Carbon Risk Real Estate Monitor announces decarbonisation plan

The Carbon Risk Real Estate Monitor (CRREM) has announced the public release of decarbonisation pathways for the global real estate sector, and the finalisation of the tool to identify and manage transition risks for individual assets.

The pathways will reportedly help market participants meet the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The downscaling pathways published today on the CRREM website identify annual energy- and carbon-intensity trajectories until 2050 across real estate markets and sectors that are consistent with keeping global warming below 2 degrees Celsius.

This is a policy goal endorsed by most municipal and national governments and thereby constitutes a plausible scenario against which future climate-related transition risk can be assessed.

The major investors supporting CRREM aim to establish it as a global standard for developing long-term decarbonisation pathways in the real estate sector based on a transparent and scientifically rigorous methodology.

CRREM covers 28 countries in Europe, North America and Asia-Pacific across the commercial real estate sector, including retail, offices, and logistics, as well as the residential sector.

According to the organisation, real estate plays a major role in combatting climate change.

The construction and operation of buildings accounts for 39 percent of energy-related greenhouse gas emissions globally, and much higher percentages in densely populated urban centres.

This exposes the real estate sector to significant climate-related transition risk as governments have started to impose increasingly stringent regulations on energy use and emissions from buildings to meet their own climate goals.

Regulatory risk around energy and carbon is shaping market and technology trends in the real estate sector.

As temperature is projected to rise 3.8 degrees Celsius under current legislation, the decarbonisation pathways aligned with 1.5- and 2-degree global carbon budgets reflect significant reduction requirements beyond current legislative requirements.

CRREM estimates that the carbon-intensity of the building sector will globally have to decline from currently approx. 52 kgCO2e/m2/pa to below 10 kgCO2e/m2/pa by 2050 in order to be in line with the 2-degree global carbon budget.

Such a scenario would have significant implications for long-term asset planning and risk management in the sector – especially for developed countries which in some cases are facing 100 kgCO2e/m2/pa as a starting point for office buildings (based on a whole-building approach).

Calculation of the global reduction targets and the derived national targets for different asset classes in the real estate sector create added-value for investors.

Added value for example includes the transparent analysis of carbon risks, calculation of the abatement costs and analysing the correct timing of retrofit measures that are needed to minimize climate-related transition risk.

Along with the pathways, CRREM also finalized the development of a tool to manage stranding risk for individual buildings.

All information required is aligned with the information GRESB collects at the asset level in order to assess and benchmark the performance of real asset portfolios. The software is Excel-based and has undergone a significant testing phase. It is available on the crrem.eu website.

The decarbonisation pathways were developed by the Austria-based Institute for Real Estate Economics (IIÖ), with technical support from GRESB.

The initiative was funded by APG, PGGM and Norges Bank Investment Management (NBIM) and received further support from Japan’s Government Pension Investment Fund and Ivanhoé Cambridge.