Carbon Risk Real Estate Monitor · ista International Hans Martin Hermann (Senior Manager Public Affairs) Zurich Insurance Group Roger Baumann (COO Global Real Estate & Head Product

This project has received funding from the European Union’s Horizon 2020

research and innovation programme under grant agreement no. 785058.

Carbon Risk Real Estate Monitor

This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 785058.

Final version V0.94 | 20.05.2020

Report on Completion of Pilot Testing Phase

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase II



THE CRREM TEAM GRATEFULLY ACKNOWLEDGES THE SUPPORT AND ADVICE RECEIVED FROM THE EUROPEAN INVESTOR COMMITTEE IN THE COMPILATION OF THIS REPORT

INSTITUTIONAL INVESTORS & CORPORATE PARTNERS

Aberdeen Standard Ruairi Revell (ESG Manager, Real Estate)

Land Securities Fernanda Amemiya (Sustainability Reporting Manager)

AEW Europe Hans Vrensen (Managing Director, Head of Research & Strategy)

Metro AG Olaf Schulze (Director Facility, Energy & Resource Management)

alstria Alexander Dexne (CFO)

Robert Kitel (Head of Sustainability & Future Research)

Nelson Group Carlos Morgado (Project Manager)

APG Asset Management Derk Welling (Senior Responsible Investment & Governance Specialist)

PGGM Mathieu Elshout (Senior Director Private Real Estate)

BNP Paribas Real Estate Consult Hermann Horster (Regional Director, Head of Sustainability)

RE-sponsibility Michael Ullmann (Managing Director)

ECE Projektmanagement Maria Hill (Director Sustainability & Internal Services)

Savills Investment Management Barbara Linnemann (Head of Asset Management Germany)

Gerhard Lehner (Managing Director, Head of Fund Management)

Grosvenor Emily Hamilton (Sustainability Manager)

Union Investment Jan von Mallinckrodt (Head of Sustainability, Head of Segment

Development)

ista International Hans Martin Hermann (Senior Manager Public Affairs)

Zurich Insurance Group Roger Baumann (COO Global Real Estate & Head Product Development)

INDUSTRY BODIES & ACADEMICS

BBP Better Buildings Partnership Christopher Botten (Programme Manager)

INREV European Association for Investors in Non-Listed Real Estate Vehicles

Federica Miano (Public Affairs Manager)

CDP Alberto Carrillo Pineda (Director Science Based Targets and

Renewable Energy)

ULI Greenprint Center for Building Performance Marta Schantz (Senior Vice President)

DGNB German Sustainable Building Council Anna Braune (Director Research and Development)

University of Cambridge Franz Fürst (Professor of Real Estate and Urban Economics)

DGBC Dutch Green Building Council Martin Mooij (Head of Certification and Project manager DGBC

Deltaplan sustainable renovation)

World Green Building Council Stephen Richardson (Technical Lead - Energy Efficiency Mortgages)

EPRA European Public Real Estate Association Gloria Duci (ESG Officer)

ZIA German Property Federation Philipp Matzke (Consultant Energy and Climate Protection, Facilities

Engineering)

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase III



Authors

Institut für Immobilienökonomie / Institute for Real Estate Economics (IIÖ, project coordinator, Austria)

Jens Hirsch, Julia Wein, Sven Bienert, Maximilian Spanner, Peter Geiger, Juan José Lafuente

University of Ulster (UU, United Kingdom)

Martin Haran, Peadar Davis, Michael McCord, Daniel Lo

GRESB BV (GRESB, Netherlands)

Erik Landry, Rik Recourt

Universidad de Alicante / University of Alicante (UA, Spain)

Paloma Taltavull, Raul Perez, Francisco Juárez, Ana Maria Martinez

TiasNimbas Business School BV, Tilburg University / Universiteit van Tilburg (TU, Netherlands)

Dirk Brounen

EDITOR: IIÖ Institut für Immobilienökonomie GmbH, Josef-Steinbacher-Straße 1, A-6300 Wörgl, Austria

CONTACT: [email protected]

DATE: May 2020

COPYRIGHT: The content of this study is the property of the CRREM consortium. Its use, copying, circulation, translation, microstorage, storage and processing using electronic systems for commercial or other purposes is only allowed within the frame of the applicable legal regulations.

ISSN: 2663-7634

TITLE PHOTO: Images: Creative Commons Zero CC0 | Digital Image Composing: Jens Hirsch

DISCLAIMER: The sole responsibility for the content of this publication lies with the authors. It does not necessarily reflect the opinion of the European Union. Neither the EASME nor the European Commission are responsible for any use that may be made of the information contained therein.

CITATION: Landry, Erik; Hirsch, Jens; Wein, Julia; Bienert, Sven; Spanner, Maximilian; Geiger, Peter; Lafuente, Juan José; Haran, Martin; Davis, Peadar; McCord, Michael; Lo, Daniel; Taltavull, Paloma; Perez, Raul; Juárez, Francisco; Martinez, Ana Maria; Brounen, Dirk (2020): CRREM Retrofit Harmonisation Roadmap. A Guide to Policy Formulation in the European Commercial Real Estate Industry. CRREM Report on Completion of Pilot Testing Phase, 2020, Wörgl, Austria.

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase IV



Table of Contents

A.1 Decarbonisation and Energy Reduction Pathways ..................................................................................... A.2

A.2 Asset-level Analytics .................................................................................................................................. A.3

A.3 Portfolio-level Analytics ............................................................................................................................. A.6

B.1 Institutional Investors, Pension Funds and Insurance Companies ............................................................... B.2

B.2 REITs, Property Companies and Other Asset Owners.................................................................................. B.2

B.3 Corporates ................................................................................................................................................. B.3

B.4 Certification Bodies .................................................................................................................................... B.3

B.5 Industry Bodies .......................................................................................................................................... B.3

B.6 Academia ................................................................................................................................................... B.3

B.7 Consultants ................................................................................................................................................ B.4

B.8 Fund-, Asset and Investment Managers ..................................................................................................... B.4

B.9 Separate Testing by the European Investor Committee (EIC) .................................................................... B.4

D.1 Task Force on Climate-related Financial Disclosures .................................................................................. D.2

D.2 World Green Building Council (GBC) - Advancing Net Zero: Net Zero Carbon Buildings Commitment ......... D.4

D.3 EU Taxonomy for Sustainable Activities ..................................................................................................... D.5

D.4 Global Real Estate Sustainability Benchmark (GRESB) ............................................................................... D.6

D.5 Science-Based Targets Initiative (SBTi) ....................................................................................................... D.6

D.6 Global Reporting Intiative’s (GRI) Sustainability Reporting Standards ....................................................... D.7

D.7 European Real Estate Association (EPRA) Sustainability Best Practice Recommendations ......................... D.7

D.8 Principles for Responsible Investment (PRI)................................................................................................ D.8

E.1 CRREM Roll-Out: From EU Commercial Real Estate to the Global Building Sector ....................................... E.2

E.2 Integration with GRESB ............................................................................................................................... E.3

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase V



CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase VI



EXECUTIVE SUMMARY

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase VII



The Carbon Risk Real Estate Monitor (CRREM) project has developed a science-based downscaling methodology to

derive decarbonisation pathways that are consistent with the goals of the Paris Climate Agreement. These pathways

have been derived at the level of specific building types in individual countries (for further details please see

www.crrem.org/pathways and https://www.crrem.eu/publications/reports). In order to make this information

immediately actionable by real estate portfolio managers and institutional investors, CRREM has constructed a freely

available and easy-to-use tool (to directly download the tool please visit www.crrem.eu/tool.

The CRREM Risk Assessment Tool offers the possibility for its users to evaluate the progress of a commercial real estate

portfolio’s carbon reduction performance against decarbonisation targets in line with the Paris Agreement (i.e.,

limiting global warming to 2°C or 1.5°C or individual target setting). The CRREM tool helps to identify which properties

will be at risk of stranding due to the expected increase in stringent building codes, regulation, shifting market

expectations and increasing carbon prices. It also enables an analysis of the effects of refurbishing single properties on

the total carbon performance of a company, including by assessing emissions related to embodied carbon.

The CRREM Risk Assessment Tool was designed in coordination with several scientific- and stakeholder committees and

was subjected to comprehensive moderated testing. The purpose of the pilot testing was to ensure three outcomes:

1

That the tool inputs are aligned with the types of information

available to its user

2

That the tool outputs and analysis functionalities addressing the

needs of its user base

3 That the tool is easy to use and

understandable and the calculations are correct

The heterogenous group of participants of the pilot test phase represented wide variety of the most relevant

stakeholders in the tool’s audience. This included institutional investors and asset owners; fund managers, REITs, and

property companies, asset operators, certification bodies, relevant industry bodies, and academia. To date investors

and asset managers responsible for more than 3,112 Bio. Euro Assets under Management made use of the tool.

The major conclusions of the pilot testing include:

❖ The tool clearly provides an added value for the industry, for example enabling a transparent analysis of carbon

risks, calculation of abatement costs and evaluating the correct timing of future retrofit measures.

❖ The tool provides the perfect opportunity to start a very important dialogue between investors and fund

managers about the carbon performance of their assets and possible ways to reduce the carbon footprint.

❖ The tool is useful for setting science-based, Paris-aligned targets for individual commercial real estate properties

with regards to the carbon intensity of their assets.

❖ The tool provides a useful mechanism for the assessment of carbon related transition risks at both the asset

and portfolio level, as well as planning retrofit actions that would be required to mitigate those risks.

❖ The tool can help asset managers report carbon risks in line with other major reporting initiatives, including the

TCFD and the EU Taxonomy on Sustainable Finance.

Due to the high level of interest garnered over the course of the CRREM project and the utility of the tool for commercial

real estate in the European Union, the CRREM project has received follow-on funding from several investment partners

to expand its scope. Decarbonisation pathways are now developed not only for the commercial building sector in the

European Union, but also for all major developed real estate markets globally as well as for residential buildings. These

developments promise to make the tool an important resource for a still wider group of stakeholders.

CRREM and GRESB, the ESG benchmark for real assets, have partnered to make the CRREM tool even more accessible

to its expansive network of commercial real estate portfolios. By integrating the CRREM tool into the GRESB Portal,

GRESB members will have more information on the Paris alignment, performance, and transition risks of their assets

than ever before.

http://www.crrem.org/pathways

https://www.crrem.eu/publications/reports/

http://www.crrem.eu/tool

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase VIII



INTRODUCTION

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase IX



The Paris Agreement serves as an international target to limit the warming of the planet to no more than 2°C, with

aspirations toward 1.5°C. Such century-long temperature targets have come to be associated with specific global carbon

budgets and emissions pathways. These high-level, long-term goals, however, do not allocate the necessary reductions

in GHG emissions across economic sectors or countries, let alone across specific actors or assets.

As the global financial sector struggles to understand its role in the fight against climate change, the one method of

mobilising to do so includes aligning itself with the goals of the Paris Agreement. Thus, the major challenge for asset

owners has become how they might understand their assets in relation to the Paris Agreement.

Furthermore, as the effects of climate change are already increasingly being felt around the world in the form of

increasing frequency and severity of extreme weather events and troubling climatic patterns, the social impetus to

transition to a low-carbon economy is the highest it’s ever been. The large-scale economic rebalancing required to

mitigate the scenario of catastrophic climate change introduces what is called ‘transition’ risk, encompassing not only

the risk of rising costs due to the pricing-in of carbon emissions on various national and international scales, but also

market effects, technological disruptions, legal liabilities, and reputational risks. In the case of the commercial real

estate sector, the transition risks of carbon pricing and energy efficiency regulations loom large.

The Carbon Risk Real Estate Monitor (CRREM) project provides an elegant solution to the challenges of the commercial

real estate sector with regard to aligning with Paris targets and mitigating transition risk. Funded by the European

Union under its Horizon 2020 programme for Research and Innovation, CRREM delivers a science-based, methodically

rigorous, industry supported, and framework aligned way for the commercial real estate sector to understand

international contexts, set science-based targets, benchmark specific real assets, and analyse portfolio performance.

Using the statistical framework of the Sectoral Decarbonisation Approach (SDA), a downscaling methodology also used

by the Science-Based Targets Initiative, CRREM has derived Paris-aligned decarbonisation pathways for commercial real

estate assets that can be used to benchmark the current and future performance of commercial real estate assets

against the long-term international targets.

Figure 1: Stranding of real estate assets

Figure 1 provides a summary of the fundamental principle of CRREM’s stranding risk analysis approach for single

properties:

Black line: The black line represents a building’s baseline and future carbon performance in terms of the so-called

greenhouse gas (GHG) intensity, which is calculated as the amount of annual greenhouse gas emissions per building

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase X



floor area. Emission figures include those directly generated by the on-site combustion of fossil fuels for heating and

indirect emissions (caused by the use of district heating and/or electricity consumption).

Green curve: The green curve represents the target decarbonisation pathway of a specific building that aligns with a

certain climate target (1.5°C/2°C) and must not be exceeded. If the emission intensity is above the target value,

‘stranding’ occurs. To be clear, this does not mean an instant and full loss of an investment’s value. Transition risk is an

insidious danger to value and potential future costs (for example due to fines for excess emissions above certain target

values) are anticipated early, resulting in a steadily increasing risk of economic obsolescence.

In Figure 1, the exemplary building fulfils the requirements only at the very beginning and faces stranding far before the

end of the observation period (2050). Only appropriate retrofit measures reducing the GHG emissions can ensure that

the building will meet the future emission ceilings.

This benchmarking exercise allows asset managers, institutional investors, and other stakeholders to estimate not only

when a particular asset might be stranded as a result of non-compliance with national carbon intensity and energy

efficiency regulations, but also, upon aggregation, what this means at the portfolio level.

Upon inputting specific information about particular assets in the CRREM Tool, real estate portfolio managers can

analyse their commercial real estate portfolios in a number of different ways, from alignment with Paris goals, to

identification of assets at risk of becoming stranded due to potential regionally-specific climate policy, to

understanding of costs of future energy consumption and carbon emissions, to design of retrofit strategies in an effort

to comply with future regulation.

This report concludes the successful Pilot Testing Phase of the CRREM project and outlines the main benefits of the

tool as demonstrated by the participants during testing.

Pilot testing was methodically structured as follows:

The pilot testing phase of the tool started with the launch of the pre-release tool, which was made available for

download on the crrem homepage. The launch of the pre-release tool was shared through various media channels in

mid-February 2020. A pre-filled and an empty version of the tool was available for the duration of three months for

testing. The final version of the tool was publicly announced with a press release on the 11th of May 2020.

As the tool can be downloaded free of charge and through the distribution of news, a wide range of user-types was

reached. In addition to the tool, a video tutorial, supplementary reports, a reference guide and general background

information is also published and accessible on website. Numerous large international real estate investors tested the

tool, which resulted in over 4 million lettable space analysed in the pilot phase. Consultation and feedback focused on

the general usability of the tool, speed and output generation. Further, testers were asked to place a focus on the

starting values and general pathway of the given decarbonisation and energy reduction pathways of their respective

country while testing and using the tool.

Due to larger investors participating, assets and portfolios covered a wider geographical range and asset-mix.

All feedback was implemented on an ongoing basis and continuously updated throughout the testing phase. The version

history is stated on the first page of the tool, the latest version was consistently updated online.

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase XI



THE RIGHT TOOL FOR THE JOB:

EXPERIENCE OF PARTICIPANTS

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase XII



THE RIGHT TOOL FOR THE JOB: EXPERIENCE OF PARTICIPANTS

“CRREM is a very insightful and practical tool that gives us very clear guidance on the environmental

performance of our portfolio and supports us in making future investment decisions for both new

acquisitions as capex projects.”

Ronald van der Waals, fund manager CBRE Dutch Office Fund, managed by CBRE Global Investors

“EVORA has already begun integrating the use of the CRREM tool into the climate resilience strategies of

our clients. The tool’s country and property type specific decarbonisation benchmarks for individual

assets has proved a significant step forward, enabling clients to prioritise energy consumption and emission

reduction efforts and budgets towards individual assets whilst ensuring overall portfolio

decarbonisation targets are met.”

