Every year, the negative impacts of climate change intensify, yet as UNEP’s Emissions Gap Report 2022 shows, elected officials continue to procrastinate. The report highlights that we are far from the Paris Agreement goal of limiting global warming to well below 2°C, and that incumbent policies are leading us toward a 2.8°C temperature rise by the end of the century. Naturally, this will lead to a number of disastrous outcomes for the Real Estate industry, ranging from decimated asset valuations to disruptions in operations from severe and repeated physical-hazard events (i.e. floods, fires, storms and rising sea levels). The bottom line is this – we must move swiftly from arbitrary targets to tangible policies and legislation in order to create the momentum our planet so desperately needs.
COP 26
You’d be forgiven for feeling lost in the wash of climate announcements stemming from COP26. We were inundated with targets and pledges, obfuscating the outcomes of the conference. Countless non-legally binding pledges were put forward, unaccompanied by documentation and accountable links to national climate plans. Overall, many of these pledges are best described as ‘plans for plans’.
- Within the financial sector, the Glasgow Financial Alliance for Net Zero (GFANZ) was established, collecting signatures from 450 institutions. This coalition has pledged $130 trillion of controlled funds into investments committed to net-zero emissions by 2050. However, voluntary pledges based on illogical AUM figures, problematic net-zero targets and light disclosure mandates simply cannot be credited as a viable solution. Furthermore, GFANZ has already begun to show weakness, with US-based banks threatening to leave in fear of legal ramifications if net zero commitments are not met.
- Updated nationally determined contributions (NDCs) have barely impacted the temperatures we can expect to see at the end of this century. With the exception of India and Australia, few nations have meaningfully updated their NDCs.
- Developed countries in the Global North pledged to take more responsibility for their contribution to global emissions, by negotiating deals and pledging funds to the poorest and worst impacted. However, these are non-binding, and as Greta Thunberg so memorably put it, much of what was pledged has amounted to little more than “blah, blah, blah.”
- More generally, developed countries did not bring forward net zero pledges to 2040, there was too much reliance on undeveloped technologies and carbon pricing remains a rarity (covering around 20% of global emissions).
COP27
After many promises were made to keep the Global Net Zero 2050 objective within reach at COP 26, COP 27 was subsequently coined the ‘implementation COP’. Accordingly, one would expect to see goals that make finance flows a reality, clarify support measures for loss and damage from climate catastrophes, and ensure a managed transition to an economic model based on low-emission and climate-resilient development. So what exactly would success look like for COP27?
- All countries committing to NDCs equating to 2°C or lower.
- Genuine binding mechanisms to ensure that nations comply with their NDCs. Failing that, more detail about how NDCs are to be realistically achieved, and then follow-ups after the meetings to entrench all commitments made.
- A binding commitment to climate finance by developed nations that adds up to what is needed to address climate change and its impacts. Secondly, the set-up of a dedicated loss and damage finance facility to support the most vulnerable countries as they suffer from the increasingly frequent and severe physical impacts of climate change.
- A binding commitment to increase investment in adaptation to help protect against the impacts of physical climate risks and provide the necessary incentives for climate finance to flow into adaptation projects.
Ukraine
It is worth briefly considering whether the Russian invasion of Ukraine will prove to be a setback for the clean energy transition, or whether it will catalyse faster action. The invasion has exposed the fragility and unsustainability of our current energy system, and whilst climate policies were blamed for contributing to the sharp increase in energy prices, there is scant evidence to support this. In the most affected regions, higher shares of renewables were correlated with lower electricity prices. Alongside short‐term measures, many governments are now taking longer‐term steps: some seeking to increase or diversify oil and gas supply; with many others looking to accelerate structural change. Times of crisis put the spotlight on governments, and on how they react – perhaps this could prove to be the sole positive note emerging from this humanitarian crisis.
What can the Real Estate industry do?
Political musings aside, Real Estate has a major role to play in the decarbonisation of our economy. In sum, four major shifts are necessary: (1) energy intensity must be reduced, (2) the emissions intensity of energy use must decline, (3) on-site renewable energy generation must increase, and (4) embodied emissions from construction must be reduced. Fortunately, national governments can assist with this transformation in a number of ways:
- Regulating toward zero-carbon building stock: Requiring all new buildings to be zero carbon in operation and introducing minimum energy performance standards for existing buildings to increase retrofit rates, both accompanied by a comprehensive enforcement strategy. Setting requirements to calculate and monitor these embodied emissions is an important first step.
- Incentivise zero-carbon building stock: Modify cost structures in favour of zero-carbon options through taxes and subsidies, provide incentives for ‘best-in-class’ technologies and practices, improve access to finance, and address the landlord-tenant dilemma.
- Facilitate zero-carbon building stock: Ensure an appropriately skilled workforce and increase institutional capacity for enforcement and awareness-raising.
Conclusion
A sense of radical uncertainty leads many of us to believe that the world can’t go on as it is, but it doesn’t mean that the world can’t go on. It is worth noting that although the climate future looks darker than today, it is also brighter than many expected not too long ago. Nations are moving faster to decarbonise than ever before, yet not nearly fast enough to avert real turbulence. We can turn this around; however that means urgent system-wide transformation, using all of the tools we have at our disposal.
As real estate professionals, we have an enormous role to play in tackling this crisis. We must hold all industry stakeholders accountable for their actions, explore new innovations which can safeguard our assets and continue to direct our capital toward a Net Zero World.
The window is closing – the transformation must begin.