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Does an emissions scandal await the real estate sector?
In September 2015, news broke that Volkswagen (VW) had been selling cars in the US that had a so-called ‘defeat device’ that could detect when they were being tested and change performance to improve results.
Modifying an environmental test and masquerading as ‘doing the right thing’ will obviously have no meaningful impact on the environment. You would expect that everyone would have learnt lessons from the car industry’s shameful episode.
However, it is possible to identify another industry that is attempting to self-regulate its environmental standards in a bid for green bragging rights. And that industry is real estate.
What has the VW scandal got to do with the real estate sector?
Firstly, much like the car industry, the real estate sector has one of the highest carbon footprints of any sector. It currently contributes 30% of global annual greenhouse gas (GHG) emissions and consumes around 40% of the world’s energy, according to the UN Environmental Programme.
Secondly, the real estate sector does not seem to be regulating its emissions or pathway to net zero carbon (NZC) in any co-ordinated fashion. There is a danger that participants are relying on lazy metrics that are easy to achieve and will lead to no real reduction in GHG emissions.
Analysing real estate companies from around the world, investing in many different types of real estate, means we are well-placed to identify hollow promises made by industry participants.
Why are the sector’s green credentials problematic?
The industry’s focus is almost exclusively on ‘operational’ carbon rather than on the ‘embodied’ carbon. This is a short-sighted and controversial methodology.
Operational carbon comes from the daily usage of a building, from actions such as heating, lighting and cooling. This is different to the embodied carbon, which is the emissions created in the process of manufacturing materials required to construct the building. The key components of any development are concrete and steel, both of which produce significant carbon emissions.
It is therefore nonsensical that a building can claim to be ‘green’ or net zero carbon (NZC) when it ignores the environmental cost of building the asset. A building cannot be truly net zero until it has paid back or offset its initial carbon debt (the embodied carbon) and has also considered what happens to the building at the end of its life.
The key issue for the real estate sector is that there is no widely adopted market mechanism that aims to reduce embedded emissions. On the contrary, by focusing on operational energy consumption, the owners of many buildings are not even aware that new construction is contributing to the climate crisis instead of helping.
How can the real estate sector prevent its own emission scandal?
The major impediment to success is the lack of agreement within the sector as to which sustainable metrics to focus on. As you would expect, there are vested interests that can make for difficult discussions.
In addition to the focus on operational carbon, there must also be a ‘whole life cycle carbon’ assessment for new developments, something that regulators in the Netherlands have forced on developers since 2013.
The sector must move forward together, only then will significant progress be made. From being the focus of controversy in 2015, the car industry is now becoming a case study for reducing GHG emissions. For the real estate sector, the direction of travel is clear: act together to enact positive change before it is too late.