Peter Willcocks, Sustainability Consultant, EVORA Global

“CRREM is a helpful tool that can support companies in assessing the required reduction in carbon

emissions at asset level.”

Fernanda Amemiya, Sustainability Reporting Manager, Landsec

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase XIII



“The CRREM tool certainly has a benefit for us as an investor.

Firstly, because it provides us with reduction pathways for properties, we have exposure to, based

on a specific property type.

Secondly, it clearly shows us which assets within a certain portfolio will likely be at risk in the near

future.

This type of information also allows for better understanding why certain assets are having higher

intensity rates, whether additional capex is needed or whether this is due to for example tenant behaviour,

or maybe even data gathering issues.”

Mathieu Elshout, Senior Director Private Real Estate, PGGM

“The tool has benefits to us and clients in starting to assess low carbon transition risks for assets and

portfolios.

Highlighting those assets which are most at risk currently and likely to be in the near future is useful as a screening for further investigation of potential measures to reduce

GHG emission intensity and improve portfolio performance.

[The tool is] useful in setting near-term targets to align with the benchmark target… as well in giving clarity to the action required and feeding

into financial planning cycles.”

Matthew Brundle, Director, EVORA Global

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase XIV



“The climate crisis is the defining crisis of our time and it’s

happening even faster than we expected. The transition to a

low carbon world must accelerate in every corner of the world

to meet the commitments made in the Paris Climate

Agreement.

The transition pathways for the real estate sector is an

important addition to address the challenges in our sector.

The pathways will help us understand and mitigate the

climate risks and the requirement for retrofit investment on

asset level in our real estate portfolio.”

Filip Elland, Head of Sustainability, Castellum

“An introduction of a carbon pricing, preferred in a

market scheme similar to ETS, will lead also in the

Real Estate market to a significant and fast

decarbonisation, either in the commercial or in the

residential buildings.

And it will push the architecture and building

technologies to reduce greenhouse gases, during

construction and the whole life cycle.”

Olaf Schulze, Director Energy Management METRO +

Member of the Task Force for Carbon Pricing in Europe

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase XV



“BREEAM is proud to be working with CRREM to bring

forward clearer guidance to the real estate sector on

what a trajectory to a truly decarbonized real estate

sector looks like.

The insights from the CRREM research will provide a

strong evidence based upon which building certification

systems can adopt to further enhance holistic

approaches like BREEAM.”

Dr. Shamir Ghumra, BREEAM Director, BRE Global

“The CRREM tool will allow us to measure, through

GRESB, to what extent our global portfolio is aligned

with a 1.5 degree scenario. It will also inform our

investment decisions going forward and it can be used

as an engagement tool.

We would like to encourage all investment managers,

listed real estate companies but also green certification

schemes to use these pathways as the common

language to measure Paris Alignment.

This is also the reason we have decided to fund the

development of these pathways outside Europe and include

also non-commercial real estate.”

Derk Welling, Senior Responsible Investment &

Governance Specialist, APG

SECTION A: PILOT TESTING USE CASES A.1



CRREM

A SELECTION OF PILOT TESTING

USE CASES

A




A SELECTION OF PILOT TESTING USE CASES

A.1 DECARBONISATION AND ENERGY REDUCTION PATHWAYS

Perhaps the most fundamental use of the tool is to find the

decarbonisation or energy reduction pathway that is relevant to

a particular real asset according to the CRREM science-based

downscaling methodology. Critically, these pathways have been

derived not only for decarbonisation, but also energy

intensities, and can be specified for either 2C or 1.5C

temperature targets, any country in the EU, and a variety of

commercial property types (office, retail, high-street, retail,

shopping centre, retail, warehouse, industrial, distribution

warehouse, hotel, healthcare, lodging, leisure & recreation, data

centres).

This capability serves as the foundation upon which the other analysis functionalities are built and provides an important

target-setting function for specific assets.

Figure 2: Global warming target-, country-, and property type-specific science-based decarbonisation and energy

reduction pathways

“I’m glad to see energy intensity on the Target tab… I think this is vital.”

Ruairi Revell, ESG Manager, Real Estate, Aberdeen Standard




A.2 ASSET-LEVEL ANALYTICS

The asset-level analytics in the CRREM tool allows the user to map how a particular asset performs against a specific

decarbonisation and/or energy reduction pathway. The baseline performance of an asset is projected, and the

estimated date of when that asset could become stranded is identified.

Figure 3: Asset-level stranding analysis using 2°C decarbonisation pathway

In Figure 3 above, the greenhouse gas (GHG) intensity of a particular asset is mapped against the CRREM derived 2C

decarbonisation pathway for its particular region and property type (green line). The hollow and solid black diamonds

show how the tool can track past data, here representing data entered for both 2018 and 2019. The dotted black line

projects the baseline asset performance, in this instance, for GHG intensity. The solid black line projects the climate

and grid corrected asset performance.

BOX 1. VASAKRONAN REAL ESTATE COMPANY

A case study with Vasakronan highlighted how the Swedish market looked at carbon risk differently. What was seen as critical here, was not reducing operational carbon emissions, which were already low (due to low emissions factors in the region), but rather promoting building-use intensity, and ensuring buildings were located in areas that were easily accessible through public transport. Energy intensity targets and additional guidance on corporate strategies were seen as potential areas that could widen the applicability of the CRREM methodology for Sweden and other countries that (will) have electricity grids with low carbon intensities.

The tool made it immediately clear that many assets in Sweden-based portfolios were already well-positioned with respect to carbon intensity reduction pathways. As such, it served as a way to reorient management focus toward those other areas in which a greater marginal impact could be achieved.




This projection takes into account not only how much more (or, in some

cases, less) energy an asset will use in the future given changes in the

temperature patterns. It also takes into account the projected evolution of

the electricity grid for the region in which the asset is located. Should the grid

from which the asset sources its electricity become much cleaner over time,

the grid corrected asset performance will correspondingly improve (decrease

in GHG intensity) over time. The red circle emphasises the year at which the

adjusted asset performance is projected to become non-compliant with the

2C decarbonisation pathway. Critically, the shaded blue area represents the

excess emissions. These emissions are then associated with the

corresponding carbon price for that year discounted to the present year, and

compared to the value of the asset (if provided by the user) to estimate what

is called the Carbon Value at Risk (VaR).

Carbon VaR is an important metric, as it can be used to facilitate comparison

of not only the relative risk exposures of specific assets, but also those of portfolios and even those of separate asset

classes.

Figure 4: Asset-level stranding analysis using user-defined decarbonisation target

For those cases in which the user has a view of future regulation other than those associated with the 2C and 1.5C

scenarios, or simply wants to explore other decarbonisation scenarios, the tool also allows for user-defined target

setting (see Figure 4) – in general most assumptions and settings can be overwritten manually to allow maximal

flexibility and transparency for the user. Targets and energy prices are just two fields in which default values are

provided for the user, but that can be overwritten at any time to allow for more customized analyses.

The asset-level capabilities of the tool extend beyond benchmarking against various pathways. It also allows users to

test out various retrofitting options so that an appropriate retrofitting option (or options) may be found to mitigate the

risk of stranding risk. Figure 5 illustrates how a retrofitting action taken in 2022 keeps the asset in compliance with the

modelled decarbonisation pathway until 2032, whereas without the retrofitting action, risk of stranding appeared as

early as 2023.

“Having a single metric as well, carbon VaR, is

also useful to be able to begin to compare assets

and portfolios.” – Matthew Brundle,

EVORA Global




Figure 5: Asset stranding analysis with planned retrofits

Additional retrofit analyses capabilities include the calculation of emissions budget depletion, ecological payback, and

economic payback times.

Figure 6: Ecological and economic payback analyses for retrofit actions




A.3 PORTFOLIO-LEVEL ANALYTICS

Carrying our carbon assessments in the real estate industry needs to take into account that investors usually face

challenges regarding the aggregation of asset level data via portfolio data to company level information. CRREM tool is

working bottom-up but also aggregates data on portfolio level to derive meaningful insights for strategic planning. The

asset analytics described in the previous section are automatically aggregated into useful portfolio-level analyses. One

of the primary functions is the ability to project the evolution of stranding within a portfolio over time. This can be

modified to illustrate the share of stranded assets (see Figure 7), the number of stranded assets, or, if the gross asset

value (GAV) for each asset is provided, the share of portfolio value stranded. The example below illustrates a portfolio

in which the share of assets exposed to stranding risk increases from 0% in 2020 to 100% over the course of the next 20

years.

