Decarbonizing our global economy inevitably involves decarbonizing the real estate sector. And with good reason: we know that 80% of existing buildings in urban centres must be retrofitted to achieve a 1.5 °C trajectory in accordance with the Paris Agreements. The stakes are high, since in-depth decarbonization of buildings will require a considerable investment: $600 billion per year between now and 2050, according to data from the Institutional Investors Group on Climate Change.1
While climate change can be synonymous with risk, it can also provide opportunities. “Green” renovations to buildings can create value by making properties more energy and cost-efficient, more attractive to occupants with climate commitments, and better prepared for future changes to climate regulations. However, while there is a growing market for certified “green” buildings, it must be said that any recognition of a “premium” for low-carbon real estate remains limited. All players in the real estate sector face a major challenge: the lack of transparency on carbon and energy performance and difficulties accessing reliable, high-quality data on such measures.
Unblock low-carbon real estate
Ivanhoé Cambridge has therefore joined the LOTUF (Leaders of the Urban Future) project to help address the key challenges facing property investors in their efforts to deploy capital in support of the decarbonization of properties. Over the past 18 months, we have worked closely with Systemiq and other LOTUF investors2 to provide concrete solutions by developing a white paper entitled Unlocking the Low-Carbon Real Estate Market.
This white paper presents a set of principles and best practices underpinning the decarbonization of the real estate sector. Energy efficiency remains a key lever for operational carbon mitigation, alongside electrification and the use of renewable energy. However, if investors are to accelerate progress, they face a key challenge: the lack of clear market signals and links between carbon and value. To establish this link, data on carbon emissions must be accessible and usable as financial data to guide decision making. Greater transparency on environmental performance and on the alignment of properties with a 1.5 °C trajectory would enable the industry to better identify and value low-carbon buildings. The white paper proposes solutions to support development of this market, in particular by encouraging investors to demand greater data transparency, supporting the development of more appropriate certifications, facilitating the sharing of data and participating in the development of the regulatory framework.
“We became involved in the LOTUF project to help identify solutions to the challenges property investors face in decarbonizing buildings. We hope that this white paper will help rally investors around greater transparency in carbon data and clear targets, so that we can fully recognize the value of low-carbon real estate,” said Michèle Hubert, Vice-President, Strategy and Portfolio Construction, Real Estate, CPDQ.
Carbon neutral ambition
This initiative is fully in line with our sustainable investing strategy. Since 2017, we have already achieved a number of key milestones, with the ambition of achieving carbon neutrality for our global portfolio by 2040. We have deployed $19 billion of green and sustainable financing, including $15 billion of sustainability-related lending. We have also committed $7.6 billion to low-carbon investments since 2020. Over the past six years, we have reduced the operational carbon intensity of our directly held portfolio by more than 30%. Our ambition is to continue on this path and accelerate the decarbonization of our assets, including through “brown-to-green” projects and the recent launch of our Green IRR (green internal rate of return) tool, with which we aim to integrate carbon-related risks and opportunities more fully into our investment decisions. However, the sector as a whole still faces many challenges, not least of which is improving the quality of data at the asset level. We are therefore continuing to work with our global partners to optimize the alignment of interests across the value chain, thereby encouraging best practices in the market.
1 IIGCC, Climate Investment Roadmap, 2022 – Figure 22: Retrofits and heat pumps drive investments needs in buildings in IEA NZE 2050 scenario.
2 ATP, BlackRock, Healthcare of Ontario Pension Plan (HOOPP), Norges Bank Investment Management, Pictet, Urban Partners and Victory Group