Since buildings and infrastructure consume over 40% of primary resources, the sector can make a crucial contribution to conservation. Christiane Conrads and Sebastian Kreutel report.

In the face of pressing climate and environmental challenges, the real estate sector has emerged as a key player in the pursuit of sustainability.

With the ambitious goals set by the Paris Climate Agreement and the EU Biodiversity Strategy for 2030, it is evident that urgent action is required to protect our planet’s biodiversity and promote circularity. To achieve these targets, it is crucial to have a closer look at the real estate sector, since buildings and infrastructure consume over 40% of primary resources globally.

To be precise, the sector is one of the main causes of species extinction and the destruction of natural ecosystems due to land sealing and resource consumption. Every week, an area the size of Paris is newly built. Considering global resource scarcity and the fact that we are exceeding planetary boundaries, the sector represents a significant lever and can make a crucial contribution to advancing resource conservation and efficiency.

Global economies’ transition to a circular economy – a production and consumption model that aims to maximise the use, leasing, reuse, repair, renovation and recycling of existing materials and products to extend their life cycle – provides a starting point to trigger this transformation.

Moreover, this model is to be supported by integrating biodiversity to maintain a stable ecosystem and to ensure a sustainable circular economy.

The integrated role of European regulations

The protection and the regeneration of biodiversity have a positive impact on the global climate, as does the transition to a circular economy. Awareness of the importance of biodiversity and the circular economy is therefore also becoming more prominent in current regulatory development at the European level.

The EU Taxonomy Regulation establishes a classification system for sustainable economic activities. It provides criteria for determining whether an economic activity is environmentally sustainable. Both topics are represented as part of its six environmental objectives (“the protection and restoration of biodiversity and ecosystems” and “the transition to a circular economy”).

A taxonomy-compliant economic activity must make a substantial contribution to at least one of these six objectives. At the same time, it must not have a significant negative impact on the other five objectives (fulfilling the principle: do no significant harm).

The Sustainable Finance Disclosure Regulation (SFDR) requires financial market participants and financial advisers to disclose information on how they integrate sustainability risks into their investment decision-making processes. The EU Taxonomy is intricately linked to the SFDR, as it provides the framework for determining which economic activities can be considered environmentally sustainable.

Hence, integrating the two environmental objectives – the circular economy and biodiversity –into the investment process is crucial, since financial market participants are required to disclose the proportion of their investments that align with the taxonomy’s criteria.

“Real estate companies can mitigate the effects of climate change, reduce emissions and gain a competitive advantage while making a positive contribution to the environment.”

But it is not only SFDR and the EU taxonomy that address the circular economy and biodiversity. The EU’s Circular Economy Action Plan provides for a wave of renovations and a revised Construction Products Regulation, with increased use of recycled materials, digital building logbooks, life-cycle analyses, targets for the recycling of construction and demolition waste, and a reduction in soil sealing.

The Global Biodiversity Framework also calls for the integration of biodiversity, and the EU Biodiversity Strategy for 2030 aims to support the Convention on Biological Diversity and achieve the restoration, resilience  and adequate protection of all ecosystems by 2050.

It also sets a milestone to ensure Europe’s biodiversity on the path to recovery by 2030, with no deterioration in the conservation trends and status of protected habitats and species.

The forthcoming EU nature restoration law aims to bring diverse and resilient nature back to all landscapes and ecosystems, ensuring environmentally sustainable management and use of ecosystems.

Furthermore, new regulations are being developed to ensure connectivity between ecosystems and reduce surface sealing in the real estate industry. These regulations, implemented as part of the Kunming-Montreal Global Biodiversity Framework, will have a substantial impact on the sector, promoting the preservation of biodiversity over the existing building stock.

The Circular Economy and Biodiversity

Circular economy

In the past few years, the concept of a circular economy has gained significant attention as a way of addressing the devastating environmental challenges posed by our current linear economic model.

By prioritising resource efficiency, waste reduction and the reuse of materials, a circular economy aims to create a sustainable and regenerative system. The circular economy is all about avoiding or minimising the use of resources and keeping the materials used in the economic process for as long as possible. In doing so, energy consumption and waste generation should be minimised.

Ultimately, the aim is to use circular-economy measures to reduce the burden on ecosystems, respect their maximum capacity and release fewer emissions than in a linear economy. The circular infinity loop model (see above) shows the transformation of a linear system into an infinite value chain.

There are sector-specific strategies for a circular transformation in the building and construction sector:

• Avoidance and reduction: preserving, renovating, reusing and repurposing existing buildings; designing buildings through circular design so that they are modular, durable, repairable and recyclable from the outset
• Sharing: utilising buildings more intensively through alternative forms of use
• Reuse: repurpose buildings for new forms of use, reuse building parts and materials, such as windows or support beams, in other construction projects
• Repair: regularly maintain buildings through repairs and (energy-efficient) refurbishments
• Remanufacturing: reprocessing building components and parts, such as floor slabs, and putting them back into circulation
• Recycling: separate building materials by type during demolition and recycle them to a high standard.

Biodiversity

According to the United Nations Convention on Biological Diversity, the term biodiversity refers to the variety of all living organisms, habitats and ecosystems on land, in water and in the air.

Biodiversity is increasingly threatened by land-use change in the context of unsustainable use of natural resources and the consequent change, loss and fragmentation of ecosystems.

The restoration and protection of the ecosystem have become increasingly important, since the world is experiencing a heavy loss of biodiversity, shown in the illustration below.

If business continues as is, the loss of biodiversity will continue at a dramatic rate. With increased conservation efforts, biodiversity and ecosystems could at least recover partially. However, if attention is also paid to sustainable production and consumption, biodiversity could even recover to its current level and beyond by 2100. This is particularly important with respect to the transition to a circular economy, but also regarding the role of real estate in the economy.

Although biodiversity and real estate seem to be different topics, there is an inevitable interaction and dependency between them. The way buildings are developed and used can impact biodiversity significantly.

On the one hand, the real estate sector is dependent on natural resources such as wood, gravel, sand or stone, and thus also on biodiversity. This is why it is particularly important for the construction sector to conserve it. As the world population is growing, the demand for living space, and hence for building materials, is increasing.

However, nature cannot produce these materials in line with consumption. Sustainable solutions and consideration of biodiversity are required, as the destruction of nature further exacerbates the problem of the scarcity of resources. Biodiversity should therefore be integrated into the building cycle, starting with the procurement of materials and integrating circular approaches in the building and construction value chain.

On the other hand, the sector has enormous potential to make a positive contribution to the preservation of biodiversity and environmental goals through nature-orientated design. This includes using wooden pavers instead of concrete to avoid further sealing, for example. Other options are green facades or roofs, species-rich green spaces, or multi-functional surfaces and biotope networks. Biotope areas can be improved by creating nesting spots, ponds or insect hotels to support native biodiversity.

Using these options, buildings may be better isolated in winter, but also better able to reduce accumulated heat in summer and to ensure more air exchange in cities.

Moreover, the improvement of air quality and noise and light pollution go hand in hand with integrated biodiversity in buildings.

More incidents of very heavy rainfall pose a major challenge for cities, as surface sealing overloads drainage systems and leads to damage to buildings. Sustainable water management and the creation of green spaces can counteract this, supporting biodiversity.

Integrating biodiversity not only benefits the environment, but also enhances the wellbeing of building users and owners. Being in a natural environment makes people feel more comfortable, which has a positive impact on their health and performance.

Incorporating plants in and around the building and treating wildlife with care contribute to a positive image of the property, increasing its value.

Furthermore, selecting plants that are well-suited and native to a location can reduce follow-up costs, as they are often more resilient, less prone to damage and require less maintenance.

Combining biodiversity and circularity in real estate

Integrating biodiversity and circularity concepts in the real estate sector is crucial for several reasons.

First, biodiversity conservation is essential for maintaining healthy ecosystems, which provide numerous services such as clean air, water and soil fertility. By considering biodiversity in circularity solutions, real estate projects can contribute to preserving and enhancing these vital services.

Second, circularity solutions can help reduce the real estate sector’s negative impacts on biodiversity. For example, by prioritising the use of recycled and renewable materials, developers can minimise the extraction of natural resources and reduce habitat destruction.

By combining biodiversity and circularity, the real estate sector can achieve a more holistic and sustainable approach to development. This integrated approach not only benefits the environment, but also enhances the resilience and long-term value of real estate assets.

Best practice

The following best practice examples, based on projects in Germany,demonstrate both the use of the circular economy and the creation and preservation of biodiversity.

Kirschgärten München

This development will transform a 100%-sealed commercial area into a green and climate-friendly residential neighbourhood. The creation of 60,000 sq m of green spaces, new plantings and a 24,000 sq m urban park will promote biodiversity and provide a habitat for plants, animals and insects.

This ecological diversity is to be further promoted by green roof terraces. The residential buildings are to be constructed using hybrid timber construction methods and a sustainable energy supply is to be ensured by means of photovoltaic systems and a CO2-neutral groundwater heat pump.

CRCLR Haus Berlin

The new impact hub in the CRCLR Haus in Berlin (below) is a community and co-working space, and a model project for circular design and construction.

The circular design of the building focused on reducing the need for virgin construction materials by using an existing warehouse and extending its functionality with the use of recycled and natural raw materials.

Building management focuses on waste reduction and an efficient-energy concept, as well as the use of modular, rented and reused furniture.

The design for the former warehouse in Neukölln took place in close cooperation with users, neighbours and experts. During the planning process, special attention was paid to the use of recycled building materials and their reusability.

Due to the modular construction method, the potential deconstruction and reuse of the components in the future are already considered today.

In doing so, the project avoided negative impacts on biodiversity by not extracting and processing substantial amounts of virgin resources and avoiding additional soil sealing.

Outlook

The real estate sector plays a significant role in shaping our built environment and has a profound impact on both the economy and the environment.

Governments and international organisations are increasingly committed to protecting the environment and promoting sustainable practices through regulations and acts. As the world copes with the challenges of climate change and biodiversity loss, integrating the principles of the circular economy and biodiversity conservation into the real estate sector becomes essential.

It is crucial to avoid considering circularity solutions separately from biodiversity concepts and vice versa, as both are interconnected and can reinforce each other. By integrating these concepts, real estate companies can mitigate the effects of climate change, reduce emissions and gain a competitive advantage while making a positive contribution to the environment and their carbon footprint.

Christiane Conrads is a partner and global real estate ESG leader and Sebastian Kreutel is partner and head of real assets financial services consulting at PwC Germany