Race to net zero

Decarbonising a fixed income portfolio

Decarbonising a direct real estate portfolio

Perhaps more than any other asset class, real estate stands at the crossroads between climate physical and transition risks. It is also responsible for about 37% of the global energy-related carbon emissions. In Europe alone, fossil fuels supply about 80% of the energy demand from buildings. That should make the sector a priority for investors to address climate change.

When implementing a decarbonisation strategy in real estate, investors need to consider the whole life-cycle carbon emissions of a building. Such an approach accounts for both operational emissions and embodied emissions, with the latter referring to construction-related emissions. As demonstrated in the below chart, refurbishments aimed at decarbonising an existing building typically emit less carbon than new green buildings. In our view, investors should prioritise refurbishments to help mitigate the effects of the climate crisis in real estate at scale. However, they also need to manage climate-linked investing risks such as regulatory changes, a lack of reliable data and the potential of assets to become obsolete.

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