Guide to real estate decarbonization: How does CRREM help?

Decarbonization goals in the construction industry

The European Union, through the Green Deal and the Fit for 55 package, is committed to achieving climate neutrality, aiming to make Europe the first climate-neutral continent by 2050. As part of this effort, the EU seeks to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. The construction and real estate sectors play a key role in this transition, as buildings account for 40% of the EU’s energy consumption and 36% of its CO₂ emissions.

Climate change poses not only environmental challenges but also economic and financial risks for the real estate market. Market players who proactively adapt to sustainability requirements and reduce their carbon footprint can gain a competitive advantage, while properties that fail to meet these expectations may face devaluation or become unmarketable.

This is where the CRREM (Carbon Risk Real Estate Monitor) comes into play, providing scientifically grounded decarbonization pathways. The tool enables investors and property owners to measure and reduce the operational carbon emissions of their buildings, in line with the objectives of the Paris Agreement.

Components of CRREM

The Carbon Risk Real Estate Monitor (CRREM) project was developed within the framework of the European Union’s Horizon 2020 research and innovation program and ran from February 2018 to January 2021. The project aimed to assist real estate stakeholders in reducing building-related carbon emissions and achieving decarbonization goals.

CRREM encompasses three main areas: financial, physical, and human factors.

1. Financial Factors

• Optimization of real estate financial performance
• Cost reduction strategies (e.g., rental income, operational expenses)
• Enhancing property value and improving investment returns
• Access to financing options and risk management

2. Physical Factors

• Technical condition and sustainability of buildings
• Energy efficiency and reduction of environmental impact
• Maintenance, renovation, and modernization
• Strategic significance of the property's geographical location

3. Human Factors

• Improving employee comfort and productivity
• Ergonomic and functional aspects of buildings
• Supporting corporate culture and brand through real estate strategy
• Optimizing property usage based on employee needs

CRREM tools

CRREM has developed several tools to support the real estate market. The most important ones include:

1. Risk Assessment Tool

• An Excel-based software that enables users to evaluate the carbon intensity of buildings and real estate portfolios.
• The tool allows comparison of properties’ emissions with CRREM-defined decarbonization pathways, helping identify assets that might become "stranded" in the future due to tightening regulations (stranding risk).

2. Decarbonization Guidelines

• CRREM has developed regional and property-type-specific decarbonization pathways aligned with global climate targets to limit global warming to 1.5°C or 2°C.
• These guidelines help investors and property owners determine how to reduce their carbon footprint by 2050.

3. Reference Guides and Methodological Documents

• CRREM provides additional reference materials, such as the Risk Assessment Reference Guide and documentation on how decarbonization pathways were developed.

Stranding diagram

A stranding diagram illustrates how a building’s carbon emissions evolve over time and when it may become "stranded" due to increasingly stringent climate targets.

Black line: Represents the building’s current and projected carbon emission intensity. It shows how much greenhouse gas (GHG) the building emits annually per square meter.

Green curve: Represents the decarbonization pathway set for that specific building type and country. This is the emission threshold that the building must not exceed to comply with the Paris Agreement targets (1.5°C or 2°C global warming limit).

If a building’s emission intensity exceeds the green curve, it enters "stranded" status. This means its carbon footprint surpasses the level allowed under the global carbon budget allocated for buildings. Such properties may face depreciation and market disadvantages as they become less attractive to investors and tenants.

How does CRREM align with the EU’s sustainability policy?

1. Improving the energy efficiency of buildings

• The EU has introduced reforms to the Energy Performance of Buildings Directive (EPBD), mandating the gradual renovation of older buildings and the implementation of stricter energy efficiency standards (EU 2024/1275).
• The CRREM tool helps real estate developers and investors assess when a building may become outdated due to its energy performance and identify the necessary upgrades and investments to meet evolving efficiency requirements.

2. Managing carbon risks and ensuring financial sustainability

• As part of the EU’s sustainable finance policy, ESG (Environmental, Social, Governance) requirements are becoming increasingly important.
• ESG is a broader corporate-level sustainability framework, while the EU Taxonomy is a specific regulation that aligns with the environmental pillar of ESG.
• According to the EU Taxonomy, one of the key conditions for green financing is that a property meets tightening decarbonization standards.
• CRREM enables investors to evaluate their risks and determine the necessary upgrades to keep a building competitive and compliant with sustainability targets.

3. Changing carbon prices and regulatory environment

• The EU Emissions Trading System (EU ETS) now includes the real estate sector, making the maintenance of high-carbon-emission buildings increasingly expensive.
• CRREM forecasts how rising carbon prices will impact investment returns and helps investors develop strategies to mitigate carbon risks.

Advantages and limitations of CRREM

The advantages of CRREM are clear. The tool identifies which buildings require upgrades, ensures compliance with EU sustainability regulations, and enhances the market value and competitiveness of real estate assets.

However, there are also limitations to its application:

1. Variations in local markets and regulations may affect the tool’s effectiveness, as some countries adapt more quickly to sustainability requirements, while others lag behind.

2. As a technically complex and data-intensive model, CRREM requires resources and expertise, making it less accessible for smaller or less developed markets.

3. Additionally, the decarbonization pathways are based on predefined models that may not fully account for rapidly changing economic conditions, emerging technologies, or market fluctuations.

How can Equinox help you?

The Equinox Office expert team provides guidance on leveraging the CRREM analysis tool, mitigating carbon risks, and ensuring regulatory compliance.

If you're looking to optimize your real estate portfolio for sustainability and maintain a competitive edge long-term, Equinox is your trusted partner in achieving your sustainability goals.

To accurately determine the scope, time requirements, and costs of the analysis, please provide the following data for the initial consultation:

1. Type and location of the property
2. Current energy consumption and emission data (see details below: "Detailed List of Required Data")
3. Planned upgrades or renovations
4. Investment or financing objectives

Cited and additional literature

Policies

• EU 2024/1275 – Energy Performance of Buildings Directive
• EU Taxonomy – Regulation (EU) 2020/852 of the European Parliament and the Council (Taxonomy Regulation)
• EU ETS – Directive 2003/87/EC of the European Parliament and the Council (Emissions Trading System Directive)
• ESG – Act CVIII of 2023

Scientific Articles

• CRREM Website: https://www.crrem.eu/publications/
• Spanner, M.M., Wein, J. (2020) – "Carbon Risk Real Estate Monitor: Making Decarbonisation in the Real Estate Sector Measurable", Journal of European Real Estate Research, Vol. 13 No. 3, pp. 277-299.