BOX 2. CASTELLUM, REAL ESTATE COMPANY

Castellum is a real estate developer and investor and undertaking its own property management. Castellum want to reduce the carbon emissions of their portfolio and aim to already reach net-zero emissions within the portfolio by 2030. Castellum analysed 634 properties and over 4 million m2 lettable space via the CRREM tool in order to benchmark individual assets of the portfolio against the Swedish pathways.

For Castellum, the most important output was to see the portfolio alignment with the Paris targets, the GHG intensity of individual assets and the requirement for retrofit investment. Filip Elland stated that the pathways will help determine the requirement for a retrofit investment on the asset level for their real estate portfolio.

BOX 3. EVORA GLOBAL, ENVIRONMENTAL CONSULTANCY

As a leading environmental consultancy and engineering services firm, EVORA Global showed a particular interest in the asset-level capabilities of the CRREM Risk Assessment Tool. Specifically, the asset-level retrofitting functionality of the tool allows EVORA to demonstrate how specific retrofitting actions affect the projected performance of an asset.

The detail of the CRREM tool is important for the analysis of detailed engineering options. For instance, it is important that the tool can evaluate future retrofit actions. It is also important that there be the option for user-defined energy savings and user-defined retrofit costs. The tool incorporates all of these essential features. This flexibility allows EVORA to project the impacts of their specific projects, a critical feature for the applicability of the tool to real world building improvement projects.

Many of our clients are now making commitments for “net-zero” emissions by 2050. Using the tool in formulating “net zero” strategies has highlighted the significant near-term requirements in emissions reductions to keep

portfolios and assets aligned with international ambitions for 2°C or below of global warming. However, using the tool’s retrofit and scenario analysis functions has begun to demonstrate the economic benefits of action now in

mitigating risk, preserving asset value and reducing the medium to long-term costs of achieving “net-zero”.

Peter Willcocks, EVORA Global




Stranding events, or the point in time at which an asset becomes exposed to stranding risk relative to a given

decarbonisation or energy reduction pathway, can also be visualised to quickly identify which assets are at future risk.

In Figure 8, height on the y-axis corresponds to the gross asset value of the asset, while the size of the red circles

corresponds to the relative floor areas of the assets. This emphasises the added value by providing gross asset values

per asset; the most valuable assets are not always those with the largest floor area.

Figure 7: Share of stranded assets

Figure 8: Stranding events diagram




The ability to benchmark the GHG intensity of a portfolio benchmarked against Paris-aligned pathways is an essential

feature (see Figure 9). These Paris-aligned pathways are floor-area-weighted combinations of the decarbonisation

pathways derived for each asset. Furthermore, the retrofits of the individual assets are imported into the portfolio-level

analysis to illustrate the scale of impact that individual retrofitting projects can have on portfolio’s exposure to stranding

risk.

Figure 9: Portfolio alignment with Paris targets

Finally, as in the asset-level analyses, the costs of excess emissions is calculated at the portfolio level, which are then

translated into a portfolio carbon VaR estimate (see Figure 10).

Figure 10: Cost of excess emissions of a portfolio




BOX 4. PGGM, PENSION FUND

For PGGM, the most important portfolio outputs were the share of stranded assets and the costs of excess emissions. These outputs put the portfolios squarely in the financial context, requiring no extra translation to make the outputs relevant to its investor users.

The functionalities embedded in the share of stranded assets diagram provide an essential level of flexibility for the user. The choice to weigh the share of assets at risk of stranding by GAV, floor area, or to simply provide the count of assets, facilitates quick comparisons between the exposure levels of various portfolios.

The costs of excess emissions in particular form the basis for discussions on how best to manage the risk of such costs. Purchasing GHG offsets, buying renewable energy credits (RECs), and engaging in efforts to promote ‘negative emissions’ (e.g., planting trees) each serve as potential management solutions. Although such options are out of scope for the current tool, the tool has progressed the conversation from identification of risks and the assessment of their potential financial impacts on a portfolio, to the management of those risks.

A.1



SECTION B: WHO PARTICIPATED IN PILOT TESTING?

CRREM

WHO PARTICIPATED IN PILOT

TESTING

B

B.2




WHO PARTICIPATED IN PILOT TESTING?

Testing was carried out by a heterogeneous group of stakeholders from across the industry. Just focussing on the

Assets under Management (AuM) owned and/or managed by the testers is over 3,112 billion euros with over 4 million

m2 of space analysed via the CRREM tool. This included:

B.1 INSTITUTIONAL INVESTORS, PENSION FUNDS AND INSURANCE

COMPANIES

This group is represented by ESG (Environmental, social and corporate governance) and real estate specialists from

companies like APG, PGGM, Zurich Insurance Group, Allianz Real Estate, Seta Network, BVV and Nordea Life and Pension.

These parties typically enter real estate investments as Limited Partners

(LPs), using external fiduciaries, to manage a global real estate portfolio.

Both, APG and PGGM, fall within the top 15 real estate investors globally,

often taking a leading role in promoting sustainability practices. Tailoring

the tool in accordance to their feedback is seen critical as they can

influence other large institutional investors and have significant market

power to influence market adoption of the CRREM framework and risk

assessment tool amongst the various real estate funds and REITs they

invest in.

B.2 REITS, PROPERTY COMPANIES AND OTHER ASSET OWNERS

This group is represented by parties such as Aberdeen Standard, Union Investment, Grosvenor, and AEW Europe, DWS,

GPT, Landsec, Vonovia, LEG, ECE, Vasakronan, Land Securities and Castellum and typically represents general partners

in real estate investment vehicles. As such, they are closer to real estate assets and will be able to provide data to the

CRREM Risk Assessment tool during the pilot testing phase.

Land securities, for example, have reviewed the project

outcomes and provided feedback regarding the tool and the

corporate reporting templates. Feedback consisted in linking

the templates with the tool and limiting disclosure to only the

CRREM scope.

A wide range of property companies and asset owners

included in the pilot phase enabled a broad span of different

asset classes to be included into the testing. An example is

ECE, an asset owner and centre manager that was enabled to

incorporate wide expertise due to the specialization on retail.

SECTION B

“We think that the

explanation given for each of

the individual sheets is really

good and easy to interpret.”

– Stan Bertram, PGGM

“The pathways will help us understand

and mitigate the climate risks and the

requirement for retrofit investment on

asset level in our real estate portfolio.”

Filip Elland, Head of Sustainability,

Castellum

B.3




B.3 CORPORATES

This group is represented for example by companies such as METRO. These parties own and use/operate the assets and

provide valuable perspective on the implementational challenges regarding the correct timing, costs and availability

of retrofitting properties as well as general data issues, such as normalisation of carbon intensity data due to own

operation and use of large portfolios.

B.4 CERTIFICATION BODIES

This group is represented by bodies such as DGNB, Dutch Green Building Council (DGBC), Sweden GBC (SGBC), Norwegian

GBC, GBCI, DFINI and BRE Global. These parties represent certification bodies that certify projects at an asset level.

Particularly the DGBC is developing a decarbonisation pathway methodology similar to CRREM’s for the Netherlands,

called ‘Deltaplan Duurzame Renovatie: Paris Proof’, intended to be a specific certification for buildings that meet the

2050 target. They represent a wealth of expertise on building standards and can possibly include the CRREM

decarbonisation pathways as a metric for operational certificates – something which is encouraged by the institutional

investors.

B.5 INDUSTRY BODIES

This group is represented by parties such as CDP, ULI, INREV, EPRA, UKGBC, WorldGBC and BBP. Their large stakeholder

base supports CRREM in the dissemination of public reports. EPRA has for instance included the report in their

sustainability library, while both ULI and RICS have shared the report with relevant stakeholders. Additionally, industry

bodies bring considerable expertise to the topic of carbon risk, particularly in the area of sustainability reporting and

real estate (sustainability) research. EPRA and INREV will also provide feedback regarding the corporate reporting

templates linked to the tool on the alignment of disclosure initiatives.

