Bridging the gap between net-zero targets and government policy
In June, the Climate Change Committee (CCC) published a report setting out the most pressing climate change risks and opportunities. The report found that current policy initiatives will only deliver one-fifth of the emissions reductions required by 2050. It now falls onto the shoulders of the private sector to drive the sustainable transition to achieve net-zero, writes Ding Li, Senior Strategy Consultant at Longevity Partners.
The past year has seen a host of pledges, promises and policies emerge to incentivise the transition to the green economy. A step in the right direction on paper, but the practical implication of each is difficult to measure. There are a number of competing guidelines and reporting frameworks for reaching net-zero carbon in the real estate sector, each with differing methodologies, and timeframes, making it difficult to work out what these commitments mean.
For instance, the Better Building Partnership (BBP) Climate Change Commitment recommends companies include Scope 3 tenant emission and embodied carbon in the target boundary. Whereas, the Urban Land Institute (ULI) Greenprint Net-Zero Goal covers only Scope 1 and 2 emissions in the target.
The confusion attached to these competing standards means that comparing net zero carbon target commitments in like for like terms can be a real challenge. The ability to pledge without one standard framework to follow opens the door to greenwashing.
As the ESG landscape currently stands, there is a desperate need for a standardised compliance and certification framework to verify companies’ net-zero targets.
Insights, intervention and incentives
The past month has seen two authoritative and actionable ESG standards released. The CCC report found that adaptation measures have failed to keep up with the “worsening reality of climate risk”. But the findings clearly highlight eight key areas that must be addressed as a priority, including food supply and the built environment.
In tandem with this, the Chancellor’s speech on the 1st July saw tangible commitments to greenifying the UK economy, ensuring it remains competitive and innovative. With this, Sunak also announced £15 billion of green bonds that will support decarbonisation projects across the UK economy, while improving climate resilience. Green bonds offer a more affordable source of financing than bank loans, helping reduce the lifetime cost of capital for energy efficiency projects.
As we approach COP26 in November, the conversations and commitments will only ramp up. But it is becoming clear that mandates will likely become necessary to ensure and enforce compliance with net-zero aims. The next few years in the public sector should be dedicated to refining the details of such legally binding ESG agreements.
In this interim, organisations should proactively audit their operations to set their own carbon reduction targets. It is becoming increasingly straightforward for businesses to begin their journey to net-zero. Adopting best practice ESG will always serve as an advantage in the long-term, as regulation and legislation will catch up regardless.
Real estate can make a real impact
The built environment is currently responsible for approximately 30% of global annual CO2 emissions. According to the CCC, 17% of total greenhouse gas emissions in the UK come from buildings. The UN Environment Programme estimates that to stay on track to reach net-zero by 2050, building emissions will need to be cut in half by 2030.
Policy-makers and legislation will demand this sooner or later regardless of business practices, therefore it is strategic to pivot towards net-zero pre-emptively.
The results of net-zero measures equally generate significant financial returns in the long term. Property developers managing environmental and regulatory risk will drive greater value as they are taking a comprehensive and strategic approach to their portfolios. Indeed, 88% of investors believe companies that prioritise ESG initiatives represent better long-term return prospects. And as a result, assets in sustainable investment products in Europe are forecast to outnumber conventional funds by 2025.
Sustainability in real estate is a fascinating microcosm of green finance. The concept of fiduciary duty has been expanding and responsibility to investors now goes far beyond short-term returns. Now, it must encapsulate risk minimising in the broadest sense, as outlined above, and future-proof wealth creation.
Seizing the head start
At present, there is a significant lag between government policy and Paris-proof net-zero goals. But the Treasury is working tirelessly to devise the best strategy to pivot to a green economy. The ambition is there, genuinely being sought-after by policy-makers. Whether it be through mandates or increasingly empowered climate change watchdogs, decarbonisation is no longer up for debate.
To bridge the gap between policy and net-zero outcomes, companies need to pre-empt regulatory changes and take advantage of existing schemes to kick-start their green transition, with the guidance of the CCC and the Treasury’s policies. By seizing this head start to decarbonise, businesses, not least in the real estate sector, will become more financially, environmentally and reputationally resilient.
About the author: Ding Li is a Senior Strategy Consultant at Longevity Partners, a London based management consultancy that specialises in net-zero carbon and sustainability services to the real estate industry. Li specialises in sustainability, environmental science, engineering and management consulting.
