Sustainable buildings: investing to tackle the 40% challenge for a climate-resilient future
Marketing Communication
Pictet Asset Management at The Klosters Forum
In the climate change debate, real estate is the elephant in the room.
Our homes, offices, shops and recreational spaces -- the physical infrastructure crucial to human prosperity and wellbeing - account for around 40 per cent of global carbon emissions. What is more, the built environment is also responsible for numerous other ecological problems, including excessive water usage, electricity usage, and waste on a similar order of magnitude.
How to shrink the real estate industry’s environmental footprint was the focus of this year’s Klosters Forum on “how to design and build for a regenerative future”.
During a three-day meeting in June, participants took part in detailed discussions covering issues ranging from sustainable construction, regenerative practices, innovative buildings design and materials and the role of nature.
Launching the debate on the theme: “how to tackle real estate’s 40 per cent challenge and realise a climate-resilient future”, representatives from Pictet Group explained why assessing real estate’s environmental credentials is fraught with difficulty.
Did you know?
Our homes, offices, shops and recreational spaces account for around 40% of global carbon emissions
Source: World Economic Forum, 2021
Zsolt Kohalmi, global head of real estate and Deputy Chief Executive Officer at Pictet Alternative Advisors, pointed to the “time value of carbon emissions” as an example of the complexities facing real estate companies and investors as they attempt to shift to more sustainable practices.
For an average life of a building, Kohalmi said up to 45 per cent of total emissions occur in the first couple of years – a construction phase of a project that involves extraction of raw materials, manufacturing, transportation, installation, and disposal of waste.
These emissions – otherwise known as embodied carbon – are far greater than those of operational carbon, which is the amount of carbon emitted annually once a building is in use.
The Klosters Forum participants, who included architects, urban planners, green building start-ups, material scientists and investors, shared personal experiences and offered insights on how to tackle real estate’s environmental problem.
A few themes stood out. The role of nature in the built environment was one.
Participants agreed on the need for the built environment to be reconnected with nature.
This would involve a number of novel construction techniques, including incorporating natural and regenerative elements into building designs, experimenting with innovative bio-based materials such as timber and algae and carrying out strategic reforestation, afforestation, and other carbon capture methods.
“As (Italian botanist) Stefano Mancuso says, we’re living in nature and plant blindness. We have to incorporate nature into our culture; culture is not antithesis to nature,” said Mikolaj Sekutowicz, a participant and partner responsible for Strategic Development and Culture at Therme Group, a German resort developer.
The rewilding of cities could also help reduce the environmental impact of buildings. Among the most high-profile projects is Bosco Verticale (Vertical Forest), a residential block in Milan.
Towering 111 metres and 76 metres high, the twin buildings together have 20,000 trees, shrubs and perennial plants, mitigating smog, producing oxygen, reducing energy consumption and sequestering carbon. What is more, residents of the building have expressed a high degree of satisfaction with comfort levels and thriving green areas 1 . This offers a prime example of biophilic architecture that can connect people and nature.
But the construction of new buildings, even using sustainable techniques, is no panacea, participants were told. In many parts of the developed world, where buildings were constructed during the last decades, retrofitting might be a better way to reduce carbon emissions.
"There is a need for the built environment to be reconnected with nature."
Zsolt KohalmiDeputy CEO & Global Head of Real Estate
In Europe, for example, some 90 per cent of buildings were built prior to 1990 and 40 per cent before 1960. Studies have shown that refurbishing can result in 70 per cent less emissions than new construction given the issue of the previously mentioned embodied carbon emissions 2 .
This is not to say, however, that other parts of the world do not need new buildings. Economies in Asia, Africa and Latin America will require more residential and commercial floor spaces to accommodate a growing population.
“A one size fits all approach doesn’t work in promoting sustainable buildings,” said Stephen Freedman, head of research and sustainability for Thematic Equities at Pictet Asset Management.
Instead, he added, a customised approach is essential to develop climate-resilient neighbourhoods in close collaboration with local communities. Location-specific features must be factored in, such as building technologies that are suited for different geographies and reflect the local availability of raw materials.
The Italian city of Venice – whose very existence is threatened by climate change - can serve as an inspiration.
When it was built 1,600 years ago, it used water-resistant alder trees that were abundant in nearby forests as foundations to stay afloat on the marshland. Now, the city is safeguarding its future by turning to new nature-based solutions.
For example, it is using locally sourced natural materials and labour to build fortifications in its salt marsh belt, which represents the city’s best defence against storm surges and waves 3 . The bioengineering project has also engaged residents and businesses, providing employment and economic opportunities in the local community.
As Venice’s efforts demonstrate, governments and municipal authorities play a key role in sustainable construction.
Forum participants agreed that policymakers should adopt a carrot and stick approach – incentivising climate and nature-positive companies and projects with tax breaks and smart subsidies while penalising and regulating firms that fail to take action. Such policies should help highlight the true financial and social cost of non-sustainable buildings.
But attendees also warned against the industry relying exclusively on top-down approaches. Instead, they called for decentralised decision-making involving local communities. They also emphasised the role of “soft power” such as education initiatives and better climate reporting.
“We need a framework where everyone can participate in regenerative development,” one participant said.
Increasing investing in research and development (R&D) should also be a priority to enhance competitiveness, foster innovation and accelerate sustainable transition. The construction sector is traditionally considered conservative and low-tech due to the lack of R&D investment, which is estimated to be in low single digits as a percentage of revenue, compared with at least 10 per cent for healthcare and IT counterparts. Here too, tax reliefs – such as the UK’s tax credits on R&D activity in the innovative use of green methods -- can help encourage investment in growth and sustainable innovation.
The financial industry has a duty to address and improve real estate’s 40 per cent problem. At the same time, sustainable transition in buildings represents a large, long-term and growing investment opportunity. Specifically, the industry should mobilise private capital into sustainable buildings to meet increasing demand from investors for impact solutions which incorporate environmental, social and governance (ESG) aspects.
"A one-size-fits-all approach doesn't work in promoting sustainable buildings."
Stephen FreedmanHead of research and sustainability, Thematic Equities
One participant quoted former British Prime Minister Winston Churchill who said in 1944: “We shape our buildings; thereafter they shape us.” As demand for more efficient, environmentally-friendly building is poised to grow, participants called for a more thoughtful approach to how we construct, run, refurbish and demolish buildings, to make the built environment climate resilient and equitable for all.
[1] https://www.worldgbc.org/news-media/bosco-verticale-not-easy-being-green
[2] European Union, In focus: Energy efficiency in building, 2020; American Institute of Architects, BHSF and EHA, 2021
[3] https://webgate.ec.europa.eu/life/publicWebsite/index.cfm?fuseaction=search.dspPage&n_proj_id=4555
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