The world of emissions accounting is a confusing one. You may have heard of greenhouse gas emissions being split into three ‘scopes’.
Scope 1 is fairly easy to define, relating to fossil fuels that are directly combusted by an organisation, such as petrol, diesel or gas.
Scope 2 emissions result from the production of heat or electricity that’s consumed by an organisation, generally by lighting, ventilation, and computers.
Scope 3 is everything else, including indirect emissions that occur in a company’s value chain such as from goods produced by others, business travel, employee commuting, waste production, investments, and leased buildings.
Scope 3 emissions can be a significant proportion of an organisation’s carbon footprint, with a considerable difference between a retail landlord’s Scope 3 emissions (related to the Scope 1 and 2 emissions of tenants) and that of a retail tenant (related to their supply chains).
Retail landlords are increasingly working on reducing their Scope 3 through collaborating with their tenants. Due to the significance of their Scope 3, a retailer wishing to take responsibility for their emissions as part of a broader ESG strategy is likely to prioritise their supply chain to green their products and services, rather than the premises they occupy. This can present landlords with a barrier to reducing their Scope 3, many of whom are seeking to install ‘green leases’ to collaborate with occupiers to improve fit-outs and operational energy usage.
Often retail tenants resist green leases, viewing them as an additional cost commitment that can’t be written off operationally and just benefit their landlord’s investment values. Meanwhile, landlords that implement improved energy efficiency measures have spent money, but see tenants benefitting from reduced bills, hence why some landlords resist energy efficiency capital expenditure. This leaves us with somewhat of an impasse.
This mismatch in priorities neglects the fact that an occupier’s Scope 1 and 2 emissions will also be their landlord’s Scope 3 emissions, and that energy efficient refurbishment, fit-out and operation can help to reduce these significantly. It sends mixed messages to consumers if a retailer with high sustainability principles occupies poorly insulated buildings, with inefficient lighting, and leaves the doors open this winter.
During operation, landlords and tenants should work together to set and achieve energy use intensity targets, as 80 per cent of building emissions can be attributed to occupier activities. These are focussed on energy use (rather than carbon emissions), and benchmarks can be obtained from the Better Buildings Partnership and Carbon Risk Real Estate Monitor (CRREM).
The CRREM EUI figures can also be used to define decarbonisation pathways, ensuring assets are compatible with the Paris climate agreement target. The adoption of third party assessment methodologies, such as CRREM, avoids greenwashing and provides confidence that the buildings that are being let and occupied are compatible with national net zero targets.
The British Retail Consortium has developed a Climate Action Roadmap to provide retailers with detailed guidance on decarbonisation pathways, with a net zero plan in place for shops and warehouses by 2030. This will be encouraging for landlords as it suggests that increasingly tenants are willing to engage in making the necessary improvements to how they fit out and maintain their shops. Immediate actions will be needed and a collaborative approach to reach net zero, this includes:
For retailers:
• Investigate the energy efficiency of potential spaces for occupation
• Set relevant EUI targets in line with CRREM guidance
• Work with landlords to monitor, track and improve operational energy performance
• Procure renewable energy where possible
• Request data from supply chains to define Scope 3 emissions
For landlords:
• Develop processes to record operational energy use from tenant spaces
• Work with tenants to monitor, track and improve operational energy performance
• Use lease breaks to undertake sustainable retrofit and decarbonise building services
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