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Offsets aren’t the solution to a net zero real estate portfolio

By Grace Melville
15th September 2021

What is net zero and what is the role of offsets in a portfolio net zero strategy? 

We sat down with Property Week to discuss what we mean by net zero and how do you encourage companies and businesses to think about creating a credible pathway to get there. Listen to the full podcast here.

Chair: Matilda Jacobs, Blackstock Consulting

Panel:

  • Jamie Oliver, Senior Consultant at Carbon Intelligence
  • Stanley Kwong, ESG associate Director at Aviva Investors
  • Tor Burrows, Executive Director of Sustainability and Innovation at Grosvenor

The podcast is part of Property Week’s Climate Crisis Challenge, a dedicated online presence to bring sustainability business intelligence, climate leadership and evidence of solutions and actions, which we became partners of earlier this year.

The role of offsets in a portfolio net zero strategy

Jamie Oliver, who leads on energy performance and decarbonisation programmes at Carbon Intelligence, urged asset and fund managers to rethink their strategy if it relies heavily on offsets. 

“If your strategy hinges on offsetting it means you’re spending that money on offsets when you could be investing in efficiency now to avoid the future costs of electricity, gas and of offsetting in the future” – Jamie Oliver

Similarly, Stanley Kwong pointed out that another risk of relying on offsets is becoming less attractive to investors and less eligible for loans, ‘we are quite clear in saying we will not provide sustainability linked loans if it’s through the use of offsets because fundamentally that doesn’t actually reduce the ESG risk for us’. 

For commercial real estate we are fortunate to have some really clear guidance on what net zero means for a commercial real estate asset. Probably the most recognised framework is from the UK Green Building Council who lays out a roadmap to net zero buildings both in construction and in operation. And the core of that roadmap is demand reduction – so reducing the amount of energy that your buildings are using. Before solar panels, or PPAs or offsets – first, get your house in order, don’t waste energy, only use what you need. That’s the foundation of a credible reductions pathway. And then once you’ve reduced your energy demand, you can look at renewables to meet your energy needs. 

It’s a more ambitious approach than simply going out and buying renewable energy certificates or offsets that can make you carbon neutral basically overnight. This is a longer term strategy working from the bottom up to make your assets more efficient, use less energy, use less carbon, rather than just going to your procurement department to solve the problem. 

“Mike Barry says you should only be allowed to offset once you have set a science-based target because that shows you’ve set that level of ambition and you’re willing to reduce your energy, reduce your carbon footprint down as low as you can before you go an rely on offsets in order to net out the rest to zero.’ – Jamie Oliver

 

Existing buildings vs new developments

Another key focus of the discussion was around dealing with existing building stock in the UK, specifically the perceived tension between ensuring the sustainability of buildings and protecting the historic characteristics of heritage sites. Tor Burrows from Grosvenor weighed in to argue that we need to protect our historic buildings and in order to protect this we need to make sure they’re resilient to climate change so really it’s a win-win situation. 

Existing building stock needs to adapt and it should be remembered that buildings have been through different uses, multiple lifecycles and constantly changing legislation. The transition to net zero is the next phase of adaptation to make sure they’re resilient. There’s a huge amount of civic pride in this country around historic buildings and we need to make sure they’re around for centuries to come. Part of that is making sure that they’re resilient to climate change and energy efficient going forward.

There are challenges to decarbonising old buildings as there’s limits to retrofits and refurbishments depending on asset type and whether it’s listed. Carbon Intelligence has worked on several optimisation projects with heritage sites including a Grade 2 listed building in Manchester which achieved 40% in annualised energy savings but achieving this across a portfolio requires investment, thinking about decarbonisation holistically and embracing innovative technologies. 

The existing building stock that we have now, four out of five buildings that are standing today, will still be standing in 2050 and so existing buildings have to absolutely be central to a portfolio decarbonisation strategy. There are many levers to pull when thinking about reducing demand: the role of on-site renewables, embracing new technologies and engaging with occupiers all should come before investing in offsets. By pulling these levers you will reduce demand but ultimately create better, healthier spaces for people to live and work in. 

Carbon Intelligence is committed to supporting organisations develop credible decarbonisation pathways to drive carbon reduction and net zero goals. Contact us today to find out how we could support you, info@carbon.ci

 

Further resources for real estate fund managers