Decarbonisation of built environment will require multifaceted effort

14 September 2017 Consultancy.uk

The Paris Agreement laid out a key framework to bring the global economy in line with the reality in which it operates. While various efforts are ongoing to meet its key target, the built environment has received less attention than transport and energy. A new report considers current requirements and trends towards decarbonisation of the built environment, including barriers to success.

While much of the business environment appears to be focused chiefly on its profit goal irrespective of future outcomes, concern is increasingly being raised about whether the marginal benefits of increased short-term profit outweigh the longer-term benefits of shifting towards more sustainable, socially and environmentally friendly, economic models.

A new report from Ecofys, which last year joined forces with Navigant, has explored the decarbonisation process across various sectors. The 'Faster and Cleaner 2' report is drawn from the recent Climate Action Tracker decarbonisation series. The Climate Action Tracker consortium consists of Ecofys, Climate Analytics and New Climate Institute.

This particular briefing looks at three key sectors, buildings, vehicles and electricity generation. 'Faster and Cleaner 2' highlights that, while energy and transportation has seen increased focus and effort, the building sector is only in the initial phases for decarbonisation.

Built environment emissions

The built environment will need to considerably reduce its direct carbon equivalent footprint to meet the 2 C target, at between 70–80% reduction of direct emissions from the building sector by 2050, while for the 1.5 C target, a reduction of 80–90% is required. Indirect reductions too will be required, although they fall under power sector for the purposes of the report.

The report notes that, given the late start, considerable effort will be required to decarbonise the built environment. To meet the 1.5 C target, all new buildings would need to be zero-energy by 2020 in OECD countries and by 2025 in non-OECD countries, while refurbishment rates would need to increase significantly, at 5% of floor space renovated per year in OECD regions and 3% per year in non-OECD regions.

The research points to a relatively complex picture, with long-term decarbonisation meeting difficulties on various fronts. For the US and the EU, relatively higher direct and indirect emissions density per area are offset by relatively lower total floor area. For China however, the relative boom in total floor area means that its relatively lower energy density will be offset by total growth.

Building sector emission per capital and total

As a result, the US and China will vie for the highest total emissions from the building sector between now and 2030. Current trends in the US market will see its emissions profile improve slightly, while the Chinese profile will plateau from around 2020. The EU is projected to see slight decreases, while India will continue to rise. Mexico, meanwhile, is relatively stagnant. In terms of emission density per capita, however, the US remains dominant, followed distantly by the EU and China.

Zero emissions

The report notes that “we have known how to build zero emission buildings for several decades.” The technology and skills are, therefore, already present to build zero-emission buildings. To achieve implementation however, the firm notes that a concerted effort will be required, including a set of “ambitious policies and best practices in policy”, which will need global replication in line with local circumstances.

A set of interdependent and mutually amplifying initiatives are also recommended in the report, including “regulatory measures, such as building codes and standards; informational instruments, such as energy labels and mandatory energy audits; direct market intervention instruments, including public procurement; economic instruments, such as tradable permits, taxes, and financial incentives; and voluntary agreements, such as industry related agreements.”

Adoption of residential IECC

Current efforts vary considerably between regions. Many EU countries, for instance, fall under a new EU Directive that requires all new buildings in 2020 to be nearly zero-energy buildings (nZEB), as well as increased improvement to renovation – although the report notes that this does not go far enough yet. The US also has various, often state-mandated efforts. However, the current political environment in the US remains out of touch with reality, which means implementation is likely to be delayed.

The report notes however that, in terms of cost, most nZEB and ZEB buildings pay for themselves over their respective lifetime – various structures can be implemented, which means that deep refurbishment of current stock towards ZEB can pay for itself too.

The major barriers to change remain complex, highlighting structural issues within current economic models and alignment to long-term sustainable growth. Aside from initial capital costs, the principal-agent problem, creates barriers, as does the length of occupancy relative to building lifecycles. Further issues pertain to a lack of awareness about longer-term benefits of ZEB buildings, and a lack of skills to design and build ZEB buildings, particularly in developing economies.

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Private equity firms ramp up sustainability focus

19 April 2019 Consultancy.uk

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.