Earth Day 2023: The greenest building is (also) a zero-carbon life cycle building

Earth Day 2023: The greenest building is (also) a zero-carbon life cycle building

A year ago I wrote about sustainable real estate, commenting that ‘the greenest building is the one never built’. While still true, if additional space is really required and alternatives are lacking, retrofit followed by new build remain the next best options, especially for regions with strong population growth, such as emerging markets.


A lot of attention is rightly given to the construction phase of real estate, given its impact on global greenhouse gas (GHG) pathway commitments. Of the sector’s 40% share of global GHG emissions, around one-third comes from building and infrastructure materials and construction1, with this share expected to increase strongly in both relative and absolute terms.


Despite efficiency gains, the absolute GHG footprint of the sector is still increasing. From 2015 to 2021 global gross floor area increased from 218 billion to 242 billion square metres, an increase of more than 10%. However, improvements in the environmental efficiency of buildings lagged, and overall operational emissions from building operations are up 2% from the previous peak in 20193. Even if operational performance improves meaningfully, real estate volume growth still results in bulky upfront environmental costs from the construction phase.


The most important factor in this is embodied carbon, which refers to the carbon emissions associated with the production, transportation, and disposal of building materials, equipment, and other products over their entire life cycle. This includes the extraction, processing, manufacturing and end-of-life disposal or recycling.


It has been estimated that upfront embodied carbon will account for around 50% of build environment emissions by 2035, as operational (in-use) emissions from buildings decrease4. But this is not only relative growth, as the new buildings needed to host global population growth by 2060 will emit an estimated 100 gigaton of embodied carbon5. This has led to a shift in focus from the operational efficiency of buildings to a total lifecycle approach. Unfortunately, trustworthy company level data on embodied carbon is lacking worldwide, with measurement methodologies still being rolled out. 

Deepki-image.jpgSource: Deepki


This has not stopped policy, certification, benchmark, and legislation from being implemented in the sector, including:

  • The UNFCCC-MPGCA Human Settlement Pathway which states that by 2030, 100% of new buildings must be net-zero carbon in operation, and embodied carbon must be reduced by at least 40%, as well as a target of 100% net-zero across the whole lifecycle for all new and existing assets by 2050, at the latest.
  • Breaam and LEED recognise embodied carbon measurement and mitigation in their analysis.
  • SBTi (Science Based Target initiative) has substantially increased lifecycle items in its target setting for the sector.
  • Five EU countries (Denmark, Finland, France, the Netherlands and Sweden) have introduced regulation on whole-life carbon emissions, including embodied emissions.
  • Lastly the revision of the EU’s Energy Performance of Buildings Directive (EPBD) refers to whole lifecycle and could lift embodied carbon up on a European scale.


The broadened whole-life approach would be applied for new build as well as for renovation projects. A renovation targeting operational efficiencies alone would no longer suffice. A company would need to manage carbon from planning, operation, and demolition to gain the desired certification rate, planning approval or investor interest. Likewise, investors would need to be able to explain how they integrate lifecycle analysis in their investment decisions. We expect not all investee companies might be able to keep up, with leaders gaining a competitive advantage within the sector.


The whole lifecycle footprint of a building thereby needs to remain front and centre in a listed real estate investment strategy. Alignment of investment portfolios with leading companies as well as engagement on whole-life carbon benefits responsible investment objectives and financial performance, as leading companies are positioned to become the consolidators in the sector.


We use third-party data, although mainly rely on a proprietary bottom-up qualitative approach, which helps to differentiate between ‘leaders’, ‘improvers’ and ‘laggards’, where quality data (including on embodied carbon) is not always fully available or sufficiently comparable.


The bottom-up approach also provides insights in best practices and helps identify potential gaps sector-wide or at individual company level, where engagement could play a role. It also helps to identify leaders in fast-growing developing economies, where data is light and construction materials are set to dominate resource consumption, with associated greenhouse gas emissions expected to double by 20606.


The listed real estate sector (equity plus debt) represents roughly an estimated 11-14% of institutional quality real estate worldwide7 and is therefore positioned to play an important role to address the sector’s heavy GHG footprint. We believe the requirement of a comprehensive full lifecycle approach has only just begun. Investors would need to make sure to identify best practices early and, given its importance, make sure emerging markets does not become a blind spot.



1: IEA (2022), Architecture 2030

2, 3, 6: GlobalABC (2022) 2022, global  status report for buildings and construction

4: Gresb (2023), Gresb 2023

5: Bionova, The embodied carbon review

7: Source: Aegon AM, EPRA, FTSE, Bloomberg, PGIM Real Estate

Important Disclosures

More about the authors

Boudewijn Schoon Senior Portfolio Manager

Boudewijn Schoon is a portfolio manager real estate, responsible for global listed real estate strategies.

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