MAP Market Insight
Among many other aspects, the reduction of greenhouse gas emissions plays an important role for players in the real estate industry under the heading of ESG. The focus is on the construction of highly efficient buildings in terms of energy consumption, which are in demand among buyers and tenants. In our Market Insight, we show that this view can fall short. Firstly, from a climate policy perspective, because it only focuses on the emissions generated during building operation. This neglects the greenhouse gas emissions caused by the sum of the materials and processes required for the construction and maintenance of a building (embodied emissions or embodied carbon). But it is also inadequate from an investor's point of view, because the perception of embodied emissions is only just beginning to establish itself on the market. Therefore, current decisions that do not take this into account could prove to be suboptimal in the future. In our Market Insight, we point out that the players who recognize this early on and take embodied emissions into account in their decisions today will be rewarded.
We back up our view by taking a close look at the current state of play on embodied carbon in the real estate industry. First, we briefly highlight the scale of the challenge facing real estate markets as many countries move towards a carbon-neutral future. We then describe what exactly is meant by embodied emissions and why they are so important, even if they have played a minor role for investors in the past. However, our analysis of current regulations shows that the market's view of embodied emissions is likely to change in the future, particularly as a result of the EU taxonomy. We conclude our considerations with the practical challenges that this will pose for the real estate markets.
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