Take a look around – the built environment surrounds us. It’s no secret that man-made structures and infrastructure contribute heavily to global pollution. The built environment has a significant impact on the changing climate we are experiencing.
The buildings sector alone contributes to 40 percent of global carbon emissions, inclusive of construction and operation. Decarbonizing the sector is crucial to achieving the commitments made under the Paris Agreement and the United Nations Sustainable Development Goals. When done right, decarbonization not only addresses global environmental challenges, but can also contribute to cost savings, social equity, tenant and employee health and well-being.
The 2015 Paris Agreement provided a directional shift in global decarbonization efforts, with the long-term intention to limit global warming to well-below 2 degrees Celsius. Stakeholders are increasing their demands for action, and the factors driving decarbonization of real estate include:
At the same time, the price pathways and adoption rates of clean technology are significantly challenging the economics and performance of traditional energy systems, while shaping the opportunity for a transition to clean energy.
Social Impact: The Broader Purpose
The impacts of decarbonizing real estate are far reaching. Beyond emission reduction, it can improve the quality of life among tenants, employees and the surrounding community. Specifically, real estate has the power to positively impact two significant social issues today:
Where Do You Start? How Far Do You Go?
Energy use in buildings for lighting, heating, or cooling leads to direct or indirect CO2 emissions. Building materials, such as steel and cement, also carry embodied carbon resulting from their mining, processing, manufacturing, transportation and installation. With carbon embedded in nearly every phase of building construction and operation – where can decarbonization begin?
Decarbonization starts with an accurate measurement of the carbon footprint across the operations and value chain, as well as an assessment of climate-related risks and opportunities that might impact the business across different time horizons and potential future scenarios. Such an understanding helps establish the foundation for defining long-term decarbonization targets. Integration of climate and social impact considerations into strategic and operational business plans helps real estate companies to meet or exceed stated goals and targets. It’s important to define the appropriate metrics to track progress against targets and strategy, and refine—or establish—the processes and controls required to deliver effective measurement and continuous improvement.
Reducing greenhouse gas emissions from building operations and value chains involves making strategic carbon abatement and investment choices to meet targets such as energy efficiency, electrification of energy sources, deploying new technologies, building design, and innovation in building materials. It is important to consider procurement, financing, accounting, and tax implications as part of defining and deploying these choices.
Given the interdependence of a building with a wider value chain, effective decarbonization necessitates partnership with tenants, utilities, suppliers, the community and employees to meet common goals and capture shared value.
In For The Long Haul
Decarbonization won’t happen overnight. It’s a long-term journey where integration of climate considerations across the organization will be key to success. Establishing the appropriate governance and oversight by defining management and board roles and responsibilities, and tying decarbonization to remuneration and accountability policies, is essential to driving the business toward its long-term goals. Embedding climate into different business-function decision-making and transformation efforts, defining climate-risk appetite, and integrating climate considerations into enterprise risk management enable the business transformation toward a low-carbon future.
While tracking performance and monitoring emission reduction efforts, it is important to also measure the impacts and effectiveness of decarbonization through cost savings, risk mitigation, social impacts, and reputation enhancement opportunities. Finally, it is essential to consider a disclosure strategy in line with recognized reporting frameworks and standards to enable effective communication that supports decision making, enhances trust, enables partnership, increases transparency, and strengthens access to capital.
Michelle is a Senior Manager at Deloitte’s Sustainability & KPI services in the United States. She assists clients in the management of Environmental, Social and Governance (ESG) factors to uncover opportunities, manage risk and add value across different industries and company types. Her experience is focused on ESG risk and opportunity analysis, materiality assessment, scenario planning, and ESG impact measurement and reporting, in line with recognized standards and frameworks. Prior to joining Deloitte, she worked with renewable energy and landfill gas to energy developers on GHG accounting and carbon offsets in the Middle East, North Africa, Turkey and North America, under voluntary carbon standards. She has a Master of Sciences in Environmental Technology specialized in Environmental Economics and Policy.
Meadow is a Manager at Deloitte’s Sustainability & KPI services. Meadow has cross-sector experience in the delivery of financial statement audits and the performance of work in the sustainability field. Her areas of focus include the performance of sustainability risk assessments, stakeholder engagement, measurement, strategy, reporting and assurance services. She also undertakes work related to sustainable finance, impact investing, scenario analysis and transitional climate risk and opportunity assessment. Meadow has been recognized for championing youth education in climate change, including: acting as a representative and youth advisor in Paris during COP 21, working as a One Young World Ambassador since 2015 and serving as a UN Youth Assembly delegate. She has a BBA from Villanova University and is an Energy Policy and Climate Master’s candidate at Johns Hopkins University.