Out-Law / Your Daily Need-To-Know

An introduction to net zero carbon real estate

Out-Law Guide | 06 Sep 2021 | 9:16 am | 1 min. read

The world is in the grip of a climate emergency.

A series of reports from non-governmental organisations have warned about the catastrophic effects for society if efforts to combat climate change are not accelerated. The real estate sector has a major role to play in delivering some of the change required.

According to the Climate Change Committee, 23% of the UK’s greenhouse gas (GHG) emissions come from buildings and they are also responsible for 59% of the UK’s electricity consumption.

Legislation is driving change. In 2019 the UK’s Climate Change Act 2008 was amended to increase the target GHG emissions reductions of 80% against 1990 levels by 2050 to 100% - a target colloquially known as achieving ‘net zero’ emissions. On 3 December 2020 the UK announced an increase in its nationally determined contribution to the Paris Agreement being a target of a reduction on GHG emissions of 68% against 1990 levels by 2030. In April 2021 the UK government announced it would set a new legally binding target of emission reductions of 78% by 2035 against 1990 levels, as recommended in the sixth carbon budget.

The requirements to measure and report the climate impacts of a business are increasing too. Until now, reporting under the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations has been voluntary but this is increasingly set to become mandatory.

In November 2020 UK chancellor Rishi Sunak announced the UK would make TCFD-aligned disclosure mandatory by 2025 for the whole UK economy, with interim measures capturing an increasingly wide section of the economy between 2021 and 2025. The Pension Schemes Act 2021 will make it mandatory for pension funds by 2021 or 2022 depending on fund size. In November 2020 the Financial Conduct Authority announced a new listing rule requiring companies to make disclosures aligned with the TCFD recommendations in their annual financial report on a “comply or explain” basis which will apply to increasing numbers of listed companies between 2021 and 2025.

TCFD disclosure includes, if appropriate, ‘scope 3’ emissions which mean the real estate sector will need to become more concerned about the embodied carbon in their new developments and in other building works, and in their tenants’ fuel and electricity use.

The real estate sector will increasingly be subject to legal requirements designed to drive a transition to net zero carbon and will need to think about how to meet those requirements while adding value and driving change at the same time.

Thought needs to be given to a wide-range of issues, from renewable and low carbon energy solutions, green finance, planning, carbon offsets and electric vehicle infrastructure, as well as issues relating to property acquisition and disposal, asset management and the end of buildings’ life. All trigger legal requirements, from issues around planning consents, funding, tax, energy solutions, the procurement for and construction of assets, granting of leases, setting up of funds and investment vehicles and delivering or contracting for carbon offsets. All are relevant to the real estate sector’s environmental, sustainability or net zero carbon targets.