Launched in 2015, the Science Based Targets initiative (SBTi) promotes best practices for setting emissions reductions targets and independently assesses corporate targets. As part of efforts to refine emissions reduction modelling to be aligned with limiting global temperatures to 1.5C, the SBTi has partnered with the Carbon Risk Real Estate Monitor (CRREM) and is developing updated sector specific target setting methodologies, tools, and guidance building sector companies and other stakeholders. CRREM is a leading global initiative focused on deriving pathways for the real estate sector to decarbonize in alignment with the Paris Agreement. Initial research and tools were first developed for the EU but have since been expanded to include pathways for North America and Asia.
On May 16, 2023, SBTi published a draft of its Buildings Science Based Target Setting Guidance that builds upon the Sectoral Decarbonization Approach (SDA) developed by SBTi for the buildings sector in 2015. The new methodologies will establish more granular pathways to 1.5C that reflect building type and geography for in-use emissions and global pathways for reducing embodied emissions. Final guidance is expected to be released in September 2023 following public consultation and any resulting amendments.
New Proposed Requirements in the Draft Buildings Guidance
- Building owners or operators must set targets for whole building in-use operational emissions regardless of if emissions are under Scope 1, 2, and 3 and if spaces are under landlord or tenant control. “In-use operational emissions” must include fugitive or refrigerant emissions.
- Targets must use the location-based approach for Scope 2 emissions derived from electricity usage.
- Targets must include select Scope 3 categories. For owner-occupiers, owner-lessors, and tenants required Scope 3 categories may include Category 2 (Capital Goods), Category 8 (Upstream Leased Assets), and/or Category 13 (Downstream Leased Assets).
- If companies are the first owner or purchaser, the company must set a Scope 3 target that covers upfront embodied emissions of the new building.
- Companies setting emissions reduction building targets must publicly commit to no installation of new fossil fuel heating and cooking in their building portfolios by 2025.
What This Would Mean for Companies Considering Science-Based Targets (SBTs)
- Expanded target scope: Companies in the building sector would need to track emissions on a whole building basis, not just for the spaces they control, as well as upstream embodied emissions for new developments. This emphasizes the importance of engaging with tenants and landlords for data collection and would lead to setting of Scope 1, 2, and 3 combined targets.
- Asset-level targets: Given the granularity of CRREM-based building type and geography-specific 1.5C pathways, companies may need to calculate targets at the asset-level.
- Change in reduction strategies: By requiring the Scope 2 location-based approach, procuring off-site renewable energy (e.g., RECs) would no longer be an allowable reduction option.
- Electrification: Developing plans to electrify new buildings and phase out fossil fuel heating and cooking in existing buildings would likely become a core element of companies’ emissions reduction strategy to align with SBTi requirements.
- Timing: Companies must set targets in alignment with the finalized building guidance by April 2024, 6-months after SBTi’s planned finalization of this guidance in September 2023.
HXE Partners’ Take
We welcome SBTi’s efforts to drive the building sector towards a more robust, tailored 1.5C-aligned pathway. However, as an advisor with a deep understanding of the unique data considerations in the real estate sector, we recognize the proposed guidance outlines significant changes to how companies in the building sector are currently approaching target setting – such as setting targets at the portfolio level, using market-based approach for Scope 2 emissions to account for RECs, and focusing on Scopes 1 and 2 emissions within companies’ operational control rather than whole building in-use emissions. Many of these changes may present additional challenges in the target setting process as the proposed requirements may be less achievable than those in the past . As this guidance develops, we are committed to working with clients to unpack the more specific, granular elements and navigate their implications on their climate and net zero strategies.