Building decarbonization: The green future of real estate
30 June 2023 - Insights

Building decarbonization: The green future of real estate

Building decarbonization is becoming a top priority for companies and real estate operators, influenced by the rising occurrence of extreme climate events and the pressure of European regulatory initiatives. But what exactly does decarbonizing a building mean, and what actions are required to accomplish this objective?

According to the latest data presented at the COP, the annual United Nations conference on climate change, the global emissions of carbon - a gas that’s essential for life but becomes harmful when it exceeds a certain threshold - reached a record level of 40.6 billion tons in 2022. Among the contributors to these emissions, the construction and use of buildings play a significant role, accounting for approximately 40% of the total. This alarming statistic serves as a stark reminder of the urgent need to reflect upon the environmental impact of the real estate sector.

That’s why there’s an urgent need for a drastic change of course by implementing concrete measures to effectively reduce the carbon footprint of both existing buildings and new constructions. It is abundantly clear that achieving a zero-emission future is unattainable without decarbonizing the real estate sector. And while this poses a substantial challenge, it also presents an extraordinary opportunity to positively impact our planet.

Decarbonizing the real estate sector

Decarbonizing the real estate sector represents a tangible commitment to minimizing the carbon emissions buildings release into the atmosphere. It’s a true green revolution that seeks to incorporate ESG principles into the realm of real estate, making buildings more sustainable and appealing to a market that’s increasingly sensitive to environmental issues.

Carbon emissions from the real estate sector can be classified into two main categories: operational emissions and embodied emissions. Operational emissions are directly linked to the usage of buildings and can be reduced by implementing environmentally-friendly technologies and adopting measures to improve energy efficiency. On the other hand, embodied emissions originate from construction processes and necessitate changes across the entire building supply chain. This includes selecting low-carbon intensity materials during the design phase and embracing sustainable construction practices.

To significantly reduce the environmental impact of the real estate sector and contribute to the transition towards a low-emission future, it is crucial to adopt a holistic approach that considers the entire life cycle of a building. There are noteworthy examples of excellence in this regard, such as Open 336 in Milan Bicocca and The Forge in London, both designed to be sustainable zero-emission buildings. Regarding construction materials, it is worth mentioning the commitment of Heidelberg Cement to achieve zero-emission cement production by 2050 as well as the expansion of the Bocconi University campus in the former Centrale del Latte spaces in Milan Milan, which utilized recyclable construction materials.

The European directive on building decarbonization

Currently, more than half of Europe's real estate assets suffer from significant energy inefficiencies, which account for a substantial portion of the total carbon emissions in the EU To address this issue, the European Union has approved the Energy Performance of Buildings Directive (EPBD) with the goal of achieving complete decarbonization of buildings by 2050.

This tool establishes specific standards for both new constructions and, above all, existing buildings since over 80% of them will still be in use by 2050. . Non-residential and public buildings must reach at least energy class E by January 1, 2027, and at least energy class D by January 1, 2030. As for residential buildings, they must achieve at least energy class E by January 1, 2030, and at least energy class D by January 1, 2033.

The following buildings are exempted from the obligations outlined in the EPBD: protected and historical buildings, churches, temporary structures, independent dwellings below 50 square meters, and second homes occupied for less than 4 months per year.

Regarding new constructions, the directive requires the construction of only Zero-Emission Buildings (ZEB) from 2028. However, there is an accelerated requirement for public buildings, which must comply with this obligation by 2026.

How can emissions be reduced in the real estate sector?

Several measures need to be taken to achieve the building decarbonization goals introduced by the EPDB. Firstly, prioritizing energy efficiency is crucial in the journey towards carbon-neutral buildings, as well as adopting renewable energy sources that generate clean power for the energy demands of buildings.

Since most of the existing building stock in Europe will still be in use by 2050, retrofitting these buildings is of utmost importance to accelerate the decarbonization of the real estate sector. Adapting the existing structures is not only crucial for reducing CO2 emissions but also for avoiding the so-called "brown discount," which entails the devaluation of their value if they fail to contribute towards achieving a zero-emission future.

Speaking of real estate value, the adoption of environmental certifications such as BREEAM and LEED, as well as European frameworks such as CRREM and the EU Taxonomy, not only enables adherence to specific parameters for a zero-emission future but also enhances the appeal of properties in the market.This, in turn, leads to a significant increase in their value in terms of rent and sales price. It is important to remember that currently, the most sought-after properties are green homes, sustainable workspaces, and, more generally, buildings that align with the new standards set by the EU.

Decarbonizing buildings also involves embracing digitalization. One increasingly discussed concept is the "digital twin," a 3D representation of a building that enables the simulation and planning of sustainability initiatives. This technology is experiencing rapid growth, with market projections estimating it to exceed $180 billion by 2031.

Finally, it is essential to raise awareness among stakeholders in the real estate sector by promoting sustainable practices, incentivizing responsible investments, and educating tenants on actions they can take to reduce energy consumption and maintain low carbon emissions.