5 reasons to care about the carbon footprint of buildings

Dr. Jan Linsin, Head of Research Germany at CBRE, speaks of a "flight to quality": "Buildings that do not meet current ESG standards will continue to lose value in the future and may end up as stranded assets."

Michael Eisenmann, Managing Director of Real Blue Kapitalverwaltungs-GmbH, says: "The longer a transformation strategy is not implemented, taking into account the carbon footprint and in particular the economic outlook of the portfolio, the greater the negative impact on operating cash flow will be.”

Despite the lack of specific requirements on energy and CO₂ savings, the market is already responding. Why is that?

Stéphane Villemain, Head of Sustainable Investment at Ivanhoé Cambridge, suggests anticipating regulation to get ahead of the market. Perhaps that is what is already happening.

And there are good reasons for it:

1. A long-term goal has been set: climate neutrality by 2050.

Europe wants to be carbon neutral by 2050. This also applies to real estate.

Regardless of what happens or does not happen in the coming years in terms of regulation: In 27 years, buildings will no longer be allowed to produce emissions. For property owners and managers this means, they need to start decarbonizing now in order to have enough time for the energy transition.

2. Carbon prices will rise

The price of CO₂ has not been very high. But that will change. The financial pressure to emit fewer greenhouse gases will increase.

Dr. Paul Kowitz, a policy adviser to property companies, expects "dramatic price jumps".

Hermann Horster, Head of Sustainability at BNP Paribas Real Estate, says in this discussion: "We are going to see carbon prices in the next ten years - most people have no idea how high they will be."

3. Energy efficiency boosts ESG performance

As energy consumption and emissions fall, the ESG scores of buildings rise.

Three-quarters of all respondents in CBRE’s global survey "Strengthening Value Through ESG" say that reducing energy consumption and carbon emissions is the top ESG consideration most likely to impact property value.

84% of respondents say that measures to reduce energy consumption impact their decisions on real estate transactions.

4. Strict reporting requirements

The new ESRS standards are currently being developed to implement the CSRD Directive, taking into account the three pillars of ESG and the taxonomy regulation. This will include a lot of specific obligations to disclose the carbon footprint of buildings and measures to reduce it.

5. Carbon footprint becomes the new currency

The CRREM tool has long used the unit kg CO₂e/m². Caala, which specializes in carbon footprinting, now calls it the "new currency in the world of buildings".

Sabine Heß, Senior Manager at Swiss Life Germany, and Tina Froböse, Managing Partner at Select Hotel Consulting, regard the carbon footprint as "the most important sustainability factor in real estate reporting" for investors.

And Matthias Schmusch, Partner, Strategy & Transactions, Ernst & Young, confirms: "CO₂ emissions and ESG metrics will become important drivers of climate policy in the future."

Conclusion

There are plenty of good reasons to decarbonize buildings and portfolios. Better start now before it's too late.