How will ESG drive opportunities for real estate and construction industry? How can the sector decarbonize?

Impact Analysis

Nearly 39% of global energy-related carbon emissions are attributed to buildings. Approximately 70% of these emissions are produced by building operations, while the remaining 30% comes from construction. Building are everywhere, touching every segment of over lives: households, offices, education, health institutions, retail, etc.

Global and national climate goals demand sharp emissions reductions in both operations and construction, which can only be achieved through significant changes within the real estate sector. As world population continues to grow and urbanize, the globe is experiencing an unprecedented building boom. Based on current estimates, the rate of global building stock growth is equivalent to adding a new New York City every month for the next four decades. Approximately two-thirds of the global building area today will still be around in 2040. While net-zero aligned construction is an important component of sustainability, emissions reduction strategies must incorporate existing buildings too.

Today, more and more companies are setting their base line (Scope 1, 2, and 3) and their goals towards 2030 and 2050 agendas. As we go, the risk of increasing regulatory obligation will force leaders to work towards sustainability.

Sustainable operation

Despite the fact that the construction industry’s supply chain is complex, operational improvements can bring value to various stakeholders across value chain.

Retrofits to boost energy efficiency can lower future energy bills, meet rising efficiency standards, and improve property desirability. By looking into improvements, such as: switching to LED, upgrading heating, ventilation, and air conditioning systems (HVAC), optimizing water use, integrating digital solutions, using more efficient appliances etc: 40-80% savings on energy bill can be generated. Only by automatizing lightning switch in large buildings and offices, can optimize 20% of electricity consumption. Green technology, such as building solar panel park can bring costs down, create jobs, improves impact on planet, and empower community. This means that optimizing and modernizing building technologies can drive sustainability directly and have a positive impact on climate change

Closely related to the retrofitting of these important operational systems is electrification. Electricity must come from low-carbon sources and property owners should commit to purchasing an increasing share of their electricity from clean sources going forward. Renewable energy supply is one of the key focus area for decarbonizing operations. Great examples are: Apple Park in Cupertino (Apple’s operations are generally globally powered by 100% renewable energy), Microsoft, Google etc.

Efficient infrastructure relies on quality. Challenges in construction and design comes from tendency to save costs. But looking into LCA and efficiency, quality can’t be compromised. Especially talking about Stranded Assets – buildings that by the time they are built (sometimes takes 10 years), will need a refurbishment 5 years after being built due to constantly changing regulations, so it makes more financial sense to invest now, than being forced to refurbish soon.

Long-term service-based solutions are the foundation of a strategic partnership.

SROI is gaining momentum

Safe, secure and healthy environment has been always a key priority to construction industry players. Today, more than ever, stakeholders are demanding to see beyond financial reporting what an organization is doing to create an impact on the environment, society, and local economy. SROI is becoming as important as ROI. We can see SROI being actualized through WELL standard that shows that incorporating safety and healthy environment improves efficiency, PEX and bottom line, impact of healthier buildings on HR metrics and especially productivity. WELL standards has started enrolling across different hotel chains, representing well-being in hotel rooms (ex. Vegas, Hawai, etc.)

Digitally enabled environment and data

The regional focus is on cutting edge technologies, data and digitalization that is enabler for growth. Smart and automatized systems are proven to be efficient, by putting in place: control, management, data, and measurement. WiredScore as a new certification for smart buildings that should stimulate data use.

The whole world is moving to actual – measured data (energy bills or submeters) from previous modelled data. As an example, in the UK all buildings have to meet at least EPC (Energy Performance Certificate), otherwise it is going to be illegal to rent them from April 2023 even if you have existing tenants.

Thanks to data driven and controlled environment, the buildings’ owners are able to sell higher level services to the customer, enabling competitive advantage for them in the marketplace. Post-occupancy evaluation (performance benchmarking) is must-have in order to empower stakeholders across the value chain to differentiate and stand out.

The UAE Market

Despite the fact that the regulations are not strict yet, the key stakeholders in the contraction industry should understand that they have an opportunity not only to mitigate future risks, but take early steps in using momentum to attract FDI into the region.

Incorporating sustainability into a corporate strategy and decision-making process is the first step to take, followed by ESG assessment, and stakeholder action plan.  Non-financial sustainability reporting, including the impact assessment, is a key for both, internal and external communication. This is important not only for market positioning and reputation, but for maximizing opportunities for innovation and expansion. By focusing on human and social capital, an organization can financial capital.

Who can drive the change?

Emirates Green Building Council established the Net Zero Centre of Excellence in January 2018, as a think-tank and accelerator, which aims to advance the net zero buildings movement in the UAE. Partnership with the International Living Future Institute (ILFI) allows for the certification of buildings under the Zero Energy and Zero Carbon certifications, with EmiratesGBC acting as the exclusive auditor within the UAE.

In 2014, the Dubai Government released Dubai Plan 2021 which aligns with the UAE Vision 2021 and the Green Economy for Sustainable Development Initiative and aims to position Dubai at the forefront with a primary focus on the happiness of residents, society, and economy, as well as smart and sustainable cities. Dubai Government also announced in 2016 the Dubai Clean Energy Strategy (DCES) 2050 to increase the clean energy share and diversify the energy mix of the Emirate. Along with Dubai’s plan to be the most sustainable city in the world by 2020, the aforementioned strategies serve as tools to drive the progress of green buildings and sustainability in the Emirate. 2019 saw Dubai becoming the first city in the Arab world and the Middle East and North Africa (MENA) region to receive the prestigious Platinum Rating in the LEED for Cities certification

The companies that are in advance ESG stage can leverage education and engagement with clients in supporting them with their targets. We can see more and more “sustainability umbrellas models” where sustainability department gets strategic role in the organizational chart in order to drive momentum and development across all verticals and product lines. The companies that are in the early ESG stage can learn from peers, collaborate and work on smart partnerships. We continue to relay on government policies to encourage smart buildings and energy efficiency solutions.

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