Fund Solutions

Data, Funding Gaps Block Real Estate’s Path to Net Zero 

Collaboration needed to meet Europe’s €2.75 trillion shortfall, according to Green Finance Institute.

Greater urgency is required amongst UK-based investors to ensure their real estate assets are low-carbon or actively transitioning to net zero greenhouse gas (GHG) emissions, according to a joint report by BlackRock and NatWest.

The world’s largest asset manager and one of the UK’s ‘big four’ banks called for an industry-wide collaboration between real estate companies, investors and policymakers to successfully manage the “multifaceted challenges of decarbonisation”.

Globally, the built environment is responsible for 40% of global greenhouse gas (GHG) emissions, according to the World Green Building Council. In order to ensure the industry decarbonises in line with 1.5°C of global warming, all new buildings around the world need to be net zero carbon-aligned by 2030, according to the International Energy Agency (IEA). Further, by 2040, half of all existing buildings need to be retrofitted to also be net zero carbon-aligned and 85% by 2050, the IEA said.

However, the supply of net zero emissions buildings in the UK is currently not sufficient to meet the growth in demand or align with the required transition trajectory, the BlackRock and NatWest report warned.

To address both the energy efficiency of buildings and embodied emissions, the report outlined three pillars of focus for investors, policymakers and real estate companies to effect industry-wide transition to net zero. These are: advancing initiatives and solutions avoiding emissions; reducing emissions by transitioning to renewable energy; and offsetting any emissions that cannot be eliminated.

Due to the high proportion of UK buildings expected to be still standing by 2050 – roughly 80% – BlackRock and NatWest focus on the urgency of retrofitting existing properties, the supply of renewable energy and the sharing of accurate information on energy usage in order to avoid an increase in longer term capital expenditure and depreciation.

“Over the next few decades there will be a significant scale-up of existing technologies that will evolve the existing infrastructure, paving the way for real estate to decrease its carbon footprint,” said the report, which also emphasises potential opportunities for real estate investors.

The successful decarbonisation of properties will also rely heavily on increasing the availability of renewable power in the electricity grid, BlackRock and NatWest said in their report, meaning that investors also need to support the transition to clean energy.

Building bridges 

Earlier this week, the Green Finance Institute (GFI) launched the Coalition for the Energy Efficiency of Buildings Europe (CEEB Europe), bringing together leaders in the finance, real estate and energy sectors, NGOs, policymakers and academia to co-develop innovative financial products that will address the investment gap in decarbonising buildings.

GFI is a UK-based forum for public and private sector collaboration in green finance that aims to overcome barriers to decarbonisation funding across key sectors.

“At COP26, we heard renewed calls for the built environment to fully decarbonise,” said James Drinkwater, Head of Built Environment at NGO Laudes Foundation. “The investment gap to realise these ambitions is huge.”

As part of Built Environment Day at the summit, the UK Green Building Council (UKGBC) launched a Whole Life Carbon Roadmap, which outlines recommendations for a net zero trajectory, policy targets and stakeholder actions to limit global warming 1.5°c. Further, the World Business Council for Sustainable Development (WBCSD) published its Business Manifesto for Climate Recovery, which recommended companies in the construction and real estate sectors: set whole-life carbon building decarbonisation targets; implement building energy codes; and secure public funding for net zero-aligned buildings and infrastructure.

Just to meet the EU’s 2030 climate target, €3.5 trillion of total investment will be needed this decade to decarbonise Europe’s buildings through renovation, the GFI’s new report said, adding that the current investment gap sits at around €2.75 trillion.

“Public investment cannot close this gap alone. With pandemic recovery investments and climate at the top of the EU’s agenda, now is a unique opportunity and crucial moment to mobilise private finance and investment in renovation,” the GFI said.

This follows on from the work of the GFI’s Coalition for the Decarbonisation of Road Transport (CDRT). It recently published its inaugural report identifying barriers to investment in the road transport sector’s transition to net zero and outlined 18 solutions for mobilising public and private finance.

Energy data gaps

In addition to funding shortfalls, information gaps need to be addressed to support real estate transition, with landlords struggling to access accurate and complete energy data for their tenanted space, the BlackRock and NatWest report added.

“In most instances, tenant-controlled energy consumption far exceeds that of landlord-controlled consumption and gaining visibility of what this tenant footprint entails remains a barrier to understanding the energy profile of whole buildings,” the report said.

In order for landlords, and therefore investors, to have visibility of a building’s progress towards net zero, access to accurate and comparable energy-related data is a crucial part of understanding where investment is most needed, it added.

“The real gap is now one of collaboration – across the worlds of finance, buildings, policy and more – to align ambition, and establish the practical instruments that help millions of citizens and businesses bring their buildings up to climate-aligned standards. The CEEB model is leading the way there,” said Drinkwater.

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