As decarbonization influences the global ESG matrix, sustainable development priorities face a major switch worldwide. The year 2024 marks concrete facts and changes in the role of decarbonization strategies as pivotal pillars for business success – from ESG and building certification ratings to new regulations and technology.
The BuildGreen 2024 Sustainable Development report highlights the priorities in sustainable development that will lead corporate strategy in the following years. Sustainability will continue its massive ascent, as stakeholders demand more action on environmental and social issues, and businesses and governments respond to stricter demands imposed by politics and climate pressure.
Răzvan Nica, BuildGreen founder and Managing Director explains: “Decarbonization is today the catalyst for empowering business. Sustainable development is a key pillar. Why?
Starting from the 2050 climate neutrality targets imposed worldwide and the significant role of ESG ratings in business, companies and investors from virtually all market segments have been focusing on Sustainable Development and Decarbonization actions. However, the lack of exact and prioritized rankings during assessments between different companies and countries confirmed the need for international regulations and sustainability standards.
2024 seems to be the icebreaker in setting exact decarbonization criteria and regulations. Major changes are already visible in green certifications (soon upgrade for both LEED and BREEAM) and ESG ratings, which took the role of undisputable evidence when auditing companies. This also brings more stringent and higher sustainability targets – a trend that expands beyond the classic real estate segments and requires more complex aspects. At BuildGreen, these changes are visible in our daily activity: Our clients’ needs expanded from green building certifications and ESG reports to more complex strategy and consultancy services, mostly related to decarbonization and finally carbon neutrality goals.”
Globally, CO2 emissions have doubled since 2000 and will continue to rise due to population and economic growth. 4,4% of global GDP is lost per year without climate change adaptation (according to a recent S&P Global report on sustainability trends). Substantial annual global GDP losses particularly impact developing economies and lead to varied consequences in the corporate realm. In Europe, the good news is that emissions decrease in most sectors, due to strict regulations and increased focus on sustainable development strategy. While energy supply and industry face challenges, waste management, green energy solutions and sustainable buildings lead the positive trend.
TOP SUSTAINABLE DEVELOPMENT TRENDS IN 2024:
- Decarbonization – the main driver worldwide
The focus on sustainability strategy and solutions continues to be the top priority worldwide, faced with global pressure on CO2 emissions. Every industry is transitioning to a low-carbon economy and the real estate market is among the top drivers. GHG reductions or elimination, nZEB pillars, net-zero energy solutions, renewable energy or smart building technology, recycled and reclaimed materials, increased use of sustainable materials and more green building solutions through nature are expanding.
Recognizing decarbonization’s significance, stakeholders face intricate challenges and sets of actions, extending beyond traditional norms across energy, materials, distribution, waste, and health. For investors, the growing demand for sustainable development translates into enhanced values.
In 2024, sustainable building practices take centre stage, as confirmed by COP28’s emphasis on decarbonization with the Buildings Breakthrough’s global push for near-zero emission and resilient buildings by 2030. In Europe, developers and investors are setting bold objectives with daringly short timelines compared to the EU’s Fit for 55 targets or the 2050 goal to reach climate neutrality.
- ESG ratings become core business fundamentals
The ESG matrix successfully gains recognition and its role evolves from basic reporting and regulatory compliance to a pivotal element in corporate strategy. Sustainability ratings are part of the process of making informed, sustainable investment and financing decisions in global capital markets. This trend influences design, procurement, finance, and marketing practices. The publication of non-financial reports almost became a must, as well as the use of third-party verification to assure sustainability performance.
Climate neutrality is a big component of ESG, therefore decarbonization and sustainable building play a crucial role in business strategy in virtually all market segments. Transparent carbon footprint calculations shape ESG ratings. Other priorities include biodiversity and increasing focus on AI and technology solutions.
The impact of ESG in reshaping finance and reporting on material sustainability challenges intensifies, but another major trend that changes the complexity of ESG ratings includes the Scope 3 mandates. Private firms, responding to Scope 3 emission rules, adopt sustainability reporting. Regardless of disclosure, all private suppliers to major corporations must implement robust greenhouse gas accounting methods, impacting diverse sectors. Moreover, the “E” and “S” in supply chains are under disclosure, as Scope 3 mandates prompt companies to prioritize ethical sourcing and fair labour. The convergence of environmental and social concerns gains momentum, driven by impending regulations mandating environmental and human rights due diligence. A potential global plastic ban adds urgency, with a treaty expected by 2024’s end impacting plastic’s entire life cycle.
General global ESG regulations emerged and the EU recently marked the first step ahead, with the recent confirmation of an upcoming EU ESG rating jurisdiction (details below at no. 5).
- Green certifications – more than figures
Stronger ESG considerations in sustainable building changed the role of green certifications. LEED, BREEAM, WELL and other international certifications remain one of the key pillars in real estate, but the urgency for decarbonization imposes a more complex level of sustainable development. As a result, the role of green building certification changes: from certifications as the final strategic target to certifications as a starting point and management tool in implementing decarbonization or sustainability strategies.
Leading real estate developers aim to set an example for sustainable development by following guidelines from international organizations that establish and enforce higher standards for sustainability. They also comply with strict laws like SFDR, EU Taxonomy, and the European Green Deal, which promote a shift towards a greener economy and strive for net-zero emissions.
- AI enters as a tool for sustainable building
2024 marks the entrance of AI as a sustainability tool in the real estate market, with a positive impact towards carbon neutrality.
AI solutions can help real estate companies monitor and reduce CO2 emissions across their portfolios by analyzing energy usage, transportation patterns, and supply chain activities. Other tools to maximize energy efficiency and minimize carbon footprint include energy management and improvements (heating, ventilation, HVAC, lighting and other building systems), predictive maintenance systems to monitor building equipment and infrastructure in real-time, smart building automation, occupant behaviour analysis, AI algorithms for architects and designers in creating environmentally friendly buildings (design parameters, material choices, and construction methods).
The environmental implications of AI technology are complex, particularly when considering the balance between its advantages and drawbacks. On the downside, the energy demands of AI infrastructure are significant concerns that cannot be ignored. These aspects contribute negatively to carbon emissions, highlighting an environmental challenge inherent to the advancement of AI. On the other side, AI offers advantages that lean towards promoting decarbonization, through improvements in time management and human resources efficiency. By reducing the amount of time required for work, AI can lead to a decrease in CO2 emissions associated with workplace activities.
The overall impact of AI on carbon emissions is complex and influenced by a variety of factors. As the integration of AI technologies is still in its early stages, expertise in deploying the right AI solutions effectively is crucial. This balance of AI’s benefits and drawbacks highlights the importance of strategic implementation in minimizing its environmental footprint while maximizing its efficiency gains.
- Regulations Boost Corporate Climate Transparency
In February 2024, the European Union set the 1st jurisdiction in the world for ESG ratings, a provisional regulation aimed at boosting investor confidence in sustainable products. The rules prioritize transparency, integrity, and ESMA authorization to enhance the reliability and comparability of ESG ratings while mitigating potential conflicts of interest. The factors covered by ESG Ratings encompass environmental, social, human rights, and governance factors and include the option for separate ratings for E, S, and G factors, plus the requirement for explicit weighting if a single rating is provided.
This agreement will facilitate progress towards achieving the net-zero objectives by 2050 while leveraging private finance into activities in line with the objectives of the Green Deal. The regulation is set to take effect on the EU ESG ratings market 18 months after it enters into force.
