Decarbonization of real estate: a tool to meet the objectives of the Paris Climate Agreement?

The Carbon Risk Real Estate Monitor (CRREM) project has built a scientific tool to evaluate decarbonization trajectories consistent with the objectives of the Paris Climate Agreement.

CRREM brings a new dimension to the real estate sector, particularly for investors, asset managers and fund managers, thanks to the tool's multifunctional features, which :

Allows us to define carbon targets based on a scientific method and aligned with the trajectory set by the 2015 Paris agreements (-2°C or -1.5°C). Each type of real estate asset has its own trajectory;
Analysis on several scales: building, asset portfolio, 2018-2050 timeframe
Calculates reduction costs and proposes a schedule of work to reduce the carbon footprint.
Identify assets in environmental obsolescence.
Helps meet other reporting requirements, including TCFD (Task Force on Climate-related Financial Disclosures) and the EU taxonomy on sustainable finance.

This Excel-based tool is available free of charge (https://www.crrem.eu/tool/) and is easy to use

The CRREM Principles

The decarbonization trajectory

CRREM has a very simple functionality: it produces, without the user having to enter any data, a graph and a table of values for the 2018 - 2050 decarbonization trajectory (-1.5°C or -2°C) for a country and for a building typology. Values are given in carbon intensity (kgCO2e/m²/year).

Example of a 2°C carbon trajectory (Country: France; Type: Office)

Users can study their trajectories for all European Union countries and for a multitude of typologies: office, retail, warehouse, logistics, distribution, warehouse, hotel, hospital, residential, leisure, data center.

How were the targets calculated?

To produce decarbonation trajectories, CRREM uses a 3-step downscaling process:

Three stages in defining typical decarbonization trajectories

From global "carbon budget" to European Union (EU) budget: CRREM uses data from the International Energy Agency (IEA) and applies recognized climate models (e.g. Rockström et al., 2017) to calculate the decarbonization efforts required by all EU member countries.
From the EU budget to the target budget for the EU real estate sector and at country level: CRREM uses data from various EU databases and is based on the Sectoral Decarbonization Approach (SDA), a methodology recognized by the Science Based Targets (SBTi) initiative.
From sector and country to target budget by typology: CRREM estimates target trajectories by country and typology (see fig.). This downscaling process takes into account the number of buildings per sector, expected growth and current carbon emissions intensity for each country and typology.

How can we analyze this decarbonization trajectory by country and by typology?

The principle is always the same: how is the current trajectory of the building under study situated in relation to the reference decarbonization trajectory? Below or above?

If the trajectory studied is above the reference trajectory, this is equivalent to saying that the asset is not only in environmental obsolescence, but also in economic obsolescence. In effect, this asset would be increasingly exposed to the risk of economic obsolescence due to climate change, because it would not meet future regulatory efficiency standards or market expectations. It would become less marketable and require costly renovation measures.

Example of the positioning of an office building in France in relation to the reference decarbonization trajectory.

How can we anticipate the environmental, and therefore economic, obsolescence of a real estate asset?

Once the building's starting point has been defined, the second objective is to model this trajectory over time to prevent the asset from becoming environmentally obsolete. Thus, by projecting the starting point in relation to the CRREM curve, we can anticipate this as follows:

Example of a building becoming obsolete in 2029 in relation to CRREM 1.5°C

The carbon emission projections show that the building will be obsolete by 2029. Drawing on our expertise acquired since 2008 on more than 25 million m² of building surface area, our work results in the quantification of energy savings and avoided emissions linked to each action or work scenario.

Once this list of energy and environmental actions has been defined for each asset, we can phase the work on each building in operation. In addition to the environmental aspect, there are a number of other factors that enable us to phase the work:

Equipment end-of-life
Making a lot available following a user's departure
A strategy for global asset enhancement
The strategy of an asset manager or investor

Thus, taking our previous example, we sought to model and then phase the work such that :

Phase 1: To begin with, we achieved significant savings by reinforcing the building's insulation. As the boilers were installed in 2010, their lifespan did not justify premature removal.
Phase 2: After a period of amortization for these major works, which also enabled us to postpone the obsolescence of the building, we had no choice but to change our heating source from gas to the local district heating network.
Phase 3: Finally, the refrigeration units were replaced to reduce on-site refrigerant leaks to zero.

This gives us the following graphic example:

Example of a building with an anticipated carbon trajectory

As a result, our expertise enables asset managers to put a financial, energy and environmental value on these actions, to help them develop their short, medium and long-term strategy.

How can we anticipate the environmental obsolescence of our real estate assets?

On a property scale, we compile data for all the buildings within the perimeter, and then disseminate the CRREM target by year.

This information can be used to compare two properties on different scales:

Climate target: 1.5°C / 2°C
Choice of scale: Number of buildings / m² / Financial value

The green part represents assets that meet the climate target. In the example above, we can deduce that :

Wealth 1 is out of control, with more and more assets in climatic obsolescence;
Asset 2 is under control according to the defined renovation strategy, with more and more assets complying with CRREM.

In this way, a top-down and bottom-up strategy can be put in place between the investor and the asset manager to review the environmental performance of certain assets.

Our expertise as seen by our customers: Allianz Real Estate

Allianz Real Estate, a member of the UN-Convened Net-Zero Asset Owner Alliance, is aiming for carbon neutrality by 2050. Sinteo has been working with us for over 5 years to implement this strategy with regard to environmental aspects with our tenants. In particular, by organizing Environmental Committees with our tenants, Sinteo facilitates exchanges on energy consumption and environmental actions. Three years ago, we took a further step forward by adopting a building approach in view of the future Tertiary Decree at the time. Finally, this year we are completing our actions as part of a long-term environmental strategy for all our real estate assets, in particular to anticipate the climatic obsolescence of our buildings. Decisions taken today will have an impact for decades to come, and it is important that we are all aware of these major issues. In addition, our Prime portfolio includes Haussmann buildings with a rich past, but not always suited to a low-carbon strategy. We have therefore defined a package of energy actions for each asset, based on its specific characteristics. These actions are steered by the Asset Manager, and enable us to monitor the impact of our decisions directly via a graphical display. Finally, we can also discuss with our investors the current state of their assets, and together project their climatic obsolescence.

Grigor Hadjiev and Sonia Benameur