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How much will it actually cost to align your real estate portfolio to net zero?

By Grace Melville
19th July 2022

The question every asset owner and investor needs to ask of every building is whether it aligns to or undermines their net zero strategy.

The transition to net zero will fundamentally change asset valuations, as investors seek to avoid the risk of stranded assets and penalties associated with non-compliance in a fast-evolving net zero landscape.

Avoiding the risk of stranded assets will require time, resources and investment – backed up with a clear net zero strategy to future proof your investments in the long term. Having a clear view of the risks and opportunities within a fund will strategically inform your disposal and retrofit strategy as well as the CAPEX investment involved.

We hosted a recent event to explore the role of net zero due diligence in a property’s lifecycle and the benefits to investors of incorporating climate resilience in asset allocation as well as in your retrofit and disposal strategy. Watch the recording here.  Our experts shared their practical insights into how net zero due diligence can help de-risk your investment decision-making and give you the tools to communicate the cost of net zero to stakeholders.

 

First things first – What’s the value of understanding the decarbonisation costs associated with your real estate portfolio?

  1. Maximise refurbishments

Having clear insight into your decarbonisation costs will help make sure you don’t make the same mistakes again and replace that boiler like for like. With a clear understanding of costs associated with decarbonising your real estate portfolio you can think strategically long term around what projects will be best for a particular asset.

 

  1. Forward plan your budget

You can understand how ambitious you want to be, which target horizon to choose and how much you’re willing to spend and when. Do you want to spend £5m in the next 5 years, £10m in the next 10 and so on. Having a fully costed decarbonisation plan will give you a plan to know when you’ll require a budget to be unlocked.

 

  1. Refine your governance

We tend to think about how we set our targets but underpinning that is making sure there’s a strong governance structure to align different stakeholder groups and operational teams and give clarity on who is accountable for what.  Have your asset management teams thought about how they are budgeting for projects during the year? What is the role of the fund manager in terms of providing a budget?

The process of net zero due diligence and pathway setting will crystalize the key players needed for success and make it clear the role they will need to play. This is also useful in identifying gaps within your organisation. Do you have the right skills in house to align to net zero? How much upskilling does your senior leadership need?

 

  1. Stakeholder alignment

Your net zero target won’t be achieved in isolation. Your supply chain will need to be engaged and on-board. Net zero due diligence is a great tool to engage tenants on the performance of their occupied buildings and start the conversation around dual initiatives to support both your and theirs net zero ambition.

For investors, net zero due diligence is a really clear snapshot of the risks and opportunities of a standing asset and helps shape the whole portfolio view. Showcasing asset performance through the lens of net zero to investors will force them to see ESG as a value driver and differentiator.

Contact us

Our team is already working with several complex, global organisations to conduct due diligence audits on their standing assets. Contact us today to find out how we could support you, info@carbon.ci

Further resources for real estate fund managers