New Survey Shows the State of Decarbonization Plans for Property Firms

By Franco Faraudo

In 2021, the Urban Land Institute partnered with property industry leaders to create the C Change Initiative. This program was designed as a way to help the property industry navigate the decarbonization efforts affecting real estate. Part of the initiative is a regular survey of property industry professionals to gauge how they are adapting to decarbonization. This month, the ULI released its new C Change Survey, and it has a few interesting insights that can be gleaned from the responses.

The first thing that becomes apparent is that it has become the norm to set “net zero” carbon emission targets. Sixty-one percent of the organizations surveyed said that they had such a target already set. Of the 34 percent that didn’t, almost half expected that they would set a target within the next few years. The scope of emissions being targeted was also quite advanced. The majority of respondents (38 percent) said that they were targeting Scope 1, 2, and 3 emissions. Scope 3 emissions are those associated with all of the products and construction techniques that go into a building, a number that is often quite hard to calculate.

The report highlights what it calls “transition risk.” It explains the term as such:

“Investors and managers need to factor in two types of climate risks: physical risks such as flooding or the consequences of hotter periods of weather as well as transition risks, which are those risks associated with the move to a low carbon environment.”

It goes on to explain that these risks are often not being correctly calculated by the property industry:

“As transition risks cannot currently be factored into formal valuations, there are education and information gaps in the market about the impact of these risks. This is causing owners to underestimate the effect they can have on value or not being aware of the challenges and costs to decarbonize assets in their ownership.”

The main benefit of incorporating transition risk, according to the survey responses, is, first and foremost, to appease investors and regulators. After that, the main reason was meeting future demand from occupiers. Interestingly, only 23 percent of respondents said that they were factoring in transition risk to create a potential short-term competitive advantage.

What property companies were factoring into transition risk was also telling. The most popular factors by far were the cost of decarbonization and the minimum energy performance standards that they needed to hit. Much lower down on the list were things like access to debt capital, tenant demand, and access to insurance.

The report goes on to talk about the idea of carbon pricing and how it can be used to better calculate transition risk. But, this practice does not yet seem to have taken hold in most organizations. Only 12 percent of those surveyed said they had incorporated carbon pricing, either with actual fees or “shadow pricing” that was used just for the purpose of the calculation.

Decarbonization is obviously weighing on the decision-making of many property owners. But not because they see it as a strategic advantage…at least yet. Right now, the decarbonization movement is driven by investors looking for sustainable investments and regulations aimed at high-carbon emitters. Eventually, we might see more voluntary decarbonization efforts, but now, probably because of the tough time many owners are in, they are only willing to invest in decarbonization if they are forced to.

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