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SBTi’s Buildings Sector Guidance: What you need to know

A summary of the main headlines, including the key requirements, advantages, limitations, and implications for the industry

The SBTi have recently released its final real-estate sector guidance following public consultation and pilot testing with 15 participating organisations. We are proud to say we were close to the development of the requirements being part of the Expert Advisory Group. In this blog, we aim to share a summary of the key technical requirements as well as our views of the advantages and limitations of the guidance and likely implications for our clients.

Here are the headlines:
  • Whole building operational carbon and embodied carbon targets for new constructions and major renovations must be set. This means tenant engagement and embodied carbon assessments for all development activities are key. 
  • CRREM pathways in tandem with the SBTi’s sectoral decarbonisation approach (SDA) are the metric of choice for operational carbon targets. In addition, companies are recommended to adopt the location-based approach (e.g. using average grid emissions factors) when setting in-use operational targets and tracking emissions.
  • Ban on new fossil fuel installations for heating or cooking from 2030 onwards, at the latest.

Commercially, this will reinforce market standardisation, which is a good thing, but it will also drive a whole building and whole life carbon approach to real estate decarbonisation. We should expect this to create challenges where landlords’ operational control of buildings is low, which is the case for almost all sectors except multi-let offices. Equally, challenges arise in geographies with low renewable energy penetration in the grid and limited supply chains for low carbon construction products and services.

Below is an outline of the key technical requirements:
  1. Intended users: The SBTi has confirmed the primary intended users for this guidance are developers, owner-occupiers, owner-lessors, property managers, and Financial Institutions (FIs) with holdings in SBTi defined financial asset classes (supplementary to existing FI guidance and target-setting approaches). Since the initial draft, construction companies and occupiers without ownership of the building have been removed as primary users. These organisations should continue to use the cross-sector or other relevant sector specific SBTi guidance (e.g. cement, steel).

  2. Emission in scope: The guidance targets the most material emissions sources generated by the building sector, such as operational and embodied carbon. Companies are required to account for whole building in-use operational emissions, covering both landlord and tenant-controlled spaces, though property managers and occupiers without ownership in multi-let buildings wishing to align with this guidance should only account for their proportional share on landlord emissions in addition to the emissions generated from energy used in spaces they occupy or manage.
    For embodied carbon, the pathways proposed account for lifetime embodied emissions, and apply to new builds and major renovations.

  3. Minimum thresholds: Intended users must comply with the decarbonisation pathways proposed by the building guidance if:
    • At least 20% of scope 1, 2 & 3 emissions in the chosen base year are from operational carbon in owned or managed buildings.
    • At least 20% of scope 1, 2 & 3 emissions within any one of the previous three reporting years are from upfront embodied carbon emissions from new developments or acquisitions of a building as a first owner.
    Additionally, if scope 3 accounts for more than 40% of total GHG emissions, company must set additional scope 3 targets using cross sector methods when the 67% scope 3 target coverage requirement is not met by operational and embodied carbon alone.

  4. Target setting methods: For operational carbon, the SBTi proposes whole building decarbonisation pathways aligned with CRREM (v2 - latest) and the SDA, utilising the same split for building typologies and geographies. The sector guidance recommends a location-based approach for reporting and target tracking, where companies must use average grid emissions factors to report their emissions from energy use. Companies setting market-based targets must also report on their location-based emissions, likely due to recent controversies around the effectiveness of market-based emission reduction instruments and varied regional accessibility to high quality renewables.
    The embodied emissions decarbonisation pathways have been developed in partnership with Ramboll. Unlike in-use operational carbon targets, a single global level pathway is proposed, and this is for four asset typologies: residential, office, retail and other.

  5. Other key criteria: In addition to setting targets in line with the new guidance, companies must publicly commit to no installations of new fossil fuel heating and cooking within 5 years from submission or by 2030, whichever is sooner. Companies are recommended to also make public commitments to implement energy efficiency improvements for all buildings within their target scope.
    Companies which meet the SBTi’s high portfolio turnover criteria (see criteria in guidance, section 6.4.3, page 59) can set a fixed intensity target and be exempt from target recalculation requirements over the target period. This would normally be triggered by significant changes in company structure, activities, base year inventory, and/or growth projections.

Advantages: The streamlining of efforts from the two major target setting frameworks, the SBTi and CRREM has certainly been welcomed by the sector, as CRREM has now become the primary framework for assessing buildings’ net zero alignment. This follows further convergence towards CRREM across other frameworks such as PCAF and GRESB. Having specific guidance and criteria developed for the sector also ensures decarbonisation efforts are concentrated towards the most material emission sources. Finally, the mandated whole building approach to reporting is critical to incentivise collaboration among stakeholders.

Limitations: Firstly, the lack of, or the limited availability of country specific pathways for embodied and operational carbon respectively, leaves a big question mark on how reliable, applicable, and achievable the proposed global pathways are. For operational carbon, the guidance has proposed the use of an “Other” category for any assets not fitting into any of the available countries or asset typologies. The “Other” pathways are derived from the remaining global carbon budget and projected floor area developments for the regions that do not currently have a CRREM pathway. The pathway for the embodied carbon “Other” category for asset typologies not covered is developed in a similar fashion, whereby the global decarbonisation pathway is downscaled to the projected non-residential building stock remaining after accounting for offices and retail. There also remains uncertainty about how the new guidance will better support the resource optimisation agenda and promote the energy efficiency and deep retrofitting interventions the existing building stock so desperately needs. Whilst the fossil fuel ban on new installations is a step in the right direction, reintroducing the market-based approach without further criteria on additionality requirements may continue to encourage reliance on low-quality renewable procurement to meet the stringent targets.

Implications: Companies operating in the building sector looking to set SBTs, update existing targets (the SBTi requires companies to review, and update targets every 5 years), or firm up their Net Zero pathways, should be looking to align with the new guidance. This guidance aims to complement and, in some respects, replace the initiative’s corporate Net Zero standard for companies operating in the real estate sector.
In addition to JLL being part of the Expert Advisory Group through our Global Sustainability Team, our consultant experts across Americas, EMEA and APAC also fed into the public consultation, representing views across all our global regions, and ultimately shaping the guidance. It is a big year for refining definitions around Net Zero Carbon in our sector, with another key publication, the UK Net Zero Carbon Buildings Standard recently being released for piloting. Our UK experts are currently preparing a similar note to cover this topic which will be shared on our channels in due course.