The buildings we live and work in are responsible for 38% of all emissions and 35% of global energy consumption, so it is inevitable that a substantial focus when discussing climate change falls on real estate. Limiting global warming to 1.5°C in line with the Paris agreement will require the built environment to slash emissions by 80%, placing real estate at the heart of the private and public sector drives towards net zero.
As governments continue to tighten restrictions on where we source our energy and how it is consumed, buildings will need to become more efficient without compromising on comfort. City and local authorities are at the forefront of efforts to ensure this happens, tending to outpace central governments in terms of legislation. However, all new developments will need to meet stringent specifications, while existing substandard stock will need to be upgraded. We are already seeing this impact real estate values as occupiers are drawn to sustainable buildings that minimise their costs and carbon footprint whilst helping them attract top talent.
Capital markets are also being affected, as climate change impacts the risk-reward landscape for investors. Finance providers are beginning to support retrofitting, establishing funds to target sustainable buildings, and shying away from investments that have not adequately protected against climate risks. Meanwhile, innovations in transport technology and energy storage are dramatically influencing the warehousing and logistics sector, with the aftermath of Covid-19 and an impending revolution in personal transportation set to change our urban environment.
With all this change it is vital to remember, that if we are to move forward sustainably, we need to ensure no-one is left behind and that measures taken to help the environment do not come at an unacceptable social cost.
As we look for paths to a zero-carbon world, which trends will lead the way?
- EcoLogical: How cities are leading the way on tackling climate change
Cities account for a vast proportion of global emissions, and are often most exposed to the consequences of climate change. City governments are at the forefront of action to reduce emissions and mitigate the impacts of extreme weather events, with significant implications for real estate. - Electric avenue: The evolving future of mobility
Pandemic-induced lockdowns have shown us the environmental benefits of reduced vehicle movements, which many cities are looking to retain as life starts returning to normal. In conjunction with an accelerated shift to the use of electric vehicles, this is set to reshape our urban landscapes. - (Work)Force of nature: The climate agenda meets the “War for Talent”
The post-COVID labor market is in a state of flux, with plentiful job openings and record levels of resignations. Companies’ ESG credentials are set to play a key role in attracting and retaining talented young workers who believe their employer should have a social and environmental conscience. - Zero in: How new materials and techniques are changing the construction of buildings
Over the next 40 years, the equivalent of a city the size of Paris is expected to be built every week. Changes in design, innovative materials, new construction techniques and increased use of technology are all helping minimise the “whole life carbon” impact of new developments. - Retrofit revolution: Out with the new and in with the old
The reduction in emissions needed to meet global decarbonisation targets can only occur by improving the environmental performance of the existing building stock. In most cases this requires structural improvements, which presents challenges and opportunities in equal measure. - Chain reaction: All change for supply chains and logistics real estate
Walmart recently closed its record $2 billion green bond offering, the proceeds of which will be used to drive decarbonisation and sustainability projects throughout its operation, including its extensive supply chain. A sign of things to come for logistics real estate everywhere. - The colour of money: The expanding market for green finance
Sustainable finance has grown rapidly in scale and significance in recent years, and if the current trajectory continues, it will have major implications for the cost and availability of debt and equity for every real estate project. - Risk and returns: Investor responses to a changing economic and social geography
Each real estate market is exposed to its own unique combination of risks arising from climate change and social inequality. As these risks are increasingly recognised and priced, they are changing the investment landscape. There will be winners and losers, as occupiers and investors respond by reshaping their portfolios. - Dollars and sense: How decarbonisation is impacting real estate values
As all these factors affect supply and demand in the occupier and investment markets, sustainability is now impacting every element of the value equation – and we’re already seeing the impact. - Just rewards: Why climate change is a social as well as environmental crisis
The impacts of climate change fall disproportionately on parts of the world and sections of society that are least able to protect themselves or recover from climate events. Governments need to ensure that policies introduced don’t have unintended social consequences.
As these trends indicate, we are heading toward a society and an economic geography reshaped by ESG considerations. National and local governments across the world are committing to a decarbonisation agenda — with major implications for the real estate sector. Assessing the risks and opportunities presented by rising regulatory and market pressure around climate change is becoming a key boardroom issue for businesses across all sectors of the economy.
As our built environment undergoes a seismic shift towards a greener planet, there are many challenges, but even more opportunities for businesses that can innovate and adapt.
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