- European real estate association Inrev is to sign a licence agreement with CRREM, consolidating its position as the key property climate transition risk standard.
- The move follows other partnerships announced this year by influential data providers and standard-setters like SBTi, Epra, MSCI and PCAF.
- CRREM is set to release an updated, more granular set of decarbonisation pathways later this year.
Property owners, ever more alert to rising climate risks, are increasingly seeking ways to measure and reduce their assets’ energy use and emissions alongside calls for more real estate industry collaboration.
One initiative gaining particularly strong momentum is the Carbon Risk Real Estate Monitor (CRREM), a transition risk measurement tool that provides decarbonisation pathways for different property types and geographies (see chart below). It uses data from GRESB, an increasingly popular global sustainability benchmark for real assets.
CRREM, which has seen its take-up notably accelerate in 2022, will later this year update and expand its pathway coverage and looks set to further solidify its status as a key standard.
New Inrev agreement
Just last week (22 September), for instance, the management board of the influential European Association for Investors in Non-Listed Real Estate (Inrev) approved signing a licence agreement with CRREM, Capital Monitor has learned. Inrev has 497 corporate members, which include 121 of the largest institutional investors and 40 of the 50 largest real estate fund managers, says Johlyn da Prato, the association’s director of marketing and communication.
The details of the deal still need to be worked out and officially signed by both parties, after which Inrev will make a formal announcement, including what the partnership means for its members, she tells Capital Monitor. “We are now in discussion with CRREM to better understand how we can use their pathways to help support our members with the immense changes our industry is facing,” da Prato adds.
Another important industry body that seems likely to agree a tie-up with CRREM is the US’s National Council of Real Estate Investment Fiduciaries (NCREIF), an industry executive tells Capital Monitor.
For now, though, it is not set to announce such an agreement, says NCREIF president Dan Dierking. “We have had a few discussions within the membership regarding CRREM and their pathways, but nothing formal at this point.”
CRREM is still being evaluated for NCREIF and the US, he adds. “We have an ESG committee looking at the tool, and any decision would likely come in a few months.”
In the meantime, CRREM is adding granularity to its pathways, having increased the number of data partners it works with globally, says spokeswoman Julia Wein, an associate at the Institute of Real Estate Economics in Wörgl, Austria. It will release the updated versions later this year, which will include individual pathways for the 15 largest cities in the US, she tells Capital Monitor, as well as for more property types generally and for each climate zone in Australia.
Decarbonisation transition risk can stem from rising costs due to the pricing-in of carbon emissions and other factors such as high energy costs, stringent building codes and shifts in market expectations, says the UN Environment Programme Finance Initiative. It is separate from physical risk to property – that related to extreme weather and other climate-driven consequences.
Achieving critical mass?
CRREM has certainly “turned a corner” in terms of its industry adoption, says Hans Vrensen, head of research and strategy for Europe at AEW, an €87.7bn ($87.1bn) US property asset manager. He is on CRREM’s scientific advisory board.
The tool has emerged as the “de facto industry standard for climate-related transition risk”, said Boston-based AEW in a report published this month. “Its adaptation by many leading industry groups and firms is a testament to the forward-looking approach of its pathways.”
Similarly, US property services firm CBRE acknowledges that CRREM has become widely adopted worldwide in an April paper on transition risk in commercial real estate.
“The first step in achieving greenhouse gas reduction is more collaboration among investors, regulators, insurers, occupiers and others within commercial real estate,” says the CBRE report. “More data availability and transparency will lead to better informed decisions.”
Accordingly, several important data providers, associations and standard-setters have unveiled partnerships with CRREM this year. They include the European Public Real Estate Association (Epra), the Partnership for Carbon Accounting Financials (PCAF), index provider MSCI and the Science Based Targets initiative (SBTi).
After agreeing in April last year to develop common guidelines for how to measure carbon emissions for real estate companies, PCAF, CRREM and GRESB completed a consultation on 28 June this year on technical guidance to that end.
Also in June, MSCI said it would embed two decarbonisation pathways into its climate value-at-risk model .
Prior to that, Epra announced in April it was teaming up with CRREM to educate Epra members, and the listed real estate sector more broadly, on the application of CRREM resources. The association then in July launched guidelines for how to manage net zero targets using CRREM.
That came after the SBTi and CRREM joined forces in January, in what was seen as a very significant move, to provide property decarbonisation pathways. SBTi is an independent regulatory body that approves companies’ carbon-cutting plans and is widely considered one of the most reliable benchmarks for tracking them.
CRREM is also collaborating with the UNEP FI, Wein says, and is seeing more property owners and investors using its data. They include Japan’s huge Government Pension Investment Fund; real estate investment trusts (Reits) such as Hong Kong-based Link Reit and Germany’s Alstria and Vonovia; US property developer and managers Greystar and Hines; National Australia Bank; and CBRE.
Growing take-up among Reits
Link Reit, for instance, piloted the adoption of CRREM in the past year to identify stranded assets, stranding year and retrofit costs, it said in its 2021/2022 sustainability report in June. The analysis has helped the Reit monetise transition risk for operational carbon emissions and identify Paris Agreement alignment on property level target setting for the 1.5°C and 2°C scenarios, it adds.
With CRREM and SBTi now aligning their methodologies for operational real estate carbon emissions, Link Reit says, CRREM will be widely used for the property sector to set targets under the SBTi net zero standard.
What’s more, of the many Reits that are now using CRREM, some – such as Vonovia – report on the progress they have made against its pathways, says AEW’s Vrensen. This is significant, he argues, because if enough Reits decide to follow suit, private investment firms will likely have to do the same, because many investors are happy to own real estate via either funds or Reits.
Momentum certainly appears to be favouring CRREM and its affiliate initiative GRESB – both funded by Dutch pension asset managers APG and PGGM and Norwegian sovereign wealth fund Norges Bank Investment Management. The tool has now been applied to at least 5,500 properties, representing more than 70m square metres of interior space, Wein says.
Of course, there are other decarbonisation standards, such as that from the World Green Building Council. But they tend to be consensus-based, says Derk Welling, senior responsible investment and governance manager for global real estate investments at APG. CRREM is more rigorous and transparent because it is science-based, he adds.
CRREM: work to be done
Still, there remains work to be done, suggests Charlotte Jacques, head of sustainability for real estate at Schroders Capital in London.
Like CBRE and others, she wants to see increased collaboration between industry bodies. The fact that SBTi and CRREM are working together is helpful to provide a common methodology, Jacques says. “We need this in other areas, such as with TCFD [Task Force on Climate-related Financial Disclosure] metrics, a net zero definition, etcetera.”
Meanwhile, GRESB – which rates real assets on their sustainability – includes a significant weighting to data coverage rather than outcomes, Jacques says. “We are awaiting information on their five-year roadmap and how they will introduce an outcomes-based approach – which is needed to drive decarbonisation.”
Nonetheless, CRREM is undoubtedly moving closer to becoming, as APG’s Welling envisaged, the common metric for measuring property assets’ alignment with the 2015 Paris Agreement goals. And if that is achieved for one sector, the hope will be that the same can happen in others.