Inrev, the European Association for Investors in Non-Listed Real Estate Vehicles, has published a new paper entitled ‘Implementing a Net Zero Carbon Strategy’, discussing the challenges of achieving operational net zero carbon in the real estate industry.
In the paper, the industry body urges the sector to move towards a practical and universally accepted approach for operational net zero, despite major challenges owing to the diversity of strategies and market characteristics. PropertyEU talked to Constantin Sorlescu, director of Professional Standards at INREV, about implementing a net zero carbon strategy.
PEU: One of the biggest challenges the sector is facing is adopting a universally accepted definition of net zero carbon. How can this be accomplished?
Sorlescu: Different fund managers have different investment models and run different funds and strategies on behalf of investors with different ambitions. This is mostly why it has been difficult to reach one definition of net zero carbon (NZC). Assets and portfolios in different geographical locations may have different market and regulatory expectations. We have looked at ways to standardise this issue so that it would be easier to prioritise what actions need to be taken. To start with, we have decided to focus on operational carbon and haven’t directly addressed embodied carbon. Operational NZC for real estate is achieved when the net carbon emissions from a building’s operational activities and tenant energy usage is reduced to zero or are negative. This involves minimising energy use, maximising on-site renewable energy production, procuring green energy and offsetting any remaining carbon emissions. Maximising on-site renewables is a major issue. When a company makes its own electricity on site, it reduces the need for fossil fuel, and this needs to be made a priority, while offsetting should only be seen as a last resort. The more transparency there is in the approach to net zero, the better.
PEU: Why does the paper focus on operational carbon instead of embodied carbon?
Sorlescu: Embodied carbon emissions encompass the total GHG (greenhouse gas) emissions produced in the creation, maintenance, and disposal of a built asset. Although we recognise the significant importance of this concept, it is a very complicated concept and it comes with a major challenge: the calculation of emissions. Getting hold of reliable data and calculating the data correctly remains extremely challenging. We would like to collaborate with the wider industry to advance the definition and measurement of embodied carbon in our next paper.
PEU: What is the biggest challenge for a fund manager to achieve net zero at a portfolio level?
Sorlescu: For a fund manager it is not just about one building, it is about looking at the entire portfolio strategically and deciding which assets to keep and which ones to buy or dispose of. One of the biggest challenges is actually balancing the environmental need against other fund priorities as managers prepare for a low carbon economy. Managers may find out that some green initiatives are too expensive or cannot be approved for budgetary reasons, and they can get stuck in this process. But, by selling assets that are
not sustainable to another investor, aren’t they just postponing the much needed transformation of these assets into more sustainable ones?
PEU: What new trends are we seeing in the industry development towards net zero?
Sorlescu: Technology for sure is an answer here. Innovation from technology has become crucial. There are solutions that can be used to track the consumption of energy and reduce wasted energy in the building, there are solutions to collect data and estimate the carbon footprint. Another trend is the swift development of regulations which is why collaboration with the regulator has become very important. Regulations are evolving and will become more and more strict. There needs to be a dialogue to make sure new rules are sufficiently ambitious.
