News: Davos WEF annual meeting - The role of the real estate industry in mitigating global risks
By Eri Mitsostergiou (Savills) - The World Economic Forum (WEF) annual meeting took place in Davos on 16-20 January under the theme 'co-operation in a fragmented world'. Those present discussed the biggest global risks of 2023, what we can do to mitigate and manage them in the short term and build resilience for the future.
According to the WEF's Global risks report 2023, the top risks caused by the current 'polycrisis' are energy supply, food, inflation, and the cost of living; issues that until relatively recently were thought to be largely under control. Today, these concerns are coupled with additional technological, environmental and geopolitical risks. There is an urgency for governments and businesses to 'act now - and act together' to address these major socioeconomic and climate concerns. This is more critical especially in an era of low-growth and low-investment, which can accelerate these risks.
The role of the real estate industry is important in mitigating some of these issues. Companies active in property investment and development can contribute to the changes required to build up defences and tackle challenges around climate adaptation and energy transition.
Improve Buildings Energy Efficiency
Real estate contributes 38 per cent of all global energy-related greenhouse gas emissions, therefore decarbonising the industry can have a significant contribution to the fight against climate change. On 12 January leading real estate CEOs made a pledge during the WEF annual meeting to reduce their real estate emissions by 50 per cent by 2030 and reach net-zero carbon by 2050.
Data from the S&P Global Corporate Sustainability Assessment suggests that the industry is moving toward greater climate responsibility, with the percentage of firms with an emissions reduction target rising from 26 to 43 per cent between 2018 and 2021.
There is still an extremely high share of buildings that are energy intensive and require significant investment to meet the current energy efficiency requirements. We have identified that in the office sector alone, less than a quarter of the stock has a green certification (BREEAM, LEED or WELL), across 20 key global cities. The pressure to improve the energy performance of older buildings will further intensify as governments tighten regulation in order to reduce greenhouse emissions and meet their net zero targets.
These regulations are likely to accelerate renovation and retrofitting initiatives by property owners. The challenge is enormous. With 2010 as a reference year, we calculate that more than 70 per cent of office stock was built before this date, corresponding to about 1.9 billion sq ft (175 million square metres) across the 20 cities.
We are predicting that in 2023 there will be more investment in retrofitting older buildings to green standards and repurposing of obsolete assets, especially in the US, Europe and Australia.
Accelerate Energy Transition
The real estate industry can also contribute to the much needed transition to alternative sources of energy generation. Property investor interest in sustainable infrastructure is growing rapidly, it increased five-fold over the past three years, according to Pitchbook research. Nevertheless it is still short of the amount required for a timely transition. The global economy needs an estimated $9.2 trillion in annual average investment in physical assets to achieve net zero emissions by 2050, says McKinsey & Company. In 2023 we expect to see more investors, corporations and governments expanding the funding for sustainable infrastructure globally.
Despite the threat of recession, the global real estate industry will intensify its net zero commitments responding to government regulations, climate risks and ESG commitments. Greener built environment and infrastructures have a positive impact on the planet and the communities and provide long-term sustainability and resilience to future crises.