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The Consequential Moment for Zero-Carbon Real Estate Portfolios

We are at a consequential moment of moving towards a zero-carbon economy. Can the real estate sector still meet its ambitious zero-carbon targets despite new legislation and an economic climate marked by political and social turbulence? It can if we pinpoint winning solutions that dial down energy and carbon quickly.

As Europe accelerates the mechanisms towards a zero-carbon economy, we are watching the strategic planning processes for Real Estate investors and developers shift gear from complacency to urgency.

A blend of sustainability, ESG and engineering advisory services is in high demand for portfolio management. This is changing the scale of decarbonisation strategies and reporting, by moving decision-making from single project sustainability features to corporate level strategy definitions regarding asset portfolio decarbonisation, both in the short- and long-term.

In context: Energy Crisis and ESG Legislation

Following a significant reduction of gas deliveries from Russia, the European Council adopted a regulation on a voluntary reduction of 15% on natural gas demand, in Q3 2022. The Council mentioned the possibility of triggering a “Union alert”, making the reduction mandatory if circumstances required it, and we saw serious discussions taking place on gas storage, securing EU gas and electricity supplies, diversification of gas supply sources and routes, critical infrastructures, and energy prices.

More attention was also given to collaborating with relevant energy expert groups to ensure access to energy, risk preparedness and cross-border coordination. Accordingly, in the Real Estate sector, investors, developers, asset managers require more strategic and technical support for their cross-border or cross-sector portfolio of assets, to quickly reduce energy consumption to remain resilient and not risk devaluation in view of the energy turbulent context and climate change risks.

Over and above reducing CO2 emissions, the dramatic impact of energy prices is now impacting clients’ immediate and medium-term budgets and planning, and energy performance and energy resilience are becoming key criteria of choice when deciding which buildings to occupy or invest in.

Adding to the pressure on the Real Estate sector is the introduction of an Environmental, Social and Governance (ESG) regulatory framework for Europe with new legislation that impacts directly on how building performance is addressed, managed, reported and improved at many levels. EU Taxonomy, SFDR (Sustainable Finance Disclosure Regulation) and CSRD (Corporate Sustainability Reporting Directive) are now topics that are increasingly on the table in discussions between clients and our Strategic Engineering advisory. Previously the need was there, but not yet the demand at corporate decision-making level. The reality is now quite different!

ESG legislation now introduces an immediate need to comply with its framework when erecting new buildings, renovating old ones or transferring ownership. Moreover, ESG impacts the value of assets directly because the framework needs to be adopted by companies and asset managers as fundamental to financial planning, valuation and transparent reporting. The cost of decarbonising assets is thus becoming a strong factor when attributing value to real estate, more so than legacy and conventional concerns such as location or proximity to transportation nodes.

" The cost of decarbonising assets is thus becoming a strong factor when attributing value to real estate, more so than legacy and conventional concerns such as location or proximity to transportation nodes.
Ana Cunha Cribellier CSR Director | Strategic Sustainability Advisor

Four Routes to Relieving Pressure

Asset owners and tenants are aiming to reduce their energy costs now (short-term), while building owners and investors are aiming to minimise their assets’ risk by carefully planning and budgeting their portfolios’ decarbonisation (long-term).

To support real estate teams find winning solution we follow four routes to pinpoint their pressure point:

  1. Effective energy auditing: to understand energy consumption and monitor performances.
  2. Reliable feedback mechanisms: to identify opportunities for reducing energy consumption (cost) and impact (carbon).
  3. Automated monitoring: to improve data availability and quality, with smart buildings and digital transition solutions.
  4. Credible reporting: to enable reliable reporting and benchmarking and support market transparency regarding the sustainability of investments.

It is essential to design, renovate or transform buildings for long-term sustainability and resource-efficiency, with an infrastructure that is flexible enough to provide resilience at short notice and in the long-term.

Equally important is the need to design buildings for smart operations, with an elevated level of digital readiness allowing the ability to self-regulate, interconnect and generate reliable monitoring information and data.

Here’s where we meet high demand for quick wins

Increasingly clients, including tenants, are expecting Deerns to identify measures that can be actioned immediately, such as thermostat adjustments, air flow rates, lighting with motion detectors, maintenance guidance or systems optimisation, together with advice on possible relocation and densification of workspaces. These short-term interventions and adjustments are aimed at providing an immediate reduction in energy consumption while, at the same time, fostering the development and implementation of long-term decarbonisation strategies designed to add resilience and meet regulatory requirements.

This urgent need to generate both short- and long-term solutions is no longer about deciding the performance of a single building but rather about developing resilience and cost projections for a whole portfolio of assets from a sustainable life-cycle perspective. Engineering is now being included in the planning process from the earliest stages of project inception, with our sustainability professionals taking a central advisory role in corporate and financial decision-making. Deerns is working on forward-thinking solutions to leverage this consequential moment towards a zero-carbon economy in real estate asset portfolios.

Let’s talk

Ana Cunha

CSR Director | Strategic Sustainability Advisor