Furthermore, a continuous exchange is also established with the risk assessment initiative MSCI Climate Risk Center and

further investor initiatives such as the UN FI Net-Zero Asset Owners Alliance and UNEP FI Property Working Group for

alignment of the CRREM targets and their global status reports.

B.6 ACADEMIA

Academic research is represented by Prof. Franz Fürst on behalf of the University of Cambridge. Prof. Fürst has a long

track record of publications and research projects on sustainable real estate. Feedback will be directed towards the

corporate reporting templates and the incorporation of the CRREM tool with these. Further feedback regarding the

European as well as the global pathways has been provided from Prof. Andy van den Dobbelsteen from Delft University

of Technology who is a member of the Scientific Advisory Committee of the CRREM II project, representing the European

region. Dr. Paul Mathew from the Lawrence Berkeley National Laboratory and Dr. Georgia Warren-Myers from the

Melbourne School of Design also provide ongoing feedback regarding the methodology and the global downscaling

targets.

B.4




B.7 CONSULTANTS

There are many consulting companies providing special advice for

data collection and analysis when it comes to carbon assessments,

companies include EVORA Global, Verco, PwC and KPMG. Auditors such

as PwC and KPMG have reviewed and provided feedback in regards to

the corporate reporting templates that will be linked to the tool. Both

companies have provided feedback and input regarding transparently

disclosing boundaries and data assumptions.

The CRREM consortium has actively engaged with consultants

especially since the pilot version of the Risk Assessment tool has been

ready, so they could test the tool with their clients and provide CRREM

with structured feedback.

B.8 FUND-, ASSET AND INVESTMENT MANAGERS

Already in advance of the finalisation of the CRREM tool pilot version, the consortium analysed by funds such as CBRE

Global Investors, Union Investment, Nuveen as well as Savills Investment Management LLP based on CRREM

decarbonisation pathways and developed methodology of stranding risk analysis.

Providing management for funds and larger portfolios, these companies are typically advanced in reporting and

controlling of large portfolios. Additionally, they have expertise in tailoring information that is requested from their

investors. Therefore, with regards to the tool feedback and input can be provided in various asset classes as they have

experience in a range of real estate use-types. In-depth analysis is provided as they are able to challenge the underlying

assumptions within the tool regarding carbon intensities and retrofitting cost/abatement costs.

B.9 SEPARATE TESTING BY THE EUROPEAN INVESTOR COMMITTEE (EIC)

The European Investor Committee (EIC), established to advise on strategy, provide feedback, and test the pilot tool,

was a critical part of the pilot testing phase. Over the past 24 months, this group has expanded to a diverse and engaged

society of industry experts, actively providing periodic input on the CRREM project. For a list of the EIC members, please

refer to Annex 1: EIC Members.

Avenues for targeted feedback were built into the pilot testing process. Feedback was provided on the entirety of the

tool, including:

❖ identification of ‘must have’ and ‘nice to have’ features

to ensure successful adoption by the market,

❖ suggestion of potential improvements,

❖ discovery of bugs at edge cases,

❖ presentation and layout,

among other topics.

“This is a very good and useful

tool and we will continue to

feedback to help its

development!”

- Matthew Brundle, EVORA

Global



B.1

SECTION C: USING THE CRREM TOOL

CRREM

START NOW! – FIRST STEPS

USING THE CRREM TOOL

C



C.2


START NOW! – FIRST STEPS USING THE CRREM TOOL

The CRREM Risk Assessment Tool is an Excel-based tool designed to strike a critical balance between ease-of-use and

functionality for a wide range potential user types. Eight tabs – Start, Targets, Input, Asset, Portfolio, Settings, Unit

Converter, Back-end – provide the basic structure of the user experience. Each sheet is accompanied by an explanation,

and each analysis sheet is designed to be completely accessible through point-and-click interactions with drop-down

menus.

The CRREM tool leverages the universality and adaptability of an Excel spreadsheet to make it as accessible as possible

to the widest spectrum of users. In the asset input sheet (see Figure 11), each row refers to an individual real asset. Each

column refers to a specific variable that the user will input. These are divided into six categories: general information

(green), building characteristics (blue), energy consumption (grey), fugitive emissions/ refrigerant losses (red),

renewable energy generation (dark blue), and retrofit actions (light green) [not shown].

Figure 11: CRREM tool input sheet

Out of 50+ indicators available to customise the input for enhanced accuracy and analysis functionality, the minimum

number of inputs can be as low as 10-20 inputs depending on the asset characteristics. This allows users to quickly get

an overview of their assets and identify where more specific data would be most valuable. Users at Landsec and EVORA

Global found this to be a rapid process, especially due to the care taken to align the mandatory inputs as closely as

possible to the asset information required by the GRESB asset-level template.

SECTION C



C.3


INTRODUCTORY VIDEO & REFERENCE GUIDE – AVAILABLE ONLINE:

For a detailed description of each input, please

refer to the CRREM Risk Assessment Reference

Guide, available at

https://www.crrem.eu/reference-guide/.

An introductory video for the tool is also

available at

https://www.crrem.eu/tool/.

https://www.crrem.eu/reference-guide/

https://www.crrem.eu/tool/



SECTION D: ALIGNMENT OF CRREM WITH MAJOR INITIATIVES C.1

CRREM

ALIGNMENT OF CRREM WITH

MAJOR INITIATIVES

D



SECTION D: ALIGNMENT OF CRREM WITH MAJOR INITIATIVES D.2

ALIGNMENT OF CRREM WITH MAJOR INITIATIVES

The CRREM methodology and tool have been carefully designed to comply and align with many other major initiatives.

Input variables for the tool are largely based upon existing frameworks, such as the those of EPRA’s sustainability Best

Practice Recommendations (sBPR), GRESB, GRI, and the GHG Protocol Corporate Standard. With feedback from key

stakeholders in the industry ranging from commercial real estate asset managers, to non-governmental organisations,

and industry coalitions, the production of the CRREM Risk Assessment tool was not an isolated academic exercise.

The process of alignment with other major reporting and disclosing initiatives is currently ongoing. It is important that

the information extracted from the CRREM tool can be easily incorporated into climate-related and resilience

reporting according to the most relevant initiatives.

D.1 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES

Missing operational carbon data usually involves: periodic data gaps due to a new acquisition, a lack of information on

energy consumed and paid for by tenants, no data on ‘unregulated carbon emissions’, or inaccurate normalisation if

occupation/use rates of buildings are incorrectly reported. If not appropriately reported, missing critical data can

erroneously build the profile of an efficient building. The transposition of NDCs applied to the built environment will

need to target all energy consumed by the assets, regardless whether or not they are ‘regulated’.

The Task Force on Climate-related Financial Disclosures (TCFD) is an international task force established by the Financial

Stability Board, itself established by the G20. The TCFD was called upon to provide guidance to public companies on

how to clearly, consistently, and reliably disclose climate-related risks, opportunities, and their financial impacts. In

2017, the TCFD released its final report, which outlines disclosure recommendations and guidance for different

financial and non-financial sectors, including real estate. Its structure follows four core business elements, outlined in

the figure below.

Figure 12: Core Elements of Recommended Climate-Related Financial Disclosures.

Source: TCFD (2017)

SECTION D




The output variables produced by the CRREM tool are intended to assist with reporting in accordance with the

recommendation of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).

Table 1: CRREM alignment with TCFD recommended disclosures

TCFD Recommendation

TCFD

Recommended Disclosure CRREM Element

Governance:

Disclose the

organization’s

governance around

climate-related risks

and opportunities.

(a) Describe the board’s oversight of

climate-related risks and opportunities.

(b) Describe management’s role in

assessing and managing climate-related

risks and opportunities.

Strategy:

Disclose the actual and

potential impacts of


and opportunities on

the organisation’s

businesses, strategy,

and financial planning

where such information

is material.

(a) Describe the climate-related risks and

opportunities the organisation has

identified over the short, medium, and

long term.

The CRREM tool targets

stranding risk due to non-

compliance with regional energy

efficiency and GHG intensity

regulations.

