Spotlight: Real Estate and the Carbon Challenge

Will investment be able to drive the transition to net zero in real estate by 2050?

This year’s Conference of the Parties (COP26) in Glasgow is a milestone event for the world to address the challenge of climate change. As well as setting targets to reduce emissions and protect ecosystems, COP26 is turning to the issue of finance to deliver these climate goals. With developed countries tasked with mobilising at least $100bn in climate finance per year, it is clear that finding ways to finance the transition to net zero will become a primary concern for the global economy in the coming years.

Policy needs to focus not only on public sector action, but also on harnessing private finance in pursuit of carbon reduction. Over £50bn of commercial investment flows into UK real estate every year, but a lack of data, transparency and consistent government policy is preventing sustainable investment reaching the levels required to decarbonise the sector.

Encouragingly, there are signs occupiers are willing to pay more for energy-efficient buildings in some sectors, driving a green premium, while growing understanding of embodied carbon measurement will help the credentials of older stock. But residential and retail property are likely to prove the most challenging areas to green, and require greater policy intervention than has been seen so far.

Unlocking investment is a key issue for the real estate industry as it aims to reach its own sustainability goals

Richard Rees, UK Managing Director, Savills UK

Reducing carbon emissions, like other aspects of the wider ESG agenda, is often framed in terms of risk, stranded assets and the high cost of achieving carbon neutrality. But the scale of change needed will present savvy investors with new opportunities, and investing in green property does not necessarily mean sacrificing returns.

At Savills UK, we reduced our scope 1 and 2 carbon emissions from the UK offices in 2020 by 36%. But there is still significant work to be done*. We welcome the opportunity COP26 will provide to refocus on decarbonisation after the disruption of the last 18 months, and trust that you will find this Spotlight helpful as you consider your own strategy.

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* Savills (UK) Ltd is committed to achieving net zero carbon in operation by 2030. This commits us to eliminate emissions for scopes 1 and 2, which are used at our workspaces to heat, light and power our properties and fuel any company grey fleet.

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