Circular economy as a driving force for transformation in Real Estate
Jack Edwards, Consultant, discusses the circular economy for Real Estate, the opportunities and how to take advantage of them.
Change in reporting focus towards circularity and whole-life
Considering that the Real Estate sector is responsible for a hefty 40% of global greenhouse gas emissions (1), it is unsurprising that carbon emissions have been at the forefront of ESG reporting, or that operational emissions have been elevated to the role of poster child for corporate, government and private action against climate change. However, there has been a slow shift in focus within the industry towards the embodied, or whole life, carbon footprint of buildings. Proposals such as the Part Z amendment to the 2010 Building Regulations which would mandate the assessment of whole life carbon and set limits on embodied carbon have played a part in the shift. Such a change would provide a great incentive to integrate recovered materials or components in new builds, a move which is intrinsically linked to a shift in economic model from the “Take-Make-Waste” model of linear consumption towards a more circular economic model.
The EU Taxonomy, along with the Sustainable Finance Disclosure Regulation (SFDR), is another regulatory framework that is providing an incentive for a shift towards circularity in real estate by choosing the transition to a circular economy as one of its six key environmental objectives. As the Taxonomy is primarily a classification system for defining environmentally sustainable economic activities and won’t directly place mandatory regulations on design or construction firms unless a project is branded as sustainable, it simultaneously highlights the circular economy as an area for future growth and looks to set clearer boundaries for reporting environmentally sustainable activities within the circular economy space.
The EU Taxonomy technical criteria for reporting on economic activities that contribute to the transition to circular economy are likely to be introduced in early 2023. This means that now is the perfect time for any real estate financial market participants to start preparing to align with the criteria and to start the data collection required to achieve the (not insignificant) minimum reporting requirements. It is never too early to start exploring what metrics will need to be reported on as a minimum or as “best practice”. The countdown to the release of the technical criteria is also an opportunity to highlight where there are risks in your own data collection, where there are opportunities for improvement, and what you require from a reporting platform or programme to fully capture your own footprint in alignment with future reporting needs.Read more about SFDR
Resource-hungry Real Estate: need to act now for changes by 2050
Construction materials were responsible for over 44% of global resource consumption in 2011 and were predicted to increase that share each year up to 2030 (3). These are major numbers - recent reports for the EU put the total figure of cement, steel, plastics and aluminium use at 1.6 billion tonnes of used in the built environment each year (2). Not only are the virgin resource requirements of construction and the built environment high, but studies also show that construction and demolition waste can account for 40% of the total waste streams in EU cities (4). It has been identified that the utilisation of many assets that are built from these resources is very low with 40% for an average European office, even during office hours (5). Under-utilising these assets, which are created specifically for the built environment, have massive appetites for raw materials, and generate a high percentage of entire communities’ waste, is simply an unsustainable way to operate.
Circular economy principles could help solve Real Estate challenges
The direct application of the principles of circular economy can offer solutions to a number of the problems highlighted above. A reduction in the virgin resource requirements of the Real Estate sector and improvement in the retained value of those resources through all end-of-life pathways can be achieved through “circular design”. This design process can help extend the life of renewable materials, building shells and building components through a focus on product adaptability, extended material lifespan and easy reparability or re-usability. While circular design is very effective at curbing the virgin resource use and reducing the amount of waste generated, it requires implementation from the very start of a refurbishment or retrofit project. If applied correctly, reports by the Ellen Macarthur Foundation predict that the implementation of circular design principles can yield reductions of up to 178Mt of emissions per year by 2050 across the wider heavy industry sector (5).
Net Zero pathway modelling and Net Zero targets usually use 2050 as a target date, while studies show that in the UK 80% of building stock that will be around in 2050 has already been built (6). Logically, if the sector is aiming to reduce its environmental impact, all of the principles of the circular economy must be embraced now - from ensuring the adaptation and longevity of existing building stock, to a focus on using minimal virgin resources for new buildings and new refurbishment works while assessing all new designs for longevity, re-use or reparability.
Many routes to the same destination
There is significant economic potential held by the transition to a circular economy model. The Ellen MacArthur Foundation has identified EUR 115 Billion of investment opportunities in the built environment related to circular economy principles. These include, among others, the design and construction of buildings based on circular principles, closing the loop on building construction and demolition materials, and building circular cities (2).
This economic opportunity is matched by an equally wide variety of methods by which the transition can be achieved. Recent discussions on embodied carbon in the built environment have focused on reducing the use of carbon intensive concrete through adopting structural timber, a change which is in line with the circular economy principles. What if the industry instead focussed on only using products that are twice as durable or improved the ease at which materials and value can be recovered? The sector could reduce the embodied carbon of buildings, refurbishments, or building component replacements by increasing the lifespan of the materials used rather than regularly replacing them with less carbon intensive virgin renewable resources.
Circular business models in buildings for emissions reductions
The application of circular business models in buildings can be a win-win, by minimising their resource use and waste production alongside an increase in revenue and asset utilisation. Circular business models highlight the potential for increased revenue through the utilisation of buildings for multiple functions. An office is traditionally only used as an office for 27% of the time in a week. Finding methods to utilise as much of the remaining time as possible by hiring out spaces or designing them for multiple uses makes sense financially and from a materials utilisation perspective. Studies predict that in the EU, new circular business models could reduce emissions by 62Mt per year by 2050 (5).
New approach to data to facilitate the transition
These opportunities have a common theme, they will require a completely new approach to data in terms of gathering, auditing and reporting. We have seen some attempts at this already through the creation of BAMB (Buildings As Material Banks) materials passports which address the oversight of other tools which have tended to focus on reducing negative environmental impacts rather than maximising the overall positive value creation. Materials passports are instead defining the value in the recovery of a specific material or highlighting the general characteristics of a product or system that makes them valuable for recovery. There has not been one standardised method that ticks all boxes as of yet.
In summary, the days of simply reporting on the percentage of operational and construction waste diverted from landfills to highlight increased recycling are over. Data collection and reporting will need to adapt to encompass a more holistic whole life cycle view of materials and resources to both reduce the negative impacts of the Real Estate sector and to highlight opportunities for value retention or value creation within the circular economy model.
Where to start
While the variety of ways in which the circular economy can be a driving force for transformation in the sustainability space, and while the theories and possibilities of such a transition are exciting, here are a number of areas to consider before you begin identifying your next steps:
Do you have a strong ESG reporting framework that is able to align with new regulations?
Do you have sufficient data coverage in place or plans for data quality improvements that will enable you to document your alignment?
Do you clearly understand the opportunities and risks that the transition to a circular economy could present?
What value can be added to your assets or services through the uptake of the circular economy model?
I believe that acceptance and use of circular economy principles across the sector are only going to increase over the coming years. The biggest question in my view is whether we are going to take full advantage of the opportunities that this transition can bring on the pathway to Net Zero, and whether the industry is ready to act quickly enough for these efforts to yield results by 2050 – Jack Edwards, Consultant, Report for Zero.
If you are interested in a further discussion with Verco, please feel free to contact Jack, or another member of our team.