In a survey carried out by HSBC in 2023, 97% of real estate developers and investors said net zero was important to their business and 59% of the largest real estate companies said net zero was their top priority.
A third of companies in the sector already have Transition Plans and the push for formalising Transition Plans across the sector is increasing.
In April 2024, the Transition Plan Taskforce (“TPT”) published its final set of transition plan resources to help businesses transition to net zero.
In this article, we consider the guidance available to the real estate sector in preparing Transition Plans (“TP”).
What is a TP?
A TP sets out an organisation’s strategy for how it will contribute and prepare for the global transition to a low greenhouse gas (“GHG”) emissions economy.
Following the UK’s Green Financing Roadway, the establishment of the TPT was announced at COP26 in Glasgow as part of plans for the UK to become the world’s first net zero financial hub. The TPT was tasked with developing a gold standard for transition planning (read more about the establishment of the TPT here).
The TPT has now delivered a TPT Disclosure Framework (published in July 2023). The TPT Disclosure Framework requires a TP to set out:
- the entity’s strategic ambition to mitigate, manage and respond to climate change and the opportunities the transition presents;
- short (three years), medium and long-term action to translate the strategy into reality (e.g. changes to business strategy, resource allocation, engagement with stakeholders);
- measures to address national risks and take advantage of opportunities; and
- governance proposals to ensure reporting against GHG metrics and targets.
The Framework was supplemented in April 2024 with the publication of sector guidance which gives practical guidance on the preparation of TPs for 30 financial and real economy sectors.
Sector Guidance – Sector Summary
The guidance is divided into two parts: the TPT Sector Summary and TPT Sector Deep Dives.
The TPT Sector Summary provides an overview of TP guidance for the 30 sectors. This sets out recognised decarbonisation levers, metrics and targets.
Real Estate, which is included in the Infrastructure Chapter, sets out recognised decarbonisation levers covering: energy performance, including guidance on retro-fitting existing buildings and providing zero-carbon ready buildings; the promotion of zero-carbon electricity and transport decarbonisation measures; and the reduction of embodied carbon and value chain emissions.
The Sector Summary also sets out guidance on how to present data in the TP, with guidance on how to set out like-for-like percentage change in energy consumption for the portfolio with data coverage by property sector, energy intensity comparable data and water withdrawal data.
Sector Guidance – Asset Manager Sector Deep Dive
The second category of Sector Guidance is the sector-specific guidance for seven sectors, chosen for its need for, or its provision of, finance for transition measures. In the Real Estate context, the most relevant deep-dive guidance is likely to be the Asset Managers Sector Deep Dive Guidance (the “AM Guidance”).
Part One of the AM Guidance introduces the sectoral context and how the Guidance is to be used alongside the Disclosure Framework. Part Two provides suggestions of disclosures and further guidance for those also preparing TPs. These include topics such as the organisation’s objectives and priorities for reducing its financed emissions, managing climate-related risks and opportunities with a view to speeding up the transition, setting out the entity’s processes, products and services and engagement activities; and setting out metrics including financial GHG, governance and operational targets.
What should companies do?
To help prepare for transition planning, the TPT has published a TPT Transition Planning Cycle with detailed guidance on the process for preparing TPs. This has four stages:
- Stage 1 – Re-Assess – (re-)assess your current position, engage the Board, stakeholders, measure your emissions footprint, assess climate risks and opportunities and identify transition levers;
- Stage 2 – Set your strategic ambition – define your objectives and priorities, identify key assumptions on which the plan depends and identify key changes to the business model and value chain;
- Stage 3 – Plan your actions – Develop implementation steps for transitioning, revisit policies, assess the resilience of the strategy, set your metrics and targets; and
- Stage 4 – Implement your plan – Disclose the TP, monitor and report on progress.