodied carbon but little social benefit. It specifically cited the embodied carbon creation of the building.
No Simple Answer For Real Estate
Much of the commentary around conferences like COP26 centres around whether the event was a success or a failure. Reaction this year was mixed, with the U.S. and China unable to agree a deal to phase out coal usage and no standout policy on which politicians could hang their hats.
The same is true on a smaller scale when it comes to the built environment. There is no simple answer for how the sector is going to meet the goals it needs to hit or specifics on how real estate will play the part it must in reducing global carbon emissions.
“For the built environment at least, there was no overarching, clarifying, aha moment,” Demeroutis said. “A number of important initiatives were launched, but government, in particular, was notably quiet in terms of the property sector, which of course is responsible for 40% of the carbon problem. Many of us there were hoping for a set of clear, harmonised actions designed to keep the planetary temperature increase below its current 2.7 degree [Celsius] trajectory. This did not happen.”
