In recent years, commercial real estate organizations have started to develop ESG strategies and invest more heavily in sustainability thanks to market demand for concrete climate action. This demand was spurred by the Paris Agreement, an international treaty on climate change adopted by countries all over the world in 2015. This global effort to stave off the worst effects of climate change requires limiting the increase in Earth’s temperature to 2°C, rather than the projected increase of 3.7 to 4.8°C.
Due to these efforts, chances are you’ve come across the term “science-based targets” but may not really understand what it means and why it matters for commercial real estate. Major real estate companies such as Boston Properties, Commonwealth Partners, CBRE, JLL, and Prologis, among others, have already committed to setting science-based targets.
Companies that choose to set science-based targets rather than incremental targets build resilience, increase competitiveness, and are better prepared for regulatory shifts. Here’s what you need to know.
What are science-based targets?
Science-based targets (SBT) are a vehicle for making global goals actionable at the corporate, or in our case, portfolio, level. Targets adopted by companies to reduce greenhouse gas (GHG) emissions are considered “science-based” if they are in line with the level of decarbonization required to keep global temperature increase below 2°C compared to pre-industrial temperatures, as described in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).
The Science Based Target initiative (SBTi) promotes science-based target setting and officially approves these targets. It drives climate action in the private sector by enabling companies to set science-based emissions reduction targets. The SBTi is a partnership between CDP, the United Nations Global Compact, World Resources Institute and the World Wide Fund for Nature.
How do science-based targets work in practice?
While there are several approaches available for setting science based targets, SBTi recommends the Sectoral Decarbonization Approach (SDA) for the commercial real estate industry. The SDA uses scenarios from the International Energy Agency to model the carbon reduction pathway for different sectors and emissions scopes to maintain warming within the 2°C limit. It is based on the establishment of business-level emission trajectories that support the 2°C global warming threshold.
Generally speaking, there are three components to any SBT-setting method.
Here is a basic step-by-step approach for setting emissions targets using the Sectoral Decarbonization Approach.
It is important to note that all SBT-setting methods are complex and should be considered in the context of each portfolio’s operations and value chains. For SBTs to be truly effective, they should cover a minimum of 5 years and a maximum of 15 years from the date the target is publicly announced. Companies are also encouraged to develop long-term targets (e.g., up to 2050). Because of their multiyear nature, SBTs should be periodically reviewed and updated to reflect changes that would compromise their relevance and consistency.
Understanding Emissions Categories
Before you can establish science-based targets for your portfolio, you have to understand its carbon footprint. The most widely-used international accounting tool, the Greenhouse Gas Protocol, categorizes GHG emissions into three groups. Using this framework to collect data is your first step toward reducing these emissions.
Setting meaningful reduction targets for your portfolio is reliant on the ability to accurately measure and monitor GHG emissions across all three categories, though beginning with a focus on Scope 1 and 2 is common. A key challenge for commercial real estate organizations is collecting building-level data that can be aggregated and analyzed at the portfolio level.