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28 Mar 2024 - Planting the seed of change: real estate's role in the nature crisis

By: abrdn

Planting the seed of change: real estate's role in the nature crisis

abrdn

March 2024


Since publishing our climate change approach for our direct real estate portfolio in 2020, we have focused on mitigating climate risks and decarbonising our real estate portfolios. But our real estate environmental, social and governance strategy also considers wider environmental and social topics, including those associated with nature and in particular biodiversity . How can real estate reduce its negative impact on nature? And how can it have a positive impact and contribute to climate solutions? 

A focus on nature

We are experiencing a nature and climate crisis. While the spotlight has previously been on climate change, nature is now sharing centre stage. The two issues are interdependent.

Some key initiatives have caused real estate investors to sit up and pay attention to the relationship between buildings and nature. 

  • The final framework of the United Nations' Taskforce for Nature Related Financial Disclosure (TNFD) was released last autumn, which sets out a framework for companies to report their impact on nature. 

  • The introduction of the Biodiversity Net Gain legislation in England in February requires at least a 10% biodiversity net gain for new developments. 

How does real estate affect nature? 

Real estate contributes directly to four of the five main drivers of nature loss. Therefore, action to reduce the impact in these areas can also reduce risks for real estate assets.

Five drivers of nature loss

  • Climate change 

    Buildings contribute to almost 40%[1] of global greenhouse gas emissions because of their heating, lighting and cooling requirements. It is imperative that buildings are decarbonised to reduce greenhouse gas emissions and to mitigate climate change. 

  • Resource exploitation

    Buildings require raw materials such as cement, steel and sand. The challenge for real estate developers is to understand where and how these are sourced in the supply chain and how to change practices to be more sustainable. For example, developers can use recycled steel and concrete or responsibly sourced timber. This can help reduce the impact on nature and provide a more dependable supply. 

  • Land- and sea-use change

    Real estate has changed land use. Legislation, such as the Biodiversity for Net Gain for development in England and Wales, can help to ensure that biodiversity is maintained and improved on-site. This can be achieved by introducing green walls or roofs, and by maintaining existing shrubs and trees. But real estate investors and local authorities should prioritise building on brownfield sites (previously developed land) to avoid expanding into greenbelt areas. 

  • Pollution 

    Contaminated land risks from fuel or toxic-waste leakages are a concern if waste is stored inappropriately at real estate assets. Prevention and remediation of contamination is essential. 

  • Invasive alien species

    While real estate doesn't affect invasive species, certain plants can present risks to real estate investments. For example, Japanese knotweed can de-value an asset and affect the stability of a building. 

Green infrastructure creates a positive impact

Real estate provides the unique opportunity to have a positