Investors need transparency to judge the full impact of net zero carbon initiatives on real estate valuations

Report created with experts at Carbon Intelligence explores the impact of a net zero future and why investors need to take action now

IPSX, the UK’s newest stock exchange, together with their partner, Carbon Intelligence, have published a new report revealing the full impact that ‘net zero’ carbon emission initiatives are likely to have on the valuations of UK commercial property and what action real estate investors and owners now need to take.  

Net Zero refers to the balance between the amount of greenhouse gas produced and the amount removed from the atmosphere and is increasingly a metric used by investors to assess vital ESG standings of investments. Today, real estate is responsible for almost 40% of energy and process-related emissions – a fact not unnoticed by investors who are increasingly calling for reductions.

The UK Government is committed to a 78% reduction in greenhouse gas emissions by 2035. Before then, around 90% of UK buildings face reduced valuations as new laws with more stringent energy efficiency standards come into effect. The report makes clear that assets without net zero plans will depreciate significantly over the next five years. It goes on to explain that the transition to net zero carbon emissions will change real estate valuations, as investors seek to avoid assets at risk of stranding and penalties associated with non-compliance.

"By not investing CAPEX now into a long-term net zero strategy, not only will you miss out on the short term advantages associated with a building that drives high tenant demand due to minimal energy costs, prestige, and ESG credentials. But you will also have to invest the same or more to deal with obsolescence as a result of non-compliance, voids, and capital deprecation of the building," said Oliver Light, Real Estate Commercial Director at Carbon Intelligence.

Drawing on expertise from across the industry, the new report is a detailed look at the many ‘net zero’ factors impacting real estate valuations, the opportunities these present and the risks involved.

David Delaney, Group Chief Executive of IPSX commented “We are very pleased to work with Carbon Intelligence to help support the publication of this new report. We see it as important to help real estate owners and our issuers optimise the efficiency of their buildings and significantly reduce the amount of CO₂ that buildings produce. Investors need actionable data to help benchmark a building’s energy efficiency performance in order to make informed investment decisions. This cannot be tackled without the involvement of asset owners and investors. Our mission as a new stock exchange is to make asset reporting ever more transparent, helping investors understand exactly how assets that they are investing in are performing”.

IPSX’s relationship with Carbon Intelligence sees assets admitted on the International Property Stock Exchange benefit from clear guidelines on how they should be reporting and managing both embedded and operating carbon emissions.

Read the full Net Zero and Valuation report