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August 16, 2022

Real estate: Investors tackle lack of carbon emission data

Property arguably receives less focus than it should as, by some measures, the world's most-polluting sector. In the first in a series on how big investors are approaching the sector, Capital Monitor looks at the challenges involved and how the landscape is evolving.

By Joe Marsh

buildings emissions data, real estate
A tall order: capturing buildings’ emissions data from tenants is a challenge for asset owners. (Photo by RoschetzkyIstockPhoto via iStock)
  • Pressure is growing on property owners to cut building emissions, both in terms of embodied carbon and operating carbon.
  • Investors find building emissions data hard to obtain, especially that relating to tenants, but developing standards and policy are helping.
  • Influential institutions such as Allianz, APG and Schroders are focusing on this challenge.

Real estate – from the materials and energy used in its construction through to how buildings are lit, heated and cooled – is unquestionably a huge polluter. Arguably, in fact, the biggest by sector, given that it accounts for 30% of greenhouse gas (GHG) emissions and 40% of energy usage, according to the UN Environment Programme. Some put property-related emissions as high as 40% of the total.

Yet the sector attracts far fewer negative headlines and far less criticism from climate campaigners for its impact on the environment than, for instance, the energy industry does. For instance, Climate Action 100+, an investor initiative representing $68trn in assets that is focused on reducing emissions, lists 166 ‘focus companies’ it views as key polluters – but the list contains no real estate firms.  

This is all the more surprising given that property assets – into which €4.1trn ($4.18trn) was invested at the end of 2021 – are seen as relatively low-hanging fruit for investors to address in their efforts to decarbonise their portfolios. Real estate is the asset class where energy usage and thus emissions can be reduced most directly and quickly, by retrofitting buildings, says Günther Thallinger, chair of the sustainability board at the €2.25trn German insurer Allianz and a board member responsible for investment management.

Tenant emissions

What is more difficult is managing down the energy usage of tenants occupying those buildings, he tells Capital Monitor. “That is the area where perhaps you can do the least [to reduce emissions],” at least partly because it requires obtaining data from tenants on energy usage, which is no easy task.

Occupier-generated emissions form part of the property sector’s Scope 3 emissions – those created by a company’s activities but over which it has no direct ownership or control. These would also include the reporting of emissions generated by construction materials used for a building or of employees commuting to work, says the UK Green Building Council (UKGBC). They typically account for at least 85% of a commercial real estate company’s entire emissions footprint, according to the UKGBC.

Reducing all types of pollution emitted by a building throughout its life is now key. That is, both ‘embodied carbon’ (GHG emissions arising from the manufacturing, transportation, installation, maintenance and disposal of building materials) and ‘operational carbon’ (GHG emissions from a building’s energy consumption).

This is a challenge that is becoming harder for real estate owners to ignore, amid rising regulatory pressure to report on and manage down portfolio emissions. At the same time, policymakers in Europe and the US are helping the cause by tightening requirements on corporate disclosure of energy usage.

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Certainly some asset managers and owners are having growing success in obtaining information from – and working with – property companies and tenants to improve energy efficiency.

“When it comes to industrial sectors, big corporates don’t want to share energy data – so you make it part of your conversation,” says Derk Welling, senior responsible investment and governance manager for global real estate investments at APG Asset Management.

The €553bn ($565bn) Dutch pension fund giant has gone directly to some listed companies that rent assets owned by funds and real estate investment trusts (Reits) to ask them to share their energy data with those landlords, Welling tells Capital Monitor

APG, which has €51bn invested in real estate, now has 68% coverage of data on energy intensity (by kilowatt hours per square metre) and carbon intensity (by kilograms of carbon dioxide per square metre) for its entire real estate asset portfolio, as measured by GRESB (formerly the Global Real Estate Sustainability Benchmark). For its private assets, APG requires 100% coverage across all the deals it does, adds Welling, who leads ESG integration across the fund’s property portfolio.

APG, which has set a target of reaching net-zero portfolio emissions by 2050, has been a key backer of GRESB and an affiliated initiative, the Carbon Risk Real Estate Monitor (CRREM).

Asset owners such as pension funds and insurers sign up to GRESB and request that their asset managers and real estate operators provide data to it. The benchmark had 1,520 signatory firms as of end-2021, a number that has risen particularly quickly in the past two years and which a spokesman says will rise by a further 15-20% this year (see chart below).

Emissions standards gaining traction

CRREM, meanwhile, was launched in 2019 and is partially funded by APG, fellow Dutch pension fund PGGM and Norway sovereign wealth fund Norges Bank Investment Management. The benchmark, which incorporates data from GRESB, has published pathways out to 2050 for reducing energy and carbon intensity for various types of property assets, such as retail, offices, hotels and residential.

All private market managers of property must report to GRESB if they are to run money for APG, says Welling.

And he wants to see CRREM become the common metric for measuring real estate assets’ alignment with the 2015 Paris Agreement goals and sees that as a feasible aim. “We see all kinds of net-zero pledges from real estate companies,” says Welling. “But I really don’t take those into account.” What is important for APG is what share of their asset value is above or below the CRREM pathways.

CRREM is certainly gaining ever stronger traction, having in the past 18 months struck partnerships to work with the likes of the Partnership for Carbon Accounting Financials, index provider MSCI and the Science-Based Targets initiative (SBTi).

Standards like GRESB are becoming more important but it’s not easy to gather the relevant data, agrees Ying Ye, chief investment officer for Allianz’s UK insurance business.

“We registered with GRESB early last year; before that, Allianz UK wasn’t using a dedicated real estate sustainability reporting benchmark,” Ye tells Capital Monitor. “We wanted to understand where our portfolio was against a reputable reporting benchmark so that we could track our progress.”

Allianz UK has asked its property asset manager DTZ Investors to engage with tenants to request property performance data, Ye says, declining to disclose the size of her investment portfolio. “Not everyone agrees to provide the data. It is a process of continuous engagement and improvement. Compared to last year, we have seen a major improvement when it comes to data collection for our GRESB submission this year.”

Real estate reporting environment

Still, it does not help that “the policy environment has not yet caught up with” institutional investors’ needs around sustainability data, Ye adds. She says lawyers have given her examples of cases where tenants have won cases against landlords whereby the courts have backed them in their refusal to provide such data, under the 1954 Landlord and Tenant Act.

However, the regulatory and policy environment is evolving in respect of energy and emissions reporting for real estate.

For instance, France implemented the Décret Tertiaire, or tertiary decree, in July 2010, which applies to commercial property such as offices, hotels or warehouses. It requires building owners to register their energy usage on a nationally supported platform and to reduce their final energy consumption by 40% by 2030, 50% by 2040 and 60% by 2050 compared to a reference year not earlier than 2010. The first report under the law must be filed by the end of September this year.

“We need the regulatory dimension because in many cases electricity is not that significant a factor for a lot of businesses,” says Charlotte Jacques, head of sustainability and impact investment for real estate at UK asset manager Schroders Capital.

She even sees it as possible that regulators will at some point hold commercial building owners – whether property companies or investors – responsible for tenants’ energy use and emissions. “I think it’s a very real consideration,” she says. “We need to address energy resources and efficiency of whole buildings to support decarbonisation of the built environment.”

It seems that, when it comes to building emissions data, as is so often the case, if you don’t ask, you don’t get. As Alastair Green, a partner at McKinsey, wrote in June, real estate owners that make a rigorous effort to get a handle on that data are likely to find lots of ways to make a serious dent in their emissions. “But they need to get started.”

Capital Monitor is hosting the Webinar series, Making Sense of Net Zero. Find out more information on

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