The real estate industry has a critical role to play within the transition toward a net zero world. According to the Global Alliance for Buildings and Construction’s 2021 Global Status Report for Buildings and Construction, the built environment — real estate developers and managers, operators and construction companies — was responsible for almost 40% of global CO2 emissions in 2020, with almost three-quarters of those emissions coming directly from building operations.
That means hitting the goals envisioned in the 2015 Paris Agreement and in climate conferences held since will require drastic greenhouse gas reductions across the real estate value chain, and in particular for existing buildings around the world. As an interim goal, the International Energy Agency estimates that direct CO2 emissions from buildings will need to decrease 50% by 2030 if the industry is to reach net zero by 2050, according to the Global Alliance for Buildings and Construction report.
Data from the S&P Global Corporate Sustainability Assessment, or CSA, suggests that the industry is moving toward greater climate responsibility. The industry is already in the middle of the pack when it comes to setting net zero targets, and the prevalence of measured emission reduction targets is also increasing. From 2018 to 2021, 273 large real estate companies were researched in the CSA each year, creating a constant universe for analysis. These companies represented a total market capitalization of $2.15 trillion as of July 28, 2022, with an average market cap of $8 billion. Over that four-year time frame, the percentage of firms with an emissions reduction target rose from 26% to 43%.
More real estate firms are setting climate targets
Percentage of real estate companies that have set an emissions reduction target by year
Data as of July 2022.
Results based on responses from a constant universe of 273 companies assessed in the S&P Global Corporate Sustainability Assessment each year from 2018 through 2021.
Standard method refers to setting either an absolute target or an intensity target. An absolute target is one that seeks a reduction in actual emissions in a future year compared with a base year. An intensity target is one that seeks a reduction in emissions normalized to a business metric compared with the normalized emissions in a base year.
Alternative method refers to setting other climate-related targets, such as energy productivity, renewable energy consumption, renewable energy production, renewable fuel, waste, use of zero or low-carbon vehicles, land use, methane reduction and engagement with suppliers.
"Not known" reflects assessed companies that did not respond and have not publicly stated whether they have set climate-related targets.
Source: S&P Global Sustainable1
The CSA is a research framework that captures data from thousands of companies annually on relevant ESG topics. It defines the real estate industry as comprising real estate development and management companies, as well as real estate investment trusts and operators. Construction companies are defined as a separate industry.
Within that 43% of companies with targets, most have set an absolute target or an intensity target for emissions reductions. Absolute targets seek a reduction in actual emissions from a base year; this differs from intensity targets, which are normalized against a business metric such as revenue. The remaining companies with targets had set other climate-related goals, such as renewable energy consumption or production, renewable fuel, zero- or low-carbon vehicle use, land use, methane reduction or engagement with suppliers.
The 2021 CSA assessed 801 real estate companies in total, including the 273 firms assessed in each of the previous years. In the 2021 universe, European real estate companies are ahead of the curve in setting climate targets. More than 36% of European real estate companies assessed in the 2021 CSA said they had a climate-related target, compared with about one-quarter of companies in Latin America and 20% or less of companies in Asia-Pacific, North America and Africa.
Europe has the largest share of real estate companies with climate-related targets
Data as of July 2022.
Results based on responses from 802 companies in the Corporate Sustainability Assessment from 2021.
Standard method refers to setting either an absolute target or an intensity target. An absolute target is one that seeks a reduction in actual emissions in a future year compared with a base year. An intensity target is one that seeks a reduction in emissions normalized to a business metric compared with the normalized emissions in a base year.
Alternative method refers to setting other climate-related targets, such as energy productivity, renewable energy consumption, renewable energy production, renewable fuel, waste, use of zero or low-carbon vehicles, land use, methane reduction and engagement with suppliers.
"Not known" reflects assessed companies that did not respond and have not publicly stated whether they have set climate-related targets.
Source: S&P Global Sustainable1
The 2021 CSA data also shows the size and time frame of the emissions reductions that firms are seeking. About 10.8% of the 801 firms assessed for that year have absolute targets that include Scope 1 and Scope 2 emissions. Scope 1 covers a company’s direct emissions output, while Scope 2 refers to the emissions generated through purchased electricity. These 87 companies are aiming to cut emissions by an average of 53.6% of combined Scope 1 and Scope 2 emissions, and within an average timeline of 12.8 years.
That puts the average climate target in the industry near the pathway identified in the Global Alliance for Buildings and Construction report: a 50% reduction by 2030 in order to reach net zero by 2050. This sizeable emissions cut over the medium term echoes recent calls among scientists to set nearer-term emissions targets as stepping stones to decarbonization. About two-thirds of the firms with absolute emissions targets said they are using targets that align with the Science-Based Targets Initiative.
Two-thirds of real estate firms aiming to cut Scope 1 or Scope 2 emissions are using science-based targets
Percentage of companies that said their absolute emissions targets are science-based
Data as of July 2022.
Results based on responses from 87 real estate companies with Scope 1 or Scope 2 absolute climate targets in the 2021 Corporate Sustainability Assessment.
Source: S&P Global Sustainable1
Individual companies have the most control over their Scope 1 and Scope 2 emissions, but the greatest source of greenhouse gases for many industries is Scope 3, which represents the emissions up and down a company’s value chain. CDP estimates that Scope 3 accounts for more than 90% of the real estate industry’s emissions.
Of the 802 real estate companies assessed in the 2021 CSA, 207 responded to a question asking firms to select the three most relevant sources of Scope 3 emissions. The most-chosen category, fuel- and energy-related activities not included in Scope 1 and Scope 2, includes the upstream emissions of purchased fuels or electricity and emissions created during transmission.
Most relevant Scope 3 emission sources for real estate firms
Data as of Aug. 11, 2022.
Results based on the assessments of 207 real estate firms that responded to the Scope 3 question in the 2021 Corporate Sustainability Assessment or for which publicly available information about their Scope 3 sources exists. Respondents were able to select up to three categories of Scope 3 emissions that were most relevant to them.
*Fuel- and energy-related activities not included in Scope 1 or Scope 2 include, for example, the upstream emissions of purchased fuels or electricity and emissions created during the transmission of electricity or fuel.
Source: S&P Global Sustainable1.
In order to tackle the full spectrum of emissions, real estate firms should seek to identify and measure their Scope 3 exposure and work to build Scope 3 targets into their climate goals. While the companies leading the way in setting climate targets and tracking their emissions are pushing the industry forward, emission reduction plans will need to become more widespread among their peers if the world is to reach its net zero goal.