Nuveen Real Estate, one of the world’s largest real estate asset managers, has set an ambitious global goal to achieve net zero carbon by 2040. Abigail Dean, Global Head of Strategic Insights, explains how Nuveen plans to get there.
The World Green Building Council is clear. To meet the Paris Accord goal of limiting global warming to 2 degrees, and ideally to 1.5 degrees, all real estate must be net zero carbon by 2050. Nuveen – with more than US$148 billion on its books – expects governments, occupiers, and investors to coalesce behind this target.
“Buildings that are not net zero carbon, or transitioning to that status, will start to lose their value,” Dean says.
“We believe there’ll be a heightened stranded asset risk in the last decade leading up to 2050, so we want to be able to transition our entire investment portfolio to net zero by 2040.”
Nuveen has an interim goal to reduce the energy intensity of its real estate assets by 30% by 2025 from a 2015 baseline.
“We’re well on track to achieve that goal with several success stories.” Dean points to the commercial office building at 183-185 Clarence Street in Sydney, which is currently being retrofitted, as an example. “We set targets at the start of the design process to ensure that we deliver a low-carbon building and are aiming to achieve 5 star NABERS and Green Star ratings for it.
“Even if a building is in a region or country where there isn’t demand for net zero carbon buildings, we act quickly to reduce the energy consumption of buildings, through retrofitting or installing lower-cost measures. This ensures that we’re well set up by the time demand increases and stranded asset risk increases.”
Nuveen is leveraging technology to meet its net zero targets. For instance, in its Swindon Outlet Mall in the U.K., Nuveen installed a cost-effective energy-monitoring technology backed by artificial intelligence. Real-time monitoring, via sensors linked with metering and building management systems, collects millions of data points. With this granularity and richness of information, Nuveen can easily turn equipment off when it isn’t needed, reducing energy consumption by around a third at the mall without huge capex spend. This technology can be easily rolled out across other buildings.
What are the main challenges on the road to net zero?
One is getting occupiers on board, Dean notes.
“As our occupiers use and often procure energy directly, they’re under no obligation to share their energy consumption data with us. We need to work closely with our occupiers to access such data, and we need their support when we carry out significant upgrades.”
The second is a skills gap in the industry.
“To operate net zero carbon buildings, everyone who works in real estate needs to change the way they work and have a keen understanding of the implications of becoming net zero carbon. The industry will require time to achieve the knowledge uplift.”
Dean says the real estate industry is well positioned, “because buildings that can transition to net zero carbon perform better financially; they get higher rents and hold their value better.
“The nuance comes in when considering how quickly we should get a particular building to net zero carbon, especially in places where the market isn’t necessarily valuing the concept of net zero carbon just yet. So, it’s important to judge how quickly we want to get to the goal while also ensuring returns for investors.”
But Nuveen recognises it has a fiduciary responsibility to deliver good returns to investors, and “not every investment can deliver social and environmental impact alongside a healthy financial return. It’s not as straightforward as saying that delivering social impact delivers high returns, although we think that with the right strategy it can”.
“Ultimately, it’s about understanding the local nuances and the specific investment strategies that work for various investment time horizons and return criteria. Overall, we believe that in the long term, impact investing and achieving our net zero carbon goals will deliver a clear uplift in value, especially as the global shift toward a net zero carbon economy continues.”
Read more insights from Nuveen to learn how real estate investors can make an enduring positive impact on the world.