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Asset Owners Fund Real Estate Decarbonisation Pathways Initiative

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Stockholm (NordSIP) -The Global Real Estate Sustainability Benchmark (GRESB) and the Institute for Real Estate Economics (IIÖ) in Austria launched the Real Estate Decarbonisation Pathways Initiative. APG, PGGM and Norges Bank Investment Management (NBIM) funded this initiative to provide decarbonisation recommendations to help owner of real assets meet the recommendations of the IPCC and the goals of the Paris Agreement.

APG is the largest pension delivery organisation in the Netherlands, with €514 billion in AUM. PGGM is a cooperative Dutch pension fund service provider, with €238 billion in AUM. NBIM is the largest sovereign wealth fund in the world with US€$1 trillion in AUM. GRESB is an investor-led ESG benchmark for real assets. With US$ 4.5 trillion in real asset value, its 2019 real estate benchmark covers more than 1,000 property companies, real estate investment trusts (REITs), funds, and developers and its coverage for infrastructure includes 500 infrastructure funds and assets.

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The initiative will develop pathways for real estate assets decarbonisation that are consistent with 1.5°C and 2°C global temperature increases based on the global carbon budgets identified by the Intergovernmental Panel on Climate Change (IPCC). Each pathway will extend to 2050 and include annual estimates of building-related carbon emissions (CO2 per m2/ft2) and energy (kWh per m2/ft2) performance aligned with the global warming goals as set out in the Paris agreement.

“Property type-specific transition pathways will be an important addition for assessing the ESG performance of both listed and private real estate investment portfolios,” said Sander Paul van Tongeren, Managing Director of GRESB. “The transition pathways enable GRESB to not only assess ESG performance against industry peers, but also against the commitments made in the Paris Climate Agreement. For the wider real estate investment industry, the pathways will be an important tool to understand and mitigate the long-term systemic risk associated with the retrofit investments required to transition to a low carbon economy.”

The initiative builds on the Carbon Risk Real Estate Monitor (CRREM) project, funded by the European Commission. The CRREM project analysed carbon risk in the European commercial real estate sector earlier. This initiative will expand the CRREM to include major real estate markets outside the EU and the residential sector. The decarbonisation pathways developed for each market can be used as a proxy measure for transition risk to meet the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).

“Decarbonisation pathways based on a transparent methodology that is aligned with the Paris Agreement offer a tool for understanding and managing transition risks, enabling investors to benchmark assets and derive significant risk indicators,” commented Professor Dr Sven Bienert, Managing Director, IIÖ Institute for Real Estate Economics. “The positive industry feedback in the CRREM project confirms this conviction, and it seems to be the logical next step to extend the approach we developed for EU commercial real estate to further countries and the residential sector.”

The decarbonisation pathways will be released for public consultation by February 2020. GRESB and IIÖ encourage the relevant market participants – including investors, managers, Real Estate Investment Trusts (REITs) and green rating systems – to share their views on the decarbonisation pathways and help develop a common language for assessing climate transition risk in real estate.

Image by Foto-Rabe from Pixabay

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