By Professor Tom Wainwright, School of Business and Management
Relevant United Nations’ SDG goals:
Since the 2015 Paris Agreement, many sectors and individual companies have risen to the challenge to commence the decarbonisation of their operations. The latter refers to measures taken to reduce carbon footprint, by addressing greenhouse gas emissions involving carbon dioxide (CO2).
Media attention has often focused on the pressing need to reduce carbon emissions in energy intensive sectors associated with heavy industry, or aviation, for example. However, one sector that has been more broadly overlooked concerns real-estate. While initiatives such as the World Green Building Council’s Net Zero Carbon Buildings Commitment, have focussed on the sector’s decarbonisation, what is perhaps surprising is how many real-estate developers, through to building inhabitants, have disregarded the scale of the sector’s carbon output and the urgent need for decarbonisation.
On the one hand, this is a deliberate act to avoid the cost implications faced by some developers, owners and investors operating with short-term capital strategies. Just this week, it was revealed that decarbonising the UK’s public buildings will cost £25-30bn. Private investors are often unwilling to invest additional capital in low carbon designs as it can reduce their returns. On the other hand, we are perhaps just unaware of the issue. Our homes and places of work can be substantial carbon emitters. However, we don’t view buildings in the same negative light as other polluters, or necessarily demand change from landlords – or ourselves.
The World Green Building Council estimates that 39% of global emissions originate from buildings and construction. Creating new assets generates 11% of the total through ‘embodied carbon’, integrated into the fabric of buildings, through materials and construction processes (preparing concrete creates substantial emissions). Once complete, 28% of operational carbon emissions emerge from building lighting, temperature control and energy needs.
Beyond that, it is a mixed picture. For example, in 2018, financial services firm and property investor, Legal and General announced the alignment of its strategic priorities with UNSDGs. ESG mandates and screening processes can see ‘dirty’ buildings rejected as investment opportunities. Alternatively, some private equity investors are more interested in a quick profit turnaround, perhaps with some “greenwashing”. Smaller landlords in the private rental sector have signalled their intent to sell homes rather than improve energy efficiency, as they cannot afford the upgrades themselves.
New technologies to reduce carbon have been broadly celebrated and can be incredibly novel. For example, replacing embodied carbon through alternative materials like mycelium – ‘mushroom bricks’. However, more traditional technologies including energy recycling from air-conditioning to heat water, or smart building controls to drive energy efficiency, or even just double glazing and insulation have the potential to reduce operational carbon, but also operational costs: housing associations have found that micro generation technologies not only reduce carbon emissions, but also energy bills for tenants.
Data – making carbon visible
Our research suggests that the sector is held back in its recording of carbon data. If it can be measured and reported upon, it can be easier to affect change. For example, real-estate financing can be cheaper for developers and landlords, if their portfolios meet ESG characteristics. To be able to demonstrate these credentials, data is needed to reassure investors and to establish accurate pricing. This is much more difficult when the data available is opaque or unreliable, which is not helped when there is no industry-wide consensus or set of standards on what data should be used to measure a building’s level of ‘carbonation’.
The Sustainability Reporting Standard shows that developers and asset managers need sector specific standards that capture and keep track of carbon data. Benchmarking is vital. Ideally, this should be shared in formats that are easy to digest for building users. The cost-of-living crisis and increase in energy bills go hand in hand with the need to reduce carbon emissions and increase energy efficiency. Now is the time to reconsider how we value and choose where we live and work, based on carbon emissions and energy efficiency.