The economy is intrinsically linked to the built environment. By decarbonising buildings, we decarbonise all who engage with them, writes Robbie Epsom.

COP28, the United Nations’ flagship climate summit, held in Dubai in December, signalled the beginning of the end for the fossil fuel era, with the transition away from fossil fuels included in the conference’s text for the first time.

The landmark consensus, reached after intensive negotiations, sought to balance the imperfect trade-off between economic reliance on fossil fuels and necessary climate action.

The fact that the agreement was reached under the COP presidency of the United Arab Emirates, in a region with economies highly dependent on fossil fuels, had profound significance. It signalled that a new, sustainable, economy is emerging, and all nations and regions must adapt.

Urgent action is required from the global business community to accelerate investment in the transition.

First Global Stocktake provides a wake-up call

At the heart of COP28’s deliberations was the inaugural global stocktake, a sobering assessment of progress towards the goals outlined in the 2015 Paris Agreement.

The stocktake highlighted alarming trends: global greenhouse gas (GHG) emissions continue to rise, surpassing previous records and jeopardising the Paris Agreement’s objective of limiting global warming to 1.5C above pre-industrial levels. Global GHG emissions are now 6% higher than in 2015, according to numbers published by the Global Carbon Project on the eve of COP28.

The urgency of the situation cannot be overstated – without drastic measures, we risk deviating significantly from our climate targets. We hope  the stocktake findings, heard in person by global business leaders across industries, will serve as a wake-up call to prompt decisive action to phase out reliance on fossil fuel energy.

COP28 witnessed the endorsement of 11 pledges, including tripling renewable energy capacity and doubling energy efficiency by 2030. Renewable energy capacity must increase to 11,000GW and the rate of energy-efficiency improvements must double from 2% to 4% annually.

Deep emissions cuts will be required across heavy-emitting industries over the next two years, including in real estate and construction. A scaled-up mobilisation of climate finance will also be needed.

This ambitious agenda, backed by 124 countries, including the world’s biggest emitters – China, the US, the EU and India – signifies a collective commitment to prioritise sustainability in the global energy transition.

The success of these pledges, however, hinges on effective implementation and robust policy frameworks at the national and regional level.

On the issue of mobilising climate finance, COP28 referenced a multitrillion-dollar funding gap between flows and investment needs in emerging markets and developing economies. Acknowledging the limited ability of poorer nations to meet emission-reduction targets, 19 countries pledged $792 million to capitalise a loss and damage fund to support developing countries in tackling the dire impacts of unchecked climate change.

Although this is a positive first step, a comprehensive bridging of the $2.4 trillion yearly climate finance gap over time will be required.

Spotlight on the built environment

More than previous meetings, COP28 turned the spotlight on the built environment as a focal point for necessary transformation.

The economy is intrinsically linked to the built environment and all businesses operating within it. By decarbonising our buildings, we inherently decarbonise all those who engage with them – residents, occupiers, suppliers, customers, and commuters.

With the global operations of buildings responsible for approximately 30% of all energy demand, according to the International Energy Agency (IEA), and contributing more than 25% of annual global GHGs, the real estate industry has a critical role to play in decarbonisation. As real estate managers, we must implement clear plans to transition assets to zero-emission buildings (ZEB).

“With the operations of buildings responsible for 30% of all energy demand,the real estate industry has a critical role in decarbonisation.”

Robbie Epsom, CBRE Investment Management

Recognising this, the Buildings Breakthrough initiative, launched by the French and Moroccan governments, alongside the UN Environment Programme (UNEP), was established at COP28 as part of the Breakthrough Agenda. The initiative was intended as a framework to coordinate and advance the decarbonisation of the buildings and construction sector.

The initiative’s objective of achieving near-zero emissions and climate-resilient buildings by 2030 (strikingly similar to the European Commission’s Nearly Zero-Energy Building label) underscores the sector’s potential to drive positive systemic change.

Currently, more than 25 countries – including the US, China, Japan and the UK as well as the European Commission – have committed. We are hopeful that these first-of-their kind collective agreements will drive more ambitious environmental policy and emerge as a catalyst to change how the industry operates.

An annual assessment of the sector’s progress will be undertaken globally, supported by the Global Alliance for Buildings and Construction (GlobalABC), the IEA and the International Renewable Energy Agency (IREA).

Buildings must be electrified responsibly

Central to the built-environment transition is the responsible electrification of buildings, which demands strategic planning and stakeholder collaboration. While the imperative to transition to renewable energy sources is clear, the path forward is nuanced.

At the asset level, we have to electrify buildings to reduce emissions. However, we must ensure electricity consumption is as efficient as possible, while sourcing electricity from renewable energy, whether on site or via credible off-site solutions.

We also need to engage and influence our value chain to do the same and address any residual emissions from our properties that are not feasible to abate with investments in credible nature- or technology-based GHG removal.

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Landlords and investors must navigate technological feasibility, economic viability and environmental impact to ensure a seamless transition. Coordination with occupiers, investors and lenders is paramount, as is adherence to existing industry benchmarks and standards, such as the European Commission’s definition of zero-emission buildings.

Progress towards electrification and ZEBs remains hindered by a lack of standardised metrics and benchmarks to evaluate success and assign value. Addressing this gap requires a concerted effort to establish clear KPIs and performance standards that reflect the diversity of building types and climates (ie, what energy intensity in kWh/sq m/year defines a highly energy-efficient building across different asset classes and climate regions).

New COP-aligned benchmarks

When these finer points are agreed on, value can be assigned to buildings that are above and below the thresholds, creating new COP28-aligned, green-building benchmarks. We are beginning to see this thinking in the EU’s Energy Performance of Buildings Directive (EPBD) and guidance which has just been published by RICS on sustainability and ESG in commercial property valuation – WBEF ESG and valuation 2024.

Even with an imperfect system, adjustments can be iteratively integrated as long as a significant proportion of the market agrees to utilise the best existing frameworks and consistently plugs gaps.

Within the market, consistency in assessing sustainability performance is vital to ensure a level playing field. A convergence between regulation and market drivers is helping to drive positive change.

Equally, regulatory terms such as ZEBs, as defined by the EPBD, provide a common language for comparable labelling of sustainability performance (even if greater clarification is needed on the specific methodology for determining this). We can then start to close the climate funding gap further through demonstrating the value proposition of ZEBs.

Concrete actions

While COP28 represents a significant milestone in the global fight against climate change, its success ultimately depends on the concrete actions taken in the aftermath.

The transition to ZEBs (underpinned by electrification) demands unwavering commitment, innovation and collaboration.

The certainty and stability the industry needs to tether investment and innovation plans still has to be delivered through national policies, but we must not allow this uncertainty to blunt momentum and action.

There are trillions in positive investment waiting to be put into action. We need to make sure that an inability to consistently define KPIs in the context of value creation does not prevent investment funding from being deployed.

At CBRE Investment Management, our ZEB road map uses a hierarchy of ‘four Es’: energy efficiency, electrification, energy procurement and embodied carbon. We aim to electrify and make buildings energy efficient, sourcing electricity from credible renewable sources (onsite wherever feasible) and working with our value chain to do the same. This provides a pathway for them to become ZEBs with minimal value chain emissions.

Robbie Epsom is EMEA head of sustainability at CBRE Investment Management