In the case of real estate industry, investors follow different approaches to set or meet targets, involving both the companies themselves and the assets under management, with a variety of limits on the sources of emissions tracked by the index.
Achieving carbon neutrality is based on the action of mitigating greenhouse gas emissions through offsetting. This approach balances the emissions released against those avoided (through the purchase of third-party carbon reduction systems) or those taken out of the atmosphere (through carbon removal systems). This approach makes it possible to reduce current emissions without directly involving the company, while at the same time it can remove past emissions from the atmosphere.
However, the offsets have to be of "high quality" and additional to other strategies, as companies risk being accused of "greenwashing" on the one hand, which can damage their brand and reputation, and on the other hand of actually harming the climate.
Moreover, this market is very far from compensating for the volume of emissions carried out annually. On a purely commercial basis, offset costs are projected to rise and, without emissions reductions, drive companies to costs well in excess of their budgets.
For its part, net-zero carbon is also about balancing emissions, with the added key element of minimizing them over time, making offsets a last resort. As net zero is an intermediate stage towards (truly) zero carbon emissions, offsetting is necessary for emissions from sources that cannot yet be fully net zero – in the case of real estate, embodied carbon. However, minimizing emissions in the portfolios themselves overcomes the quantitative limitation faced by carbon offset schemes.
However, due to its scope, the concept of net zero emissions is much more difficult to define, both in practice and in theory, than carbon neutrality. It's an ever-changing goal: Which emission sources should be targeted for reduction? How much do emissions need to be reduced before we count on offsets? How will these requirements change over time?
Currently, more and more real estate companies are aiming to wean themselves off fossil fuels, prioritizing improving energy efficiency. Regulators, investors and tenants, in turn, are pushing for operationally efficient, low-carbon properties.
In this context the most important element is the quantification of emissions, as we cannot manage something that is not measurable. Although the question of what to measure is relatively simple, gathering the required data is much more difficult than one might assume, due to the variety of lease types and the different entities called upon to pay utility bills and, therefore, , to own said data.
Despite the fact that the built environment is one of the biggest "culprits" for global carbon emissions, there is a significant lack of a common approach regarding both the definition and the strategy to achieve net zero emissions.
If the real estate industry is to effectively be transitioned to a low-carbon future, definitions must be aligned to provide market players with reliable, consistent guidance. For their part, market players must also maintain dynamic strategies if they wish to continue to align with best practices, following developments in scientific recommendations.
(source: GRESB)
