Despite claims that the covid crisis has raised the profile of ESG as employers and building owners have become more conscious of the quality of working environments, and traffic reduction has dramatically cut air pollution, not everybody thinks that the change has been as fundamental as it needs to be. The hype may have been bigger than the actual change in the view of Olivier Elamine, CEO of Alstria REIT.
“What we think is going to accelerate is the communication around [ESG] and unfortunately not necessarily the action around it,” Elamine said in conversation with Real Asset Insight’s Richard Betts.
“From my perspective, the whole net zero debate is the wrong debate because it pretends that you can run real estate without emitting carbon, it pretends you can build real estate without emitting carbon. I know that the net zero advocates will argue that this is not how net zero is defined. But for me, when you need to look into the definition of something to understand what it is and that understanding is different, that’s the the definition of marketing,” Elamine said.
“I think that the topic is way too important to be dealt with through marketing claims,” he added.
He conceded that there are a number of initiatives which are doing good and going in the right direction, but overall they are in the minority. And he said that there is no real appreciation of the cost of combating climate change.
“I think the elephant in the room is really how much it’s going to cost and nobody is really willing to have that conversation. Unless we have that conversation it’s going to be very difficult to move.”
A 2020-sized emission reduction is needed every year until 2050
And the action required does have to be more drastic. In order to reach the 2030 carbon reduction target, every year until 2050 carbon emissions globally need to be reduced by the same amount as was the case in 2020.
“So we need a covid crisis every year between now and 2050 to reach the target, that’s the gap.”
He said that the discussion within Alstria is whether it is best to protect assets from climate change risks, such as flooding, or to sell those assets at most risk and reinvest in less vulnerable stock.
“You ask yourself whether or not it still makes sense to try to avoid the train wreck and just protect yourself for the shock, invest in an airbag. I think this is going to be a conversation that’s going to take place more and more. If there is no government action I am very much pessimistic about getting anywhere and currently there is no government action.”
A stringent carbon tax is needed and we need to lobby for it
A referee is needed to change the rules of the game, he said. And there is a massive role for the real estate industry, and actually all industries. “We need government to implement a stringent carbon tax and we probably need to start lobbying for that.”
He said that this might sound like lobbing against the industry’s own interests, as no company likes to be taxed. “But I think if we we’re really serious about solving the carbon crisis this is the only way to take it further.”
He added that a carbon tax needs to be of sufficient magnitude “to actually move the needle” and pointed out that Germany has imposed a €25 per tonne of CO2 carbon tax on everything including real estate. But for Alstria, for example, this is a €15 000 per year tax that is completely painless. “It needs to be substantially higher to be able to make a difference.”