The business case for decarbonization
Investing in decarbonization is a strategic decision that enhances asset value, mitigates risks, and ensures compliance with evolving regulations.
Regulatory alignment:
The rise of ESG-driven investment strategies means investors prioritize companies with clear net-zero pathways.
Risk mitigation:
Real estate portfolios that fail to address emissions may face devaluation as governments introduce stricter carbon policies.
Operational efficiency:
Upgrading buildings to improve energy efficiency reduces long-term operating costs while increasing occupancy rates.
What are scope 1, 2, and 3 emissions?
A key step in real estate decarbonization is understanding how emissions are classified. The Greenhouse Gas (GHG) Protocol categorizes emissions into three scopes based on their source and level of control.
Scope 1: Direct emissions
Scope 1 emissions are direct greenhouse gas (GHG) emissions from sources that a company owns or controls. These include fuel combustion in stationary and mobile assets, industrial processes, and fugitive emissions from refrigeration and air conditioning systems. Tracking these emissions is essential for businesses to manage their carbon footprint and comply with sustainability regulations.
For building asset owners, Scope 1 emissions primarily come from on-site fuel use, such as natural gas for heating, diesel for backup generators, and emissions from company-owned construction equipment. Fugitive emissions from HVAC systems and refrigerant leaks also contribute to a building’s overall footprint.
Scope 2: Indirect emissions from energy consumption
Scope 2 emissions are linked to the company’s energy purchases, such as electricity, steam, heating, or cooling. Although not directly generated by the company itself, these emissions result from external energy consumption. Effectively managing Scope 2 emissions is a key strategy for companies seeking to lower their carbon footprint and transition to more sustainable energy sources.
In buildings, electricity consumption is a primary source of Scope 2 emissions, powering essential systems like lighting, HVAC, and elevators. Additionally, district heating and cooling systems can contribute significantly to these emissions.
Scope 3: Indirect emissions from the value chain
These emissions are indirectly generated throughout the entire value chain, both upstream (e.g., purchased goods, employee commuting, business travel) and downstream (e.g., use of products, disposal of waste).
Understanding these emissions and their sources is critical for lowering carbon emissions and aligning with net-zero goals. Accurate measurement, reduction strategies, and progress tracking are essential to mitigate the environmental impact of investments.
SBTi’s buildings sector criteria: Who should use it?
To support real estate decarbonization, the SBTi framework provides asset owners, developers, property managers, and financial institutions with a methodology to reduce emissions across both new and existing buildings. With 80% of the buildings that will exist in 2050 already built (WEF, 2022), a significant focus must be placed on retrofitting existing structures alongside ensuring new developments meet stringent carbon reduction targets.
The criteria apply to multiple user groups, including developers setting emissions targets for new projects, owner-occupiers aiming to lower operational emissions, and property managers responsible for reducing the carbon footprint of managed assets. Financial institutions are also key stakeholders, as they address emissions related to financed buildings under Scope 3.
How to set science-based targets
SBTi provides businesses with a structured approach to setting emissions reduction targets. For real estate, this involves measuring and addressing both embodied emissions – those generated from raw material extraction, transportation, and construction – and in-use emissions from daily operations and maintenance.
Businesses can adopt different methodologies depending on the type of emissions they seek to reduce. The Sectoral Decarbonization Approach (SDA) is used for operational emissions, ensuring buildings gradually transition to net zero. The Upfront Embodied SDA applies to new construction projects, focusing on material selection and supply chain emissions. For broader carbon footprint reductions, Absolute Reduction Methods provide a comprehensive approach that accounts for emissions across an asset’s entire lifecycle.
Unlocking the value of circularity and LCA for decarbonization
A critical but often overlooked aspect of decarbonization is embodied carbon, representing a significant share of a building’s total emissions. This is where Life Cycle Assessment (LCA) and digital material tracking solutions, such as Madaster’s platform, provide invaluable insights. By mapping every material used in construction, Madaster’s material passport helps asset owners quantify and reduce embodied carbon while ensuring compliance with sustainability regulations.
LCA offers a holistic perspective on a building’s environmental impact, from the extraction of raw materials to eventual deconstruction. By leveraging LCA data, investors can make informed decisions on material selection, choosing options that minimize carbon emissions and align with SBTi’s Buildings Sector Criteria.
How Madaster supports emissions management
Madaster’s LCA dashboard analyzes each phase of a building’s life cycle to provide a clear view of embodied carbon. It helps asset owners evaluate the carbon footprint of construction materials, identify opportunities for emission reductions through sustainable alternatives, and visualize carbon impact in a 3D model.
Circularity tracking: Circularity is an essential factor in reducing environmental impacts over the long term. Madaster’s circularity dashboards allow users to assess the degree to which materials in their assets can be reused, recycled, or repurposed. Madaster examines material flows – both input and output – to help asset owners and investors identify barriers to circularity and discover sustainable alternatives.
KPIs for sustainable decision-making: Understanding KPIs related to embodied carbon and circularity enables asset owners to make informed decisions that align with their sustainability goals. Madaster’s dashboards compare materials, highlighting the most sustainable choices based on their impact on carbon emissions and resource usage.
Visit our dedicated Life Cycle Assessments page to learn more.
In conclusion
With shifting regulatory landscapes, increasing investor expectations, and financial incentives favoring sustainable buildings, asset owners and investors must act now to future-proof their portfolios. By integrating SBTi’s Buildings Sector Criteria and leveraging LCA insights alongside Madaster’s material passport technology, businesses can set science-based targets that not only reduce emissions but also enhance asset value and long-term market competitiveness.
