CO₂ Equivalent
Carbon Dioxide Equivalent (CO₂e) is the common value unit to standardize the climate warming effects of various greenhouse gases to make their <Global Warming Potential (GWP)> comparable. Put forward by the Intergovernmental Panel on Climate Change (IPCC) of the United Nations, it provides a common unit for different greenhouse gases. For any quantity and type of greenhouse gas, CO2e signifies the amount of CO2 which would have the equivalent global warming impact. Methane, (CH4) has a 25 to 28 times greater global warming potential then CO2, that’s to say that 1kg of CH4 is the equivalent to 25 to 28kg of CO2 and so is expressed as between 25 and 28 CO2e.
CRREM
The Carbon Risk Real Estate Monitor (CRREM) is an EU-funded research project that aims to support the real estate industry in reducing greenhouse gas emissions by providing insightful guidance on the country- and property-specific energy performance to meet the European Union’s real estate decarbonization targets by 2050. The CRREM tool estimates the stranding year of assets which will potentially lose their financial value by failing to adapt to changing rules, regulations (and buyer or renter expectations). It also helps lead clients to consider refurbishment and retrofitting options to prevent financial risks.
CSRD
The Corporate Sustainability Reporting Directive (CSRD) is an EU directive requiring large companies to report on their ESG performance. It goes effective on 1st January 2024 for companies already subject to the non-financial reporting directive (large firms with over 500 million employees) and requires these companies to report on a range of ESG topics, including their environmental impacts, labour practices, social impacts, human rights, and anti-corruption measures. The CSRD is designed to provide investors and other stakeholders with information about the sustainability performance of companies and to encourage companies to adopt more sustainable practices. In the following years more and more firms will be caught by this legislation including listed SME’s from 2026.
DGNB
DGNB is a widely used German sustainability certification system for buildings, neighbourhoods, and certain infrastructure that evaluates a property's environmental, economic, and social performance. DGNB certification is based on a comprehensive set of criteria that covers a wide range of sustainability factors, including energy efficiency, water conservation, materials and resources, and indoor environmental quality. DGNB certification can help a property attract tenants and investors who value sustainability and it can also lead to cost savings through reduced energy and water use. Though a full assessment does not come cheap, the far less cumbersome pre-assessments can give a good indication of what scoring a property could obtain were a full inspection to be carried out.
ESG Frameworks
Since there are few globally accepted standards or rules around ESG, there are numerous ESG frameworks in use. By its very definition a framework is broad in scope, provides a set of guiding principles that should be followed in order to meet the framework’s criteria and for reporting purposes. They often provide guidelines for the direction of ESG reporting but won’t give specific methodologies for collecting the required information or for the report itself. They are often used along side ESG standards or together with other frameworks.
ESG Standards
Given the dearth of globally accepted rules and definitions, there are numerous ESG standards in use. Unlike frameworks, standards are far more specific and detailed in terms of what needs to be reported and how data should be collected. ESG standards bring consistency and also allow comparisons to be made, which is why they are increasingly popular in the absence of robust globally agreed rules and regulations.
EU Taxonomy
The EU Taxonomy is a classification system developed by the European Union (EU) that attempts to define environmentally sustainable economic activity (social and governance are not part of it). It sets out the criteria that can be used to identify economic activities that make a significant contribution to one or more of six defined environmental related objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.
Greenhouse Gases (GHG)
Gases that trap heat by forming a layer in the atmosphere are called Greenhouse Gases or GHG’s for short. Three quarters of GHGs is carbon dioxide, followed by methane at nearly one fifth. Globally, greenhouse gas emissions have increased 1.5 times in the last 30 years and the built environment generates 40% of this annual global emissions.
SFDR
The Sustainable Finance Reporting Directive (SFDR) is an EU directive that aims to harmonise and improve both transparency and integrity of the financial investing sector and to encourage the integration of ESG and sustainability considerations into financial decision-making. This directive applies to most financial market participants, such as banks, insurance companies, asset managers, and investment advisors, and the labelling of the products they sell. The minimum criterion for environmentally sustainable economic activities is set out in the EU Taxonomy, which is intertwined with SFDR and in many ways is still being thrashed out.
Stranded Assets
In real estate, a stranded asset is an investment that loses its value or suffers from declining rental income before it reaches the end of its useful usable life. This could be due to environmental factors such as climate change but is more often due to changes in rules and regulations. Buildings with significant CO2 emissions will lose so much value that they will become “stranded assets” they can not be rented or sold on the market because buyers will be unable to obtain financing. Renovation and keeping buildings well maintained are the best ways to avoid stranding events.