Build environment an emissions heavy hitter, but sustainable real estate holds transition potential and strong portfolio returns

Tom Walker, Co-Head of Global Listed Real Assets at Schroders explores the virtuous cycle of sustainability and returns in real estate

The built environment is responsible for nearly 40% of global carbon emissions. That figure alone underscores real estate’s central role in the climate agenda: it sits at the heart of both the crisis and the solution. Yet investing in sustainable real estate isn’t just about doing good, it also holds the potential to deliver strong financial returns.

Understanding how sustainability translates into investment outcomes starts with evaluating emissions

Emissions are typically grouped into three categories. Scope One covers direct emissions - those from company-owned assets like heating systems and vehicles. Scope Two includes emissions from the electricity a business consumes, which varies depending on a region’s energy mix.

Then there’s Scope Three, the most challenging to measure, but often the most material. These emissions are generated through every source not owned or directly produced by the property. This includes workers’ commutes to the property and any other emissions consumed and paid for directly by the building tenants.

The distribution of these emissions can vary widely across property sectors. While some real estate subsectors like self-storage have low emission profiles, others – such as industrial and data centres – face intense energy demands. However, when managed with intention, even energy-intensive assets can become sustainability champions.

For data centres, energy intensity is a known challenge, but also a major opportunity
Operators that prioritise renewable power sourcing, efficient cooling, and heat recycling can dramatically reduce their operational emissions. Encouragingly, despite internet traffic increasing sevenfold between 2015 and 2022, global data centre energy use has grown only modestly in comparison. This exponential efficiency gain highlights how sustainability and innovation can go hand in hand.

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