As Science Based Targets initiative (SBTi) guidance unfolds, the building sector stands at a crossroads to help combat climate change. While buildings provide critical societal services, they are also responsible for a significant share of global energy consumption and greenhouse gas (GHG) emissions. Despite the widespread availability of innovative solutions and technologies for reducing the sector’s environmental footprint, so far, the pace of adoption remains worryingly slow and is struggling to match the urgency that the escalating climate crisis demands.
In December 2023, the SBTi released new sector-specific guidance centred around setting reduction targets for buildings-related emissions that are aligned with the Paris Accord. These refer to both embodied and operational emissions of buildings, covering for example Scope 1 fossil gas combustion for space and water heating as well as Scope 3 emissions from concrete used to construct new buildings.
If you haven’t heard of them before, Science-based targets (SBTs) are a framework for companies to set GHG emission reduction goals that are in line with a 1.5°C emissions trajectory.
While there are already several sector-specific decarbonisation pathways already available from SBTi, in this article we will dive into why this one has the potential to be the most imperative guidance yet given. The rationale behind its importance is the following:
- Buildings account for 39% of global energy emissions.
- Buildings are failing to meet the IEA’s Net Zero Emissions Scenario by 2050.
- Global floor area is predicted to expand by 15% by 2030— an area equivalent to the current built area of North America.
The guideline is currently in a pilot program that is expected to finish in the latter half of 2024. Once the guidance has been finalised, companies will have a six-month grace period to set complying targets. This means that we can expect the implementation of these new rules by the end of 2024.
Overall, this guidance pushes companies in scope to be more ambitious in decarbonising building-related emissions by adding several new prescriptive requirements. But, who will be impacted by this new guidance and how will they be affected?
Let’s break down the scope!
The guidance targets companies that have significant exposure to the real estate sector such as construction firms, property developers, asset owners, property managers, and tenants. Specifically, companies must use the buildings guidance to set targets on buildings-related emissions if any of the below conditions apply for their emission’s base year:
- at least 20% of Scope 1,2 and 3 emissions are buildings-related;
- buildings-related emissions exceed 25,000 tCO₂e; or
- the company’s real estate portfolio exceeds 100,000 m2 in total floor area.
Given the scope of these requirements, many large organisations will be impacted regardless of their primary operating sector.
Alright but, how does this guidance differ from the standard SBT guidance?
Picture this as an add-on, the new provided requirements build on top of the standard SBT guidance. In general, the guidance pushes impacted companies to more aggressively decarbonise. The key new requirements are detailed below.
Down to the details! New regional and building type specific targets
Operational emissions targets are now tailored to certain regions and building types, and therefore the guidance offers flexibility in decarbonisation strategies in exchange for adding more complexity to target calculations.
In practice, this means that an office in Denmark will have different reduction targets than a hotel in Kenya, a measure designed to acknowledge that the location and type of building will influence the decarbonisation pathways available.
What your buildings are made of will affect your target-setting
he guidance requires additional Scope 3 targets related to building materials, also called embodied emissions. If these exceed 20% of total emissions in the past three years, your company will be required to set an embodied emissions reduction target.
This is hugely significant as roughly half of the emissions impact of a built environment project originates from sourcing, construction, and transportation of the building materials.
The ‘whole-building approach’: new GHG accounting principles
Under the new guidelines, companies are required to account for emissions generated by both landlord and tenant-controlled areas related to operational energy use, regardless of the specific GHG boundary consolidation method they employ or how emissions are distributed in their reporting. This requirement, known as the ‘whole-building approach,’ mandates the inclusion of all operational energy consumption emissions within the company’s target boundaries.
This differs from the GHG protocol which separates emissions of certain areas of buildings based on whether they fall under operational or financial control into Scope 1 & 2 or 3. It also means that building owners now have increased incentives to work directly with tenants and other actors to collectively reduce emissions.
Mandatory disclosure of location-based Scope 2 accounting
Many companies choose to use market-based mechanisms to lower Scope 2 emissions associated with purchased energy, such as renewable energy certificates (RECs). While this approach is recognised by the GHG protocol, companies impacted by the building guidance must now commit to disclosing location-based Scope 2 emissions, even if they choose market-based accounting to set targets.
Phase-out date for new fossil fuel equipment
Companies must “publicly commit to installing no new fossil fuel equipment in their buildings portfolios from five years of target submission or by 2030, whichever is sooner.” This covers fossil fuel systems for space heating, cooking, power generation, and hot water.
New horizons in building sustainability
The new guidance is undoubtedly an impressive body of work that will push the building sector on a path towards deeper decarbonisation. The addition of targets for embodied emissions of building materials, which have consistently received less focus than operational emissions, as well as the new ‘whole building’ GHG allocation approach are especially welcome as they advocate for deeper collaboration between actors.
However, in the public consultation phase, the guidance’s potential was somewhat diluted with the softening of certain key aspects and the inclusion of some additional metrics being omitted. Some of the key notable changes are:
- Softened phase-out date for new fossil fuel-run equipment.
While the guidance originally set a phase-out date of 2025 for new fossil fuel run equipment the deadline has now been extended to 2030. As equipment in the building sector can have a service life exceeding 50 years and be exceedingly complex and costly to retrofit once installed this measure reinforces carbon lock-in. - Market-based emissions
The original guidance required the use of location-based Scope 2 emissions for target-setting, however, now companies must instead only disclose location-based Scope 2 emissions. Market-based mechanisms for lowering Scope 2 emissions have received much criticism for potentially overstating a company’s impact on mitigating climate change. By following this approach the directive may be encouraging reliance on renewable energy certificates rather than a direct investment in renewable energy sources or efficiency improvements. - Missing energy efficiency targets
Despite widespread agreement that energy efficiency strategies are one of the most cost-effective CO2 mitigation options and critical for the clean energy transition, the guidance does not set targets in this direction. SBTi has instead deferred this responsibility to the Carbon Risk Real Estate Monitor (CRREM), GRESB (Global Real Estate Sustainability Benchmark) and other partners.
Are you in scope? Here is what you can start working on!
While the guidance is currently in a pilot phase, it’s crucial for companies to closely monitor its progress and evaluate how their current emissions targets and decarbonisation strategies might need adjustments to align with the expected standards by late 2024.
Focusing on building resilience and adaptability in anticipation of this new guidance is essential. Developing a strategic approach that integrates sustainability at the heart of business models will enable your organisations to navigate these changes effectively. Emphasizing the importance of science-based targets, companies can proactively prepare for these upcoming requirements, ensuring they are well-positioned to meet the challenges and opportunities this future guidance will present.
Author details
Eamon Murphy
Senior Consultant