(b) Describe the impact of climate-related

risks and opportunities on the

organisation’s businesses, strategy, and

financial planning.

Carbon Value-at-Risk is

estimated at the asset and

portfolio level.

(c) Describe the resilience of the

organisation’s strategy, taking into

consideration different climate-related

scenarios, including a 2°C or lower

scenario.

The CRREM tool leverages two

scenarios: 2C (based on IEA 2DS

scenario) and

1.5C (based on Friends of the

Earth scenario).

Risk Management:

Disclose how the

organisation identifies,

assesses, and manages

climate-related risks.

(a) Describe the organization’s processes

for identifying and assessing climate-

related risks.

Asset-level performance

projection and benchmarking of

energy and GHG intensities

against science-based pathways.

(b) Describe the organization’s processes

for managing climate-related risks.

The retrofit functionalities in the

asset sheet allow for planning of

actions to mitigate stranding risk.

(c) Describe how processes for identifying,

assessing, and managing climate-

related risks are integrated into the

organisation’s overall risk management.

Metrics and Targets:

Disclose the metrics and

(a) Disclose the metrics used by the

organisation to assess climate-related

GHG emissions intensity

[kgCO2e/m2]; Energy intensity




targets used to assess

and manage relevant


and opportunities

where such information

is material.

risks and opportunities in line with its

strategy and risk management process.

[kWh/m2]; Costs of excess

emissions [EUR]; etc.

(b) Disclose Scope 1, Scope 2, and, if

appropriate, Scope 3 greenhouse gas

(GHG) emissions, and the related risks.

While the disclosure of emissions

is not on output of the CRREM

tool, emissions information is

required to run the tool, and

thus incentivizes its

measurement, collection, and

standardization.

(c) Describe the targets used by the

organisation to manage climate-related

risks and opportunities and

performance against targets.

The decarbonisation pathways

developed by the CRREM project

serve as science-based, widely

recognized, easily

understandable, and actionable

targets.

D.2 WORLD GREEN BUILDING COUNCIL (GBC) - ADVANCING NET ZERO:

NET ZERO CARBON BUILDINGS COMMITMENT

The World Green Building Council (WGBC) launched the Net Zero Carbon Buildings Commitment (NZCBC) as part of the

Advancing Net Zero (ANZ) initiative, the WorldGBC’s global project which aims to promote and support the

acceleration of net zero carbon buildings to 100% by 20501. The Net Zero Carbon Building Commitment challenges

companies, cities, states and regions to reach Net Zero operating emissions in their portfolios by 2030, and advocates

for all buildings to be Net Zero in operation by 2050. The commitment sets ambitious absolute targets aiming to

maximise the chances of limiting global warming.

This voluntary disclosure commitment aims for the same objective than CRREM: also focusing on the built environment,

the initiative aims to meet the sector’s decarbonising responsibility and the global commitments defined by the Paris

Agreement. The commitment focuses on the disclosure of targets, performance and the strategy to meet these targets

of real estate assets. The NZCBC defines requirements for owners, tenants and developers. In principle the WGBC

developed the initiative to report at corporate level (buildings that an organisation owns, develops and occupies).

However, NZCBC can be used to disclose emissions at asset and aggregated portfolio level, depending on the boundary

that the user defines for reporting purposes.

The NZCBC initiative works in the same direction than CRREM. However, even though both initiatives are compatible,

the targets and the tools to meet them differ slightly. The ANZ initiative seeks to reach zero carbon by 2050 regardless

of building type and location, while CRREM has downscaled available carbon budgets to define specific targets for

different types of assets, which do not necessarily need to meet zero. Besides, many buildings will not be able to meet

net zero carbon without importing green electricity from the grid or purchasing offsets, which are outside the scope of

CRREM’s boundaries. Figure 13 illustrates these differences and how both initiatives can be coordinated. Both initiatives

aim to reduce both regulated and unregulated carbon emissions. However, it is critical to understand whether the

1 World GBC, 2020.




disclosure boundaries relate to the corporate level (Scope 1, 2 and 3 of the organisation) or the building level (asset and

portfolio level).

As part of the consultancy process with other reporting and disclosure frameworks, CRREM is discussing these

differences with the World GBC and EU local GBCs to ensure that both initiatives communicate these differences, to

clarify how they can complement each other and ensure mutual endorsement.

Figure 13: Comparison between ANZ and CRREM emissions scope

Source: CRREM (2020)

D.3 EU TAXONOMY FOR SUSTAINABLE ACTIVITIES

In June 2019, the European Union Technical Expert Group on Sustainable Finance (TEG) completed the ’Taxonomy

Technical Report, which was updated in March 20202. The taxonomy defines the common language and suggests

quantitative thresholds that any economic activity needs to meet to be considered sustainable. The taxonomy defines

specific thresholds for four types of activities related to construction and real estate: Construction of new buildings;

building renovations; individual measures and professional services; and acquisition and ownership.

The taxonomy adopts a best-in-class approach that transposes the top performing 15% of the existing national stock

into absolute energy or carbon thresholds. These thresholds rely on the application of the Energy Performance of

Buildings Directive (EPBD) and the definition of nearly zero-energy buildings (NZEB) requirements defined by each EU

Member Estate.

The Taxonomy for sustainable activities is the most recent and important policy framework within the EU defining long

term decarbonisation quantitative targets and a decarbonisation pathway for the real estate sector. Every five years,

the performance level of buildings will be lowered to reflect a pathway reaching net-zero operational carbon in 2050.

2 European Commission, 2020.




The latest report refers to CRREM, with the decarbonisation pathway and timeline defined by the taxonomy being

aligned with CRREM’s proposed decarbonisation timelines. Both CRREM project and the Taxonomy aim to minimise

energy use and carbon emissions throughout the lifecycle of buildings. However, there are discrepancies between

CRREM and the Taxonomy’s approach in the definition of quantitative thresholds. The Taxonomy focuses on the

reduction of primary energy demand, and the adopted metric to track progress is kWh/m2. Due to the varying carbon

intensity factors of electricity grid and other fuels, CRREM encourages users to adopt kgCO2e/m2 as the main metric

to improve accurate distribution of carbon budgets. Besides, the Taxonomy’s thresholds are based on ‘nearly zero-

energy building’ (NZEB) requirements, which are defined in national regulations. For example, the net primary energy

demand of new buildings must be at least 20% lower than the primary energy demand resulting from the relevant

NZEB requirements. Member States are therefore responsible to define their own decarbonisation targets, which

makes difficult the EU-wide coordination of the decarbonisation of the existing building stock. Furthermore, the scope

of the EPBD directive only includes part of the energy demand and carbon emissions of buildings – so called

“regulated”. To quantify and assess the climate risk of real estate assets, all energy consumed and carbon emitted

within the building should be targeted, which is CRREM project’s approach. This limitation is acknowledged by the

Taxonomy, which refers to CRREM project to define appropriate criteria and thresholds to address carbon emissions

arising from unregulated energy.

CRREM aims to transpose the decarbonisation pathways into energy demand metrics to ensure full alignment with

the Taxonomy. Besides, the team aims to split the decarbonisation pathways into “regulated” and “unregulated” to

facilitate the alignment of both initiatives.

D.4 GLOBAL REAL ESTATE SUSTAINABILITY BENCHMARK (GRESB)

GRESB is the leading Environmental, Social, and Governance (ESG) benchmark for real estate and infrastructure

investments across the world. Established in 2009 by a group of large pension funds who wanted to have access to

comparable and reliable data on the ESG performance of their investments, GRESB membership now boasts more than

100 institutional investors, with over USD 22 trillion assets under management. These investors use GRESB data to

monitor their investments, engage with their managers, and make decisions that lead to a more sustainable real asset

industry.

The required and optional parameters to the CRREM tool are largely based on the asset-level data that GRESB asks of

its participant members. As a CRREM consortium member, GRESB has offered CRREM support in the form of advisory

feedback and exposure to its expansive network of potential users. For more information on GRESB’s support for

CRREM, please refer to the section, Integration with GRESB, below.

D.5 SCIENCE-BASED TARGETS INITIATIVE (SBTI)

The Science-Based Targets Initiative (SBTi) is an initiative established to help companies set “clearly defined pathway[s]

to future-proof growth by specifying how much and how quickly they need to reduce their greenhouse gas emissions.”3

Launched by CDP (formerly the Carbon Disclosure Project), the United Nations Global Compact (UNGC), the World

Resources Institute (WRI), and the World Wide Fund for Nature (WWF), it is a widely recognized main goal is to help

companies set operational targets that align with the Paris Agreement. SBTi sets forth three main approaches to target

3 SBT, 2020.




setting: sector-based, absolute-based, and economic based.4 The Sectoral Decarbonisation Approach (SDA) is arguably

the most robust, taking into consideration the capacity of each sector to take on reductions in carbon emissions,

requiring an assessment of carbon intensity data as well as present and predicted data on economic activity.

The SBTi recommends the application of the SDA method especially for energy and carbon intensive industries like real

estate, and it is the methodology that CRREM uses as the basis for its decarbonisation pathway derivation process.5

D.6 GLOBAL REPORTING INTIATIVE’S (GRI) SUSTAINABILITY REPORTING

STANDARDS

The Global Reporting Initiative (GRI) is an independent international organisation that encourages businesses and other

organisations to report and communicate their impact on issues such as climate change and carbon emissions. GRI

developed the GRI Sustainability Reporting Standards (GRI Standards), a modular, interrelated structure, for reporting

on a range of economic, environmental and social impacts.

GRI is the most widely adopted framework for reporting and disclosure sustainability impact at corporate level. The GRI

Standards are developed to ensure that every economic sector can disclose their material impact, including the real

estate sector. The GRI framework requests the disclosure of past and present data and the evolution of metrics against

future targets. However, these targets do not necessarily comply with the Paris Agreement. Besides, the disclosure of

energy consumption and carbon emissions at corporate level requires further data collection and analysis to ensure

that the climatic risk at portfolio and asset level is properly assessed: for example, the Scope 1 and 2 carbon emissions

of a real estate asset manager will need to be complemented with data from tenants (Scope 3) to complete the

assessment of assets and portfolios.

CRREM will approach GRI to disseminate the project’s outputs, collect their feedback and ensure as much as possible

alignment amongst both initiatives. Besides, the project’s outputs are also under consultation with relevant auditing

networks to further and promote the alignment of GRI and CRREM. These efforts focus on the clear definition of

boundaries between scopes and transparent disclosure of assumptions and normalization procedures.

D.7 EUROPEAN REAL ESTATE ASSOCIATION (EPRA) SUSTAINABILITY BEST

PRACTICE RECOMMENDATIONS

The European Public Real Estate Association (EPRA) is an organisation seeking to promote the European public real

estate sector through, amongst others, the provision of better information to investors and stakeholders and the

promotion of best practice, including sustainability reporting. EPRA’s Sustainability Best Practices Recommendations

(sBPR) guidelines provide a consistent way of measuring sustainability performance in real estate. They are largely based

on the latest GRI guidelines (see above) and cover environmental, social and corporate governance impact categories.

CRREM has approached EPRA and is discussing the alignment between both initiatives. EPRA has committed to endorse

and disseminate CRREM’s outputs.

4 SBT, 2020. 5 For more information on using science-based targets to downscale global targets to property-level decarbonisation targets, please

refer to the CRREM Stranding Risk & Carbon report available at: https://www.crrem.eu/publications

https://www.crrem.eu/publications/




D.8 PRINCIPLES FOR RESPONSIBLE INVESTMENT (PRI)

The Principles for Responsible Investment (PRI) is a global independent organisation promoting responsible investment.

They work to understand and report the investment implications of ESG factors and to support their international

network of investor signatories in incorporating these factors into their investment decisions. PRI encourages investors

to use responsible investment to enhance returns and better manage risk. PRI has developed real estate specific tools

for investors to incorporate ESG factors within their decision-making framework and promote responsible investment.

CRREM will approach PRI seeking endorsement and adoption of CRREM’s pathways and reporting templates as part of

their real estate framework to promote sustainable investments.



SECTION E: THE GLOBAL IMPACT OF CARBON RISK ON CORPORATE STRATEGIES

D.1

CRREM

THE GLOBAL IMPACT OF CARBON

RISK ON CORPORATE

STRATEGIES

E




E.2

THE GLOBAL IMPACT OF CARBON RISK ON CORPORATE

STRATEGIES

E.1 CRREM ROLL-OUT: FROM EU COMMERCIAL REAL ESTATE TO THE

GLOBAL BUILDING SECTOR

The CRREM project, as funded under the European Union’s Horizon 2020 Research and Innovation Programme, has

generated significant interest among industry stakeholders.

Limited Partners (LPs) with global real estate portfolios, such as APG and PGGM, expressed a strong interest to expand

the scope of the CRREM project beyond the European Union. They stress the need for a global sector decarbonisation

pathway framework, covering several additional markets, as to be able to reduce the carbon risk in their entire

portfolio. The derivation of these additional pathways (see Figure 14) has been finalised and will undergo additional

inspection by a ‘Scientific Advisory Committee’ (SAC) with proven expertise in the research field of decarbonisation.

Besides the 28 EU member states, the additional pathways have been calculated for the following countries: Australia,

Brazil, Canada, China, Hong Kong, India, Japan, Malaysia, Mexico, New Zealand, Norway, Philippines, Singapore, South

Korea, Switzerland, United States (Country-level as well as on city-level for New York, Los Angeles, Chicago, Dallas,

Washington D.C., Boston, San Francisco.

These same institutional investors stressed the need to develop similar decarbonisation pathways for multi-family

residential real estate so that CRREM covers their complete real estate investment universe. A similar need has been

expressed by residential real estate managers. In the course of extending the regional focus of CRREM pathways, IIÖ

further derived pathways for multi-family buildings for all 28 EU member states as well as the aforementioned expanded

set of countries and cities. In addition to the positive reception of the carbon intensity pathway model, a specific need

was identified to also have energy intensity pathway targets incorporated into the tool. This was seen as especially

relevant for markets such as Sweden, where grid intensity levels are already low (see Error! Reference source not

found.). Energy reduction pathways have been derived for all countries and property types covered by the scope

expansion (see Figure 14).

The CRREM Consortium looks very favourably at this expansion, as it exemplifies that there is a demand for the

carbon risk methodologies developed by the project. The expansion of scope (i.e. “roll-out”) has been finalised by

active negotiations of CRREM consortium partners IIÖ and GRESB with Dutch pensions funds APG and PGGM as well as

Norges Bank Investment Management (NBIM), which manages the Norwegian Government Pension Fund Global on

behalf of the central bank of Norway (Norges Bank). In the course of this roll-out, the covered sub-sectors of the

commercial real estate sector have been further aligned with GRESB as the sector’s leading sustainability benchmarking

initiative.

SECTION E




E.3

Figure 14: CRREM roll-out regarding geographic scope, covered building types and performance indicator.

Source: CRREM (2020)

E.2 INTEGRATION WITH GRESB

CRREM is undergoing an integration process with GRESB. This serves a number of mutually beneficial goals:

1. The CRREM methodology and tool will be exposed to GRESB’s network of real estate portfolios globally.

2. GRESB members (both asset managers and investors) will be able to take advantage of the significant risk

assessment and alignment analysis benefits afforded by CRREM.

3. The ‘barrier to entry’ to using the tool will be significantly lowered for GRESB Members.

One of the main themes of feedback to CRREM over the course of pilot

testing has been that the CRREM decarbonisation pathways should be

integrated into GRESB in order to increase its exposure and availability to

different stakeholders.

Similarly, the commercial real estate market is in need of a legitimate,

credible, and salient transition risk methodology and tool. As GRESB

membership represents a significant share of that market, integrating

CRREM into GRESB will directly serve that need.

Irrespective of the relatively small number of mandatory inputs needed per

asset to run the core analyses, if an investor is attempting to get an overview

of a portfolio with several hundred of assets, or perhaps multiple portfolios,

inputting the required data, let alone collecting it from disparate asset managers in a reliable and standardized way,

becomes a major barrier to using the tool. Integrating the tool into the GRESB Portal will solve this challenge for those

users already reporting their asset data to GRESB.

