Measure in order to understand, understand in order to act effectively and act to preserve value

22 March 2022

This content is for professional investors only as defined by the MiFID.

By Virginie Wallut, Director of Real Estate Research and Sustainable Investment at La Française Real Estate Managers

The building sector is responsible for one-third of greenhouse gas emissions in the European Union. Action must be taken. Under pressure from investors, users and new regulations, the decarbonisation of real estate portfolios must be accelerated. To fight against global warming, fund managers must put in place the necessary tools which will allow them to measure carbon emissions in order to better understand, act effectively and preserve the value of their assets.

MEASURE IN ORDER TO BETTER UNDERSTAND

Theoretical energy consumption can be estimated through an analysis of the technical specifications of buildings. The accuracy of estimates then need to be validated by monitoring the actual consumption of real estate assets. Lowering energy consumption and CO2 emissions is in everyone's interest and can only be achieved by asset owners and tenants working together. 

Carrying out an energy audit coupled with the monitoring of actual energy consumption is a prerequisite for effective energy management. This makes it possible to identify energy consumption improvement actions and to measure the subsequent positive effects of those actions on consumption and clearly highlights, from a long-term cost perspective, the necessity of defining emissions reduction targets. 

During the selection phase and prior to investment, La Française Real Estate Managers (REM) audits the sustainable features of its deal flow, paying particular attention to energy and environmental performance. An ESG audit is systematically completed prior to signing a promise to purchase. The bid price and business plan must take into account capital expenditures, required to improve the sustainable features of assets. Therefore, our bidding prices naturally reflect a green premium or a brown discount  For the asset management phase, La Française uses a variety of monitoring tools and has signed partnership agreements with operators to analyse invoice data. This type of solution makes it possible to identify the buildings that consume the most energy and to prioritise actions moving forward. For larger buildings or those that consume more energy, and for which consumption is unjustified given the building's characteristics, La Française REM installs instrumentation systems in order to monitor real time consumption and generate alerts during peaks in consumption and drifts.

By cross-referencing different energy and building data, La Française is able to define realistic and objective-oriented action plans. Obviously, emissions reduction targets must be realistic and clear in order to avoid “greenwashing”.

ACT EFFECTIVELY

La Française REM partakes in the fight against global warming by setting CO2 emissions reduction targets compatible with the Paris Agreement for most of its real estate portfolios. To achieve this goal, La Française REM uses the decarbonisation pathway developed by CRREM (Carbon Risk Real Estate Monitor) to limit global warming below 1.5°C. 

The global "carbon budgets" used by CRREM were selected in line with the COP21 objectives, i.e., the scenario of Rockström et al. (2017) for the 1.5°C objective (669 GtCO2e for 2019-2050). In this carbon scenario, reduction targets were determined following the framework of the Sectoral Decarbonisation Approach (SDA) developed by the SBT initiative.

In order, this firstly involves a reduction target for the European building sector, followed by a target for each EU country and finally a target for each building based on its type. The efforts required to achieve the 1.5°C objective therefore vary depending on the country and the type of asset. The more carbon-intensive the country's current energy mix and the more energy-intensive the asset type, the greater the effort required. For example, offices in Germany will have to reduce their average emissions from 86.3 kgeqCO2/m2/year in 2020 to 2.8 kgeqCO2/m2/year in 2050, whereas logistics assets in France will have to reduce their average CO2 emissions from 12.8 kgeqCO2/m2/year in 2020 to 1.2 kgeqCO2/m2/year by 2050.
 

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