The three pivotal questions to ask:
1. Which types of emissions have been considered in the net-zero pathways?
Net-zero pathways show the expected development of emission intensities over time, measured in CO2-equivalents (CO2e) per annum per reference area. When comparing projected emission intensities between products, it is vital that investors check which types of emissions and which reference area are being considered.
Owner-controlled emissions from real estate operations are defined as scope 1 or scope 2. Scope 1 emissions are direct emissions from the combustion of fossil fuels in gas or oil heating systems installed in the property itself. Scope 2 emissions are indirect emissions that arise from the purchase of district heating as well as electricity for central systems and common areas. In addition to the emissions from the operation of owner-controlled real estate, there are indirect emissions that arise from tenants purchasing electricity in their rental spaces. These scope 3 category 13 emissions (3.13) are heavily dependent on tenant activity, with limited landlord control or influence.
While it is common to compare properties by gross floor area, local market practices may differ. Since calculated emission intensities may vary widely depending on which scopes, greenhouse gas emission factors,² and reference area have been considered for the calculations, investors may need to adjust for such differences when comparing products.
2. Which data has been used to define the baseline?
Net-zero pathways start with a baseline, comprising emission intensity at the outset of the decarbonization journey in year 0. To ensure an appropriate baseline, real estate managers should strive to use measured consumption and emission data for their property. Where such measured data does not exist, which is often the case with scope 3.13 data or with newly purchased or developed properties, real estate managers may depend on estimated data (often based on extrapolating measured data from previous periods). Where consumption and emission data is completely unavailable, market standard benchmark data may have to be applied to fill any final gaps. Where sophisticated building software solutions are available, consumption and emissions may also be calculated with model estimations.
To promote data quality, real estate managers should evaluate each asset’s metrics with the support of sustainability specialists, regardless of the data sourcing method used. Where in doubt about the source of applied baseline data, investors are advised to enquire regarding the detail and steps undertaken.
3. Which future decarbonization measures have been considered in the net-zero pathway?
A further component of net-zero pathways is the application of bespoke decarbonization measures for each building in the future over time, and the estimated resulting energy consumption and emission savings on property and portfolio level.
Reducing a property’s energy demand can help decrease its scope 1, scope 2, and scope 3.13 emissions and is generally the first priority in any decarbonization plan. For instance, an energy upgrade of the building envelope can materially reduce a property’s energy consumption. A change from fossil fuel-based heating systems to renewable heating systems helps reduce energy consumption and emissions, as do energetic improvements of the various potential technical installations within buildings. Sourcing renewable or “green” energy is a secondary priority but can indirectly also reduce energy demand on the wider grid; implementing on-site photovoltaic systems can also help decrease a property’s electricity consumption from the public electricity grid. This list of potential measures is not exhaustive and depends on the specific nature and state of each real estate asset.
Since portfolio net-zero pathways are by nature high-level and do not give detailed insight into the considered retrofit measures in each underlying building or the way energy consumption and emission savings from retrofit measures have been calculated, it is up to investors to request detail on the methodology and calculations applied by real estate managers, including at the level of each building.
Further clarity may be needed regarding the consideration of the effects of procurement of off-site green energy and carbon offsets, which should almost always be the last resort and final step in any decarbonization plan. It is helpful to understand the degree to which a product’s net-zero pathway is driven by actual on-site improvements of energy efficiency and emission reduction, and the proportion of predicted emission reductions driven by off-site purchases or offsets.