Real estate accounts for nearly 40% of the energy-related carbon emissions in the world. Investors are now focusing on cutting emissions to net zero by refurbishing old properties and avoiding new projects.
Zsolt Kohalmi is the global head of real estate and co-CEO of Pictet Alternative Advisors who recently spoke at an event known as “Sustainability in Practice.” Kohalmi claimed that while a lot of real estate figureheads have the goal of cutting down to net zero carbon emissions, that process is much easier said than done.
Focusing on refurbishment of old properties and avoiding the building of new large commercial spaces is the first step in reaching that goal, however, according to Kohalmi. According to UNEP’s 2020 Global Status Report, 40% of energy-related carbon dioxide emissions come from commercial buildings.
The report also showed that 90% of the buildings built in Europe before 1990 accounted for 45% of the emissions in the air at that time. 80% of today’s buildings will still be with us in 2050 and thus will be contributing even more greenhouse gas emissions as climate change worsens.
“The reduction has to come from refurbishment. It’s possible to cut emissions by 30-70% by refurbishment. One of the challenges in the process comes from the fact there are few common measurements or standards around embedded carbon emissions in real estate.”
Kohalmi explained that buildings with higher ESG standards are already obtaining higher rental values: “Going forward you will pay a premium if a building has improved its sustainability rating. Refurbishment is not easy, but it is our best path to making an impact on overall emissions and creating a climate resilient future.”
The pandemic has added even more pressure to the real estate industry to decarbonise and adopt greener practices when it comes to development and building.
“Office spaces able to offer communal areas and space where employees can gather to share ideas rather than fixed desks will do best. We are seeing a shift between the new and old economy in real estate. Elsewhere, the pandemic has accelerated trends already visible in logistics and retail. The jump in online shopping made a tough ride for owners in retail and has proved positive for investors in logistics,” Kohalmi explained.
“The pressure on the sector to decarbonize coincides with wider challenges for real estate in the wake of the pandemic and the shift to working from home.”
Karen Lockridge is a director for ESG investing and the Canada Post Corporation Pension Plan, which manages a $3 billion allocation in real estate. Lockridge agreed that in terms of commercial real estate, refurbishment is the best way to save money as well as reduce greenhouse gas emissions.
“There is a downside risk of not acting. Unlike most trends which tend to emerge first in the US, demand for green real estate is more pronounced in Europe than the US. It will rebound in the US in due course,” Kohalmi predicted. Significantly reducing emissions is an achievable goal that the industry needs to fight for if we want to see a real change on our planet.
“We must also recognize the fact that new builds, rather than refurbs, will remain the focus in emerging market real estate. The focus has to be on how we can improve the way we do new builds like work around creating more sustainable cement. We have to accept there will be more new builds and become more sustainable when we build,” said Kohalmi.
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