SBTi: decarbonising real estate in line with climate science

Each year, a growing number of companies consider the impact that the construction, occupancy and use of buildings have on the environment. They are therefore increasingly demanding that their buildings have minimal or zero carbon footprints. This trend, combined with the very real risk of climate change damaging properties and endangering business continuity, is putting pressure on real-estate businesses to decarbonise their operations.

However, decarbonising a business is not an easy process. Technical difficulties aside, quantifying a carbon footprint and setting up a strategy to reduce it will inevitably create many challenges. It was to help companies with the decarbonisation process that the Science Based Targets initiative (SBTi) was created.

SBTi is a globally recognised organisation founded as a joint venture between climate-oriented organisations, including the United Nations Global Compact and the World Wide Fund for Nature. It is tasked with creating a standardised approach to decarbonising organisations in line with the latest developments in climate science. Nearly 3,000 companies around the world, from a wide range of sectors including heavy industries like petrochemicals, mining and manufacturing as well as finance and IT, have joined the initiative to date.

SBTi is essential for mitigating climate change as it provides organisations and their stakeholders with a clear methodology and detailed guidance for defining their decarbonisation targets in line with the Paris Agreement. As a result, it enables organisations to audit, monitor and revise their decarbonisation strategies.

Uptake of SBTi has undergone extraordinary growth in recent years: since the initiative was created in 2015, the number of participants has risen from just 13 to 2,940². The real-estate sector has had a part to play in this growth, with the number of participating companies from the sector nearly quadrupling to stand at 156 today. The combined market share of real-estate companies now involved in the initiative accounts for approximately 40% of the sector’s total³. Moreover, real-estate companies enrolled in SBTi are ahead of the curve: 61% of them have already had their SBTi targets approved (compared with just 46% of participants from other sectors). In addition, nearly three-quarters (72%) of these are committed to the most ambitious 1.5^oC target, which is also above the average. On the subject of targets, 89% of real-estate businesses included Scope 3, while 75% have set an absolute reduction target for their Scope 1 and 2 emissions.

A steady increase in SBTi participants can be also observed among suppliers to and clients of the real-estate sector. Currently, 412 client-end companies from the finance and professional services sectors, and 123 suppliers from the engineering and construction industries, are taking part. Respectively, 43% and 33% have already set their targets. Their ambitions differ, however: 86% of participants from the financial and professional services sectors have chosen the 1.5^oC pathway, compared with just 63% of construction and engineering companies⁴.

SBTi is clearly gaining momentum, and more companies will be joining the initiative in future. These companies will be also setting Scope 3 targets, which in turn will force them to look for greener suppliers, including greener options in leased spaces. This trend is further strengthened by the very active and ambitious approach of the financial and professional services sectors, which are key customers of real-estate businesses. The rather less ambitious approach of the engineering and construction sector may be an obstacle to reaching the target, however, as companies active in this sector represent an important part of real estate’s Scope 3 emission targets.

Finding greener suppliers is not the only challenge when setting SBTi targets. The process is complicated and consists of several steps: calculating the baseline emissions; determining the level of ambition; setting targets and their associated timelines; submitting the targets to SBTi; and finally creating an optimal strategy to achieve them.

Calculating the baseline emissions might be difficult due to a lack of actual and readily available data. Secondly, a company must set operational boundaries (up to 5% of Scope 1 & 2 emissions can be excluded from the calculations, provided a well-argued reason is given) and decide on how to allocate emissions between the Scopes (assuming that the company’s decisions can influence operational control over an asset). This determines the initial level of emissions from which a company will be reducing its carbon footprint: set it too low and reduction targets will be hard to meet. It also determines the volume of emissions to be reduced under each of the Scopes - targets for Scope 1 and 2 must be much stricter and ought to be met sooner than the targets for Scope 3 (because targets set in Scope 3 may be dependent on supplier engagement). However, companies should refrain from moving as many emissions to Scope 3 as possible: not only might this be disputed during an audit, it also counters the real effect and purpose of decarbonisation efforts.

Despite those challenges, SBTi should be viewed as an opportunity. Setting up a decarbonisation target and actively working on emission reduction makes the future of the business sounder and safer. It does this both through respecting customer expectations and by curbing climate change and its effects that can cause financial or physical damage to the enterprise. In addition, improved efficiency means lower operational costs as well as reduced emissions. Moreover, having more and better data on consumed energy carriers means better understanding of the business, which can in turn lead to further financial savings. The growing involvement of real-estate companies in the SBTi shows that many are well aware of those possibilities and are taking full advantage of them.
 

¹„Zerowy Ślad Węglowy Budownictwa - Mapa drogowa dekarbonizacji budownictwa do roku 2050”, Polish Green Building Council, June 2021, page 4

²sciencebasedtargets.org/companies-taking-action (as of May 10th 2022)

³Calculated as sum of reported annual revenue of Real Estate companies engaged in SBTi, divided by value of global Real Estate market, which was based on report “Real Estate Market Size, Share & Trends Analysis Report By Property”,

⁴Grand View Research, 2022 sciencebasedtargets.org/companies-taking-action (as of May 10th 2022)

⁵„Zerowy Ślad Węglowy Budownictwa - Mapa drogowa dekarbonizacji budownictwa do roku 2050”, Polish Green Building Council, June 2021, page 4