Building decarbonization: the green future of real estate

Building decarbonization is increasingly moving to the top of the agenda for companies and real estate operators, driven by extreme weather events and the pressure from EU regulations. But what does decarbonizing a building actually involve, and how do we achieve it?

The latest data from the UN annual climate conference (COP) reveals that global carbon emissions peaked at 40.6 billion tons in 2022. The construction and usage of buildings account for about 40% of that total. This enormous figure calls for a deep reflection on the environmental footprint of the real estate industry.

It is clear that we urgently need a radical shift in direction, as we cannot achieve a zero-emission future without decarbonizing real estate. While this is certainly a major challenge, it also represents an extraordinary opportunity for the well-being of our planet.

What does decarbonizing the real estate sector mean?

Decarbonization is the concrete effort to minimize the amount of carbon released by buildings. It is a true 'green revolution' aimed at integrating ESG criteria into the industry, making properties both more sustainable and more attractive.

The sector's emissions can be primarily classified into two categories:

• Operational emissions directly linked to the day-to-day operation of assets. These can be reduced by implementing efficient, low-impact technologies and adopting measures to improve energy efficiency.

• Embodied emissions deriving from construction processes. These demand a shift throughout the entire construction supply chain, including the selection of low-carbon materials during the design phase and the adoption of sustainable building practices.

Significantly reducing the environmental impact of the real estate sector and contributing to the transition toward a low-carbon future requires a holistic approach that address the full lifecycle of a building. There is no shortage of virtuous examples, such as Open 336 in Milan and The Forge in London, both designed as zero-emission buildings. On the materials front, notable mentions include Heidelberg Cement, which is committed to producing zero-emission cement by 2050, and the Bocconi campus expansion located at the former Centrale del Latte site in Milan, realized with extensive use of recyclable materials.

The EU directive on building decarbonization

Currently, more than half of Europe's building stock is energy inefficient. To address this, the EU has approved the EPBD (Energy Performance of Buildings Directive), aiming for the complete decarbonization of buildings by 2050.

Here are the main timelines for improving energy ratings:

• Non-residential buildings must reach at least Energy Class E by January 1, 2027, and Class D by January 1, 2030.

• Residential buildings must reach at least Energy Class E by January 1, 2030, and Class D by January 1, 2033.

Listed and historic buildings, places of worship, temporary structures, detatched homes smaller than 50 sqm, and second homes used for less than four months a year are exempt from EPBD requirements.

As for new construction, the directive requires that all new buildings be Zero Emission Buildings (ZEB) from 2028, though this requirement applies earlier (from 2026) for public buildings.

How can emissions be reduced in the real estate sector?

To reach the building decarbonization goals set by the EPBD and avoid the 'brown discount' (the loss of value for non-sustainable properties), specific actions are required, such as:

• Efficiency upgrades and retrofitting: Since most existing properties in Europe will still be in use in 2050, retrofitting them is a priority. The focus is specifically on thermal insulation and the adoption of renewable energy sources to produce clean power for the buildings' energy needs.

• Environmental certifications: Implementing standards such as BREEAM and LEED, alongside frameworks like CRREM, ensures adherence to a roadmap for a net-zero future. Furthermore, it enhances the marketability of assets, significantly increasing their rental and capital values.

• Digitalization: Specifically, the use of "digital twins,” which are 3D representations of buildings that allow for the simulation and planning of sustainability strategies. This is a rapidly growing technology, with a market projected to surpass $180 billion by 2031.

Finally, it is crucial to raise awareness among real estate stakeholders by incentivizing sustainable practices and responsible investment. Equally important is educating occupiers on how to lower energy consumption and maintain minimal carbon output.