Breaking Down Real Estate Net-Zero Targets

To address climate change, leading real estate funds and companies around the world are setting decarbonization and net-zero targets. These targets can differ widely and consist of many elements, and some may be more credible than others. In this report — which builds on our net-zero report for companies, “Breaking Down Corporate Net-Zero Climate Targets” — we outline an approach for evaluating real estate funds’ and companies’ decarbonization and net-zero targets. It aims to help the industry set net-zero commitments, as well as support asset owners in evaluating decarbonization targets of companies and funds they invest in. It argues that best practices for decarbonization and achieving net-zero are:

• Comprehensive: Include all significant sources of emissions, even those that may be hard to quantify, including Scope 3 emissions from tenant-controlled energy use and development activities.
• Ambitious: Pursue absolute reductions in the short and long term, in line with accepted, science-based pathways.
• Feasible: Demonstrate progress toward goals, supported by a robust business strategy

To test this approach, the authors piloted it on the 16 constituents of the MSCI Pan-European Quarterly Property Fund Index.  All MSCI Pan-European Quarterly Property Fund Index constituents that responded to our information request reported having a strategy in place; some with public-facing strategies. The sophistication of the strategy varied from fund to fund, and there appears to be a common maturity curve. Funds started by making a public commitment to reduce emissions and identify strategies. Next, they integrated initiatives into plans, setting timelines and formalizing approaches in policies and fund documents. The most mature strategies costed out decarbonization initiatives, including costs in financial plans and linking target performance to management or executive compensation.

The evolution of property funds' net-zero strategies