What the new SBTi building guidelines mean for the real estate industry

On May 16, the Science Based Targets Initiative (SBTi) released new draft guidance around target setting for the buildings sector. Per SBTi, this guidance has three objectives:

This long document is the result of collaborative work with key players in the sector and represents a comprehensive approach to set Paris-aligned decarbonization trajectories for the building sector. A strategic sustainability adviser for the building sector, Ramboll was a key technical partner to the SBTi - we delivered the global pathway for embodied carbon, and we advised the SBTi on the preparation of these guidelines.

Let’s take a brief look at what this new draft guidance means for companies in the buildings sector.

Who does this guidance impact?

This building sector draft guidance is aimed at companies that work within a building’s value chain. This includes architects / engineers, construction firms, developers, asset owners, property managers, and tenants. In addition, the guidance also provides specific direction to financial institutions that invest in buildings.

The guidance does not cover upstream manufacturing entities that produce the key raw materials for buildings. However, these companies should be aware of the guidance, as materials will play an important role in reducing the embodied carbon of building companies downstream.

What has changed in the guidance?

The new guidance includes updates to the rules for calculating and setting targets around emissions in the building sector. In addition, it contains much needed clarification around key building questions, such as how emissions related to the use of sold products should be accounted for over the lifetime of a building, or when owners should or shouldn’t account for embodied carbon.

There are several important updates companies should be aware of:

a. Companies are required to use the sector-specific pathways for buildings, NOT the cross-sector pathways (Note: there is an exception to this for construction companies calculating scope 1 and 2 emission targets).

b. Companies are required to report all building-related in-use operational emissions together despite the scope, this is called the ‘whole building approach’ (note: According to traditional corporate GHG accounting, emissions of owner-controlled (scope 1 and 2) and tenant-controlled spaces (scope 3) are separated).

c. All building targets created using this guidance are 1.5⁰C aligned. Although scope 1 and 2 targets were already at this level of ambition, this represents an increase in ambition for previous scope 3 targets.

a. Companies must set targets on both operational energy use and upfront embodied carbon. This applies even if their scope 3 emissions aren’t over 40% of their total emissions.

b. Companies that previously set embodied carbon targets will need to align them with the new guidance and tool, which will in most cases make targets more ambitious.

c. In addition, the guidance requires different types of companies to include certain scope 3 categories in their targets. For example, developers need to include both capital goods (i.e. embodied carbon) and use of sold products.

a. New tools from SBTi will provide more flexibility in target setting by acknowledging that different building types with different locations may have different decarbonization pathways.

b. However, this will also add some complexity to the calculations, as emissions need to broke out by building type.

c. That said, the guidance also offers the possibility to aggregate targets when they have the same units of measure

a. Companies can’t use market-based calculations anymore. This means purchasing of green energy is limited, so for companies relying on renewable energy credits (RECs), green tariffs, and other market-based instruments to decarbonise, this means a change in strategy.

b. With this limitation, companies will need to reduce scope 2 emissions either by improving building energy efficiency or by directly securing alternative sources of energy not from the grid (such as on-site solar panels).

a. Companies also must make a commitment not to install fossil-fuel based heating and cooking from 2025 onwards. This doesn’t mean every building needs to be all-electric by 2025. However, it would require companies to build new developments all-electric, and existing buildings will need to slowly transition as key equipment / infrastructure ages or breaks.