Blog | ESG and the built environment
The built environment accounts for as much as 40% of all global Greenhouse Gas Emissions (GHG), according to the World Green Building Council. There is an urgent need for the industry to act as we transition to a zero carbon economy and if net zero targets are to be met by 2050.
The investment world is already moving in a clear direction: 80% of asset owners (including pension funds, financial institutions and insurers) surveyed by Morgan Stanley last year said they are pursuing sustainable investments within their portfolios. As JLL recently reported, sustainable buildings in central London command a 6-11% rental premium. Having a sustainability or wellbeing certification, such as BREEAM or WELL, is a central feature in attracting both occupiers and investors. £120tn is the amount of assets under management by firms signed up to voluntary climate change disclosures.
This is a complex issue. Two of the major sources of emissions in commercial buildings are the operational emissions associated with energy use within the building lifecycle and the embodied carbon of the materials that are in the development, refurbishment, maintenance and end of life of a building. The measurement and reduction of embodied carbon within the property lifecycle is not well developed, despite it being responsible for the majority of a building’s whole carbon impact. More innovation is required to help asset owners reduce this major source of carbon and further high quality carbon removals are required to offset its impact in the short to medium term. Improving carbon efficiencies will require significant capex though not doing it risks devaluing the asset and potentially leading to these assets becoming stranded as they become unattractive to let or purchase.
A report by the Investment Property Forum (IPF) explored the idea of ESG benchmarking in the industry. A recurring theme was the importance of granularity. Through external benchmark tools, the industry has made significant strides in how asset managers report energy use and carbon emissions. However, property needs to go further and focus more on assessing climate change risk at an individual property level not just at the portfolio or fund level. It needs to be able to show investors how individual buildings perform, and goals should capture not just ESG policies, but also impact performance outcomes and operating carbon reduction targets. As an industry, we have a collective opportunity to lead the drive to net zero, providing better buildings which will be cheaper and easier to operate as well as healthier for tenants and our communities.
IPSX, with its focus on individual assets and portfolios of similar assets, helps avoid the issue of stranded assets. Issuers on the exchange will report granular data on their individual assets, giving the level of detail investors need to see before purchasing shares. We will be providing financial data on tenants and encouraging issuers to report an asset’s ESG factors such as energy consumption and carbon emissions. We are working with Carbon Intelligence on guidance for issuers on ESG considerations, obligations and timelines for their assets as well as how to build the business case for net zero. The more information we can share and the more transparency investors have to real estate assets, the better equipped we will be to tackle the challenges of climate change.
By bringing together asset holding companies and investors, we can work together to ensure that the built environment delivers both the economic and the sustainability benefits the world needs.