By Giulia Peretti, Sustainability Officer at Real I.S. AG
For some time now we have all been aware that climate change is a serious problem that affects the whole world. The 2015 Paris Climate Agreement’s objective of limiting global warming to 1.5 degrees compared with pre-industrial times was reaffirmed only recently by the participants of the World Climate Conference (COP 27) in Egypt. However, the opinion increasingly voiced around the world is that this critical climate target cannot be achieved. There pressure to act is massive. The real estate industry is also aware of this, especially as it faces major challenges on the road to decarbonization. After all, the building sector is responsible for a good third of greenhouse gas (GHG) emissions and around 40 percent of energy consumption in the European Union.[1] The question is now: Where do you start to improve the energy footprint and emissions of a property? One thing is for sure: A key role is played by the existing stock. This is where the greatest potential for reducing consumption and GHG emissions lies dormant.
Our path to a "green" portfolio begins with goal setting and stocktaking.
First and foremost, it is important to set goals. We at Real I.S. have anchored sustainability as a key component of our corporate mission statement, and we aim to make the entire real estate portfolio climate neutral by 2050, and the German portfolio by 2045.
The second step – and also the most challenging – is to analyze the properties in the portfolio. The major hurdle here consists of obtaining the relevant data to assess what investment and actions are needed for each property during the holding phase in order to make it ESG-compliant and to initiate the right measures. So-called green leases under which tenants contractually agree to provide their consumption data, among other things, are helpful here. These "green" leases are being concluded more and more frequently at our company. They help us to record consumption data and initiate efficient measures that are optimally geared to the property. In Australia, for example, we recently succeeded in signing the largest green lease deal in the history of the Real I.S. Group with the Australian government - for 19,000 square meters of our office property in Melbourne's Central Business District. As part of the ten-year lease extension, the building will undergo extensive refurbishment. This green lease deal underscores our strategy, with a proactive implementation of our ESG goals.
This approach also applies to our cooperation with Deepki in the collection and analysis of consumption data. Deepki is a leading provider in the field of ESG data intelligence and gives us a platform - "Deepki ready" - for collecting and analyzing usage and ESG data from the properties we manage. Both property-related and tenant-related consumption data is collected. All consumption data is then analyzed and benchmarked, against the decarbonization path, for instance. This allows us to make adjustments at an early stage and generally increases transparency, also in terms of ESG reporting. At the same time, this is an example of how we use innovative digital technologies to implement our sustainability strategy.
CRREM and energy audits highlight the need for action and investment.
The Deepki platform complements our established standard audits of acquisitions and existing properties, the CRREM analysis and our in-house ESG scoring. We use the Carbon Risk Real Estate Monitor (CRREM) to rank all existing properties and generate an overview of which properties currently meet climate targets and which property will exit the decarbonization path and when. Furthermore, the energy audits enable us to determine the possible measures and the corresponding investments that serve to improve energy performance, thereby achieving the Paris targets.
This procedure involves a detailed analysis of energy consumption and the structural condition of the property, as well as the plant technology and other ESG features. This additional procedure allows even more targeted conclusions to be drawn about which investments can be sensibly implemented in which timeframe.
These analyses may reveal "failing assets", i.e., properties that will not meet climate goals during the investment period. In the case of properties like these, there are nevertheless often opportunities for meeting the decarbonization pathway with retrofit measures. Making buildings that are not yet ESG-compliant more efficient can often be worthwhile. Society also derives benefit, as this approach helps improve the building stock. Moreover, "failing" properties lose value, so it is also in the interests of our investors that we invest in the sustainable quality of these properties or make investment decisions early on.
We have firmly integrated CRREM into our transaction processes and examine properties at the time of purchase while also assessing the long-term transitory risks.
Practical measures – even seemingly small steps – can make a big difference
Once the analysis processes have been completed, the next step is practical implementation. This does not always require elaborate remediation measures. For example, we use artificial intelligence to reduce emissions and save energy relatively quickly and efficiently. Energy savings of up to 30 percent can be achieved by optimizing the building structure using modern software solutions. Measures such as converting lighting to LED are also easy to implement and have a significant impact in large buildings.
An important focus area in our selection of measures is photovoltaics. We will install photovoltaic systems at our properties - where possible and technically feasible. This will enable us to produce "green" energy on site and thus cover consumption, while significantly reducing emissions. A good example is our logistics property in Wijchen, the Netherlands, where we have installed 10,782 photovoltaic modules on the roof. This system reduces carbon emissions by around 2,000 tons a year.
Conclusion
The real estate of the future is "green", there is no doubt about that. There is still a lot of catching up to do on the road to climate neutrality and in driving sustainability forward in the real estate industry, but the sea change is well under way. We at Real I.S. are also taking responsibility, developing ourselves further and harnessing new technologies to make our portfolio worth more than twelve billion euros fit for the future.