NREP, the Nordic real estate investment manager, has introduced an internal carbon tax to incentivise rapid and deep emission cuts across its €18bn real estate assets under management (AUM).

With the real estate sector accounting for 40% of global carbon emissions, NREP said it was taking urgent action to reduce embodied and operational CO2 emissions by between 30% and 50% before the end of 2023.

Its new internal CO2 tax places a monetary figure on the cost of carbon to the business. NREP said tax was now a central factor within its investment decision-making process and would help accelerate its journey towards net zero by 2028.

NREP has also introduced a “green incentive” to motivate project teams to implement sustainability plans that exceed market standards and secure above-average sustainability certifications.

NREP said it was committed to becoming entirely carbon neutral by 2028, encompassing both operational and embodied carbon.

According to a recent carbon pricing report by McKinsey, 23% of approximately 2,600 companies surveyed indicated that they are using an internal carbon charge. Within the real estate sector, just 4% of companies have adopted the mechanism, trailing far behind the energy sector (40%) and the financial services sector (28%).

The real estate market consensus is that the cost of quality carbon offsets is around €30 per tonne. NREP will be adopting the EU Trading System as the primary benchmark, setting the tax at €90 per tonne. The tax for embodied emissions during construction will be paid as a one-off at asset completion and operational emissions generated by existing buildings will be paid annually.

NREP said its carbon tax will be reinvested in its projects to improve sustainability performance and reduce emissions in the most effective, science-based way. Among its initiatives is a carbon capture programme, which will combine well-established methods as well as new technologies such as direct air capture.

Peter Bakker, president and CEO of the World Business Council for Sustainable Development, said: “NREP’s decision to incorporate carbon emissions as a cost directly into investment and operational decision-making through a carbon tax demonstrates leadership at the highest level. It shows how the cost of carbon can be integrated in a clear, measurable way that directly affects the business case and sends a clear signal to the wider built environment industry.” 

Claus Mathisen - photo by Claus Sall

Claus Mathisen, NREP CEO

Claus Mathisen, CEO of NREP, said: “Humanity is facing a code red, and we need action now. Targets set for 2050 or 2040 won’t lead to meaningful reductions fast enough. The good news is that reducing emissions often adds up to a positive business case for construction and operations.

“Sustainability actions are most powerful when they are taken early on and are at the core of a business. Putting a price on carbon is a great motivator. To reduce the CO2 fee as much as possible, our teams are now doing a deep carbon analysis on every building within NREP’s portfolio.

“Our internal carbon tax is a means to an end. It puts us one step ahead in adjusting our business for a greener future, with regulations tightening every year. As such, it reduces risks and drives business value. We see a surge in demand for sustainable real estate, from customers, banks and investors alike. I firmly believe that decarbonising now will equate to a future advantage.”

The carbon tax was piloted earlier this year and is now in full effect for all emissions not eliminated across NREP’s portfolio. Its decarbonising road map includes three ‘earth shot’ projects. NREP is committed to completing these projects by 2025 so they become 100% CO2 neutral, across operational and embodied carbon, without external offsets.

To validate the transition towards net zero by 2028, NREP has set near-term company-wide emission reduction targets in line with climate science with the Science Based Targets initiative (SBTi), measuring its progress against 2020 levels.

NREP has pioneered real estate sustainability with initiatives like the use of CO2 neutral geothermal heating, the largest rooftop solar power plant in the Nordics, the world’s first 100% upcycled concrete building, and ‘UN17 Village’, the first large-scale project to align with all the UN’s 17 Sustainable Development Goals.

To read the latest edition of the latest IPE Real Assets magazine click here.