2024 was the hottest year since records began. The devastating effects have been felt around the world with deadly droughts, floods, fires and increasingly extreme weather events.
One sector you interact with every day is responsible for a large share of the planet-warming emissions that are making climate change worse. It might not be the one you expect: it’s buildings.
The climate impact of buildings
Buildings generate emissions in lots of different ways. Construction materials like steel and concrete are carbon intensive to produce, and much of the energy used today to light, heat, cool and power buildings is generated by burning fossil fuels. In fact, the construction and operation of buildings account for a third of greenhouse gas emissions.
We have the tools to reduce these emissions, and doing so will be critical to tackling climate change. However, global emissions from buildings are rising.
Real estate investors must take responsibility for their emissions
Real estate investors share in the responsibility to reverse this trend. They buy, lease, sell and develop buildings to generate a financial return. Or, they appoint an investment manager to do this for them. If you’re reading this in an office, a café, or even in your home, there’s a chance it’s owned by an institutional investor.
With their concentrated influence over so many buildings, investment managers have a big role to play in the transition. We need them to step up, and for institutional investors – like pension funds - to call on them to take action on climate change.
Built to Last? ShareAction’s brand new report
ShareAction’s climate team has released a new report, Built to Last?, which assesses and ranks 16 of the world’s largest real estate investment managers on how they are responding to climate change. We assessed them against 12 key standards for climate action, such as setting short- and long-term emissions reduction targets, setting out clear plans to decarbonise their portfolios, and making commitments to transition away from fossil fuel infrastructure. All of these were attainable, as each was met by at least one manager.
We found substantial differences across the group.
- Several managers demonstrated commitment to climate action today, but nine of the 16 achieved fewer than half of the key standards, and three didn’t meet any of them. Inaction by these investment managers will pull the buildings sector further off track from net zero.
- Every manager reported that they assess the risks that climate change poses to their investments, but three investment managers still had not disclosed a commitment to reach net zero emissions.
- Though 13 of the managers disclosed some form of net zero commitment, only nine of these covered emissions from tenants’ energy use, and just five covered emissions from the construction of buildings.
- Four managers with a net zero commitment hadn’t disclosed interim emission targets that would set them on a course to net zero, and several managers did not disclose the proportion of their AUM that is covered by those targets today.
- Fewer than half of the group set out a clear and systematic approach to decarbonisation planning, to actually meet these targets. Only one manager, NREP, had a clear commitment to stop installing fossil fuel appliances in their buildings, and just four reported that they measure embodied carbon from their developments in every case.
Assessing these managers was made harder by the fact that several did not disclose key information or made disclosures that were too vague to understand. For example, six with public climate commitments didn’t disclose the emissions from their building portfolios. We think it’s important that managers are transparent about their climate impacts and their approaches to managing climate risk, and this had a big impact on our assessment.
The need for a just transition in the built environment
Every investment has an impact on the planet and its people, for better or worse. Real estate is clearly no exception: buildings exist to serve a social function.
Responsible investment in buildings may create positive social change, but if buildings are treated solely as financial assets, there is a clear risk of tension between the welfare and human rights of tenants and communities and the expectation of financial return. The need to decarbonise buildings compounds this risk, as the upfront costs of decarbonisation may be passed on to vulnerable tenants.
Today, many people across the world are not afforded their right to adequate housing, labour rights abuses persist in building supply chains, and inequalities of wealth, power, and access to space exist in the built environment. Taking action on climate change presents an opportunity to address these issues. Or, they could be worsened by climate action that doesn’t consider impacts on workers, tenants and communities.
Our research found very little evidence in managers’ public disclosures that they are assessing the impacts of their decarbonisation on the human rights of tenants and communities, or that they are engaging with them specifically on how those impacts should be managed. Some managers reported to us directly that they were, but the low response rate to our questions made it difficult to draw wider conclusions. While some disclosed better policies to protect workers in supply chains, others failed to do this either.
The lack of focus on these issues puts a just transition at risk. In the report, we signpost to practical resources that investors can use to engage their investment managers on these themes.
We’re calling on asset owners to engage with investment managers on our findings
In the report, you will find recommendations and resources tailored towards asset owners. We’re engaging with asset owners on our findings, and encouraging them to do the same with their investment managers, whether or not they were named in this report. If you are an asset owner wanting to explore further, please get in touch at realestate@shareaction.org.