“Ideally we would like to

see the tool automatically

filled with data

originating from the

GRESB assessment.” –

Stan Bertram, PGGM




E.4

The CRREM Risk Assessment tool will be made available for download from the GRESB Portal. After all asset-level data

is uploaded and all consistency warnings are resolved, the user may download a pre-filled CRREM Tool, that is already

loaded with all of the assets in a given fund.

Figure 15: Mock-up of download the CRREM tool from the GRESB Portal.

Source: GRESB/CRREM (2019)

Further developments may include a CRREM Results Page within the GRESB Asset Portal, which will provide an overview

of assets with key outputs from the tool such as stranding date (per pathway), remaining carbon budget, and percentile

performance within property type and country. Finally, a further integration of CRREM and GRESB will enable users to

benchmark own assets or portfolios with peers.

The CRREM decarbonisation pathways, stranding diagrams, and remaining carbon budget per portfolio, which is useful

as an engagement tool for (limited partners) LPs, can be displayed in the Energy or Climate Risk Sections of the GRESB

Benchmark Report. These may be based on: 1.5°C or 2°C scenarios, asset count, floor area, possibly GAV, per property

type, or multiple portfolios. Such aggregation will be particularly useful for LPs. The approach for illustrating the

remaining carbon budget may also include statistics on how quickly carbon budget will be depleted at current emission

rate.



I

CRREM - Carbon Risk Real Estate Monitor Report on Completion of Pilot Testing Phase

ANNEX



II


LIST OF FIGURES

Figure 1: Stranding of real estate assets ............................................................................................................................ IX

Figure 2: Global warming target-, country-, and property type-specific science-based decarbonisation and energy

reduction pathways ......................................................................................................................................................... A.2

Figure 3: Asset-level stranding analysis using 2°C decarbonisation pathway.................................................................. A.3

Figure 4: Asset-level stranding analysis using user-defined decarbonisation target ....................................................... A.4

Figure 5: Asset stranding analysis with planned retrofits ................................................................................................ A.5

Figure 6: Ecological and economic payback analyses for retrofit actions ....................................................................... A.5

Figure 7: Share of stranded assets ................................................................................................................................... A.7

Figure 8: Stranding events diagram ................................................................................................................................. A.7

Figure 9: Portfolio alignment with Paris targets .............................................................................................................. A.8

Figure 10: Cost of excess emissions of a portfolio ........................................................................................................... A.8

Figure 11: CRREM tool input sheet .................................................................................................................................. C.2

Figure 12: Core Elements of Recommended Climate-Related Financial Disclosures. ..................................................... D.2

Figure 13: Comparison between ANZ and CRREM emissions scope ............................................................................... D.5

Figure 14: CRREM roll-out regarding geographic scope, covered building types and performance indicator. ............... E.3

Figure 15: Mock-up of download the CRREM tool from the GRESB Portal. .................................................................... E.4

LIST OF TABLES

Table 1. CRREM alignment with TCFD recommended disclosures .................................................................................. D.3



III


REFERENCES

European Commission (2020): EU Taxonomy for Sustainable Activities. Online:

https://ec.europa.eu/info/publications/sustainable-finance-teg-taxonomy_en (Last accessed: 10.04.2020).

Hirsch, J., Lafuente, J. J., Recourt, R., Spanner, M., Geiger, P., Haran, M., McGreal, S., Davis, P., Taltavull, P., Perez, R., Juárez, F., Martinez, A. M. and Brounen, D. (2019): Stranding Risk & Carbon. Science-based decarbonising of the EU commercial real estate sector. CRREM report No. 1, Wörgl, Austria.

Science Based Targets (2020): What is a Science-based Target? Online: https://sciencebasedtargets.org/what-is-a-

science-based-target (Last accessed: 09.04.2020).

Science Based Targets (2020): Methods – Approaches and Methods. Online:

https://sciencebasedtargets.org/methods/ (Last accessed: 09.04.2020).

Task Force on Climate-related Financial Disclosures (2017): Core Elements of Recommended Climate-Related Financial

Disclosures.

World Green Building Council (2020): Advancing Net Zero. Online: https://worldgbc.org/advancing-net-zero (Last

accessed: 10.04.2020).

https://ec.europa.eu/info/publications/sustainable-finance-teg-taxonomy_en

https://worldgbc.org/advancing-net-zero



IV


EIC MEMBERS

ORGANISATION NAME POSITION

Aberdeen Standard Ruairi Revell ESG Manager, Real Estate

AEW Europe Hans Vrensen Managing Director, Head of Research & Strategy

alstria Alexander Dexne /

Robert Kitel

CFO /

Head of Sustainability & Future Research

APG Derk Welling Senior Responsible Investment & Governance

Specialist

BBP Better Building

Partnership Christopher Botten Programme Manager

BNP Paribas Real

Estate Consult Hermann Horster Regional Director, Head of Sustainability

CDP Alberto Carrillo Pineda Director Science Based Targets and Renewable

Energy

DGBC Dutch Green

Building Council Martin Mooij

Head of Certification and Project manager DGBC

Deltaplan sustainable renovation

DGNB German

Sustainable Building

Council

Anna Braune Director Research and Development

ECE

Projektmanagement Maria Hill Director Sustainability & Internal Services

EPRA Gloria Duci ESG Officer

Grosvenor Emily Hamilton Sustainability Manager

INREV Mathieu Elshout Investor Advisory Council

ista International

GmbH Hans Martin Hermann Senior Manager Public Affairs

LandSecurities Fernanda Amemiya Sustainability Reporting Manager

METRO AG Olaf Schulze Director Facility, Energy & Resource Management

Nelson Group Carlos Morgado /

Marny Di Pietrantonio Project Manager



V


PGGM Mathieu Elshout Senior Director Private Real Estate

RE-sponsibility Michael Ullmann Managing Director

Savills Investment

Management LLP

Gerhard Lehner /

Barbara Linnemann

Managing Director, Head of Fund Management /

Head of Asset Management Germany

ULI Greenprint Marta Schantz Senior Vice President

Union Investment Jan von Mallinckrodt Head of Sustainability, Head of Segment

Development

University of

Cambridge Franz Fürst Professor of Real Estate and Urban Economics

WGBC World Green

Building Council Stephen Richardson Technical Lead - Energy Efficiency Mortgages

ZIA German

Property Federation Philipp Matzke

Consultant Energy and Climate Protection,

Facilities Engineering

Zurich Insurance

Group Roger Baumann

COO Global Real Estate & Head Product

Development



VI


ACRONYMS AND ABBREVIATIONS

ABBREVIATION MEANING

ANZ Advancing Net Zero

AUM Assets under Management

CDP Carbon Disclosure Project

CO2 Carbon dioxide

CO2e(q) Carbon dioxide equivalent. The unit is used to make the Global Warming Potential

(GWP) of Green House Gases (GHG) comparable to the GWP of CO2

CRREM Carbon Risk Real Estate Monitor

Carbon VaR Carbon Value-at-Risk

EIC European Investors Committee

ESG Environmental, Social, and Governance

EPBD Energy Performance Building Directive

EPRA sBPR European Public Real Estate Association Sustainability Best Practices

Recommendations

EU European Union

EU TEG European Union Technical Expert Group on Sustainable Finance

EUR Euro

FSB Financial Stability Board

GHG Greenhouse Gas

GRI: Global Reporting Initiative

INREV European Investors in Non-Listed Real Estate

Kg Kilogram

kWh Kilowatt hour

LP Limited Partner



VII


m2 Square meters

NZCBC Net Zero Carbon Building Commitment

PRI Principles for Responsible Investment

REIT Real Estate Investment Trust

SBTi Science-Based Targets Initiative

SDA Sectoral Decarbonisation Approach

TCFD Task Force on Climate-related Financial Disclosures

UNGC United Nations Global Compact

USD: US-Dollar

WRI World Resources Institute

WWF World Wide Fund for Nature

Documents

Carbon Risk Real Estate Monitor · ista International Hans Martin Hermann (Senior Manager Public Affairs) Zurich Insurance Group Roger Baumann (COO Global Real Estate & Head Product