Buildings are a driver of climate change that hide in plain sight. To heat, cool, light and power buildings we need to generate huge amounts of energy, which releases planet-warming emissions. On top of this, the construction of buildings, and later their refurbishment and demolition, is very carbon intensive. Taken together, the construction and operation of buildings accounting for 33 per cent of all energy-related emissions.
We already have the tools to reduce these emissions. We can make buildings more energy efficient, switch to renewables and electrify end uses of energy, like heating and cooking appliances. Embodied carbon is a bigger challenge, but this too can be reduced through building design and manufacturing choices.
Despite this, the sector is far off track from where it needs to be: emissions from buildings have increased in the decade since the Paris Agreement was signed. We can’t get to net zero without decarbonising buildings – and global temperatures will rise continue to rise indefinitely until we reach net zero. Every fraction of a degree of warming will worsen the impacts of climate change, bringing more extreme weather events, nature loss, and threatening the lives and livelihoods of the world’s most vulnerable people.
Real estate investors have a responsibility to decarbonise their buildings
Real estate is an important asset class for investors, who seek to profit from rents and the buying and selling of buildings. For these investors, the risks and opportunities presented by climate change and the energy transition are too big to ignore. Real estate is, by its nature, uniquely vulnerable to the worsening physical impacts of climate change. Tightening building codes that regulate energy performance create transition risk that investors must stay ahead of. On the other hand, more energy efficient buildings are ultimately attractive to tenants. It is in investors' financial interest to reduce climate-related risks and adjust portfolios for long-term, sustainable value creation.
The investment managers appointed by asset owners to invest in real estate on their behalf have the responsibility, and to a great extent the influence, to decarbonize the buildings they hold. Large real estate investment managers hold hundreds or even thousands of buildings in their portfolios at any one time, and indirectly finance many more. This gives them the power to drive decarbonization on a large scale. To encourage them to do this, asset owners must make clear their demands for responsible investment practices.
A just transition in the built environment
The buildings where we live and work play a huge role in all of our lives, so investments in real estate have a social impact – for better or for worse. When we treat buildings as a financial asset there is a clear risk that the wellbeing of tenants and communities will come into tension with financial return.
Responsible investors should protect and enhance human rights in the transition to net zero buildings. If they do not, then they may create or exacerbate negative impacts. To take just one example, decarbonizing buildings will create upfront costs which, if passed through to vulnerable tenants, could jeopardize their right to adequate housing. For a just transition, human rights need to be centre stage in decarbonisation planning.
ShareAction’s Built Environment Benchmark
This year, ShareAction’s climate team is undertaking an assessment of how some of the world’s major real estate investment managers are responding to these challenges. We’re looking at their climate targets, their strategies for decarbonizing the buildings they hold, their transparency about their climate impacts, and whether and how they are considering the social impacts of the transition. We’ll publish a report with our findings in July 2025.
