In the Carbon Risk Real Estate Monitor (CRREM) project, APG, PGGM and other investors have taken another step forward in the development of a global method that measures whether a building meets the objectives of the Paris Climate Accord. It is now clear for just about every type of property in a large number of countries how much carbon per square meter they are allowed to emit annually until 2050 in order to stay within those targets.
These so-called 'pathways', or carbon reduction roadmaps, also show how much energy can be used in a building to stay within the Paris targets. That is valuable information for real estate investors and owners, says Mathieu Elshout, Senior Director Private Real Estate Europe at PGGM. “Through our private real estate portfolio, we have invested in approximately 4,000 properties worldwide. Now we can measure exactly how much our buildings are allowed to emit in the timeframe to 2050 in order to stay below the curve of the targets of the Climate Accord. That way you also know when investments are needed in insulation and new installations, for instance."
The new system is a useful planning and risk management tool, agrees Derk Welling, Senior Responsible Investment and Governance specialist at APG. “It takes time and money to make real estate sustainable. The reduction pathways provide a guideline for this.”
There is also a possibility that there will be stricter regulations for real estate. Worldwide, real estate is responsible for approximately 30% of total carbon emissions and 40% of energy consumption. Mathieu: “Europe is now working on a Green Deal. It is not inconceivable that there will be a carbon emission ceiling for the real estate sector. This also makes a system possible where real estate owners are given tradable rights to emit a certain amount of carbon. Those who emit less than they have rights for are therefore able to sell rights. Conversely, polluters have to buy additional rights."
With the help of the pathways, investors can identify in advance what regulations are likely to arrive. By taking these reduction pathways into account in our investments from now on, we can better manage the risks of future regulations and ultimately deliver more value to the pension fund members. Mathieu and Derk are convinced of this. Mathieu: “Just take the purchase of real estate. Whether or not the climate targets are met will increasingly determine the risk profile of property."
In short, Derk and Mathieu firmly believe in the positive effects of these carbon reduction pathways. The next important step is for other major investors and property owners to embrace the initiative. Derk: “The pathways are in place. We are now asking market parties to actively provide feedback on this. We hope that this will enable us to develop a certification that is embraced by the majority of the market. Clarity in the market is needed to make a real impact in making real estate more sustainable."