As the global economy moves towards reducing carbon emissions, real assets, such as real estate and infrastructure, play a crucial role in driving sustainable growth. According to the IEA's Net Zero by 2050 report, it is feasible to cut 97% of the building sector's direct CO2 emissions by 2050, despite the sector's activities more than doubling due to increased floor space, greater energy service access, and higher living standards. This can be accomplished by adopting green building standards and energy-efficient technologies. This transition aligns with a larger trend where incorporating environmental factors into the real asset lifecycle is not only vital for compliance with regulations and risk management but also essential for creating long-term value.
Globally, real estate contributes to 37% of embodied carbon emissions and 34% of energy consumption. The environmental effects of real assets also encompass resource depletion, pollution of air, water, and land, as well as biodiversity loss. In the Asia-Pacific region, it is responsible for 14% to 33% of both direct and indirect CO2 emissions resulting from energy and heat usage.
This encompasses the emissions generated from heating, cooling, and supplying electricity for building operations. To meet the IEA’s Net Zero Emissions Scenario (NZE Scenario), building operational emissions must be reduced by about 50% from their 2022 levels by 2030.
To aid the sector's journey towards net zero emissions, the IEA has established a goal to retrofit 20% of the current building inventory to be zero-carbon-ready by 2030, necessitating an annual deep renovation rate exceeding 2%. These objectives highlight the critical importance of prioritizing substantial retrofitting initiatives for existing structures. Forecasts suggest that the operational building floor area will grow from roughly 820 million square meters in 2020 to more than 1.3 billion square meters by 2050. This underscores the pressing need for sustainable and energy-efficient solutions to reduce the environmental impact linked with this expansion.
The construction industry is responsible for roughly 3.3% of global carbon emissions, with new developments equivalent to the size of Paris being completed every week worldwide. As per Oxford Economics, the sector is poised for US$4.2 trillion in growth over the next 15 years, fueled by opportunities in the global green economy and surging demand in countries like the Philippines, Vietnam, Malaysia, and Indonesia. Although the energy consumption in buildings is the primary source of emissions in the built environment, it often overshadows the substantial emissions generated during construction, referred to as the 'embodied carbon' of a building.
Embodied carbon is projected to make up about 25% of total building emissions, encompassing the emissions from producing, manufacturing, and transporting building materials, as well as those generated during construction. With improvements in building efficiency, embodied carbon could increase to 50% of the building sector's total emissions by 2050.
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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Maiden Capital. The information provided is meant as a general guide only and should not be construed as investment advice. You should always consult your financial, legal and tax advisers regarding private equity and real estate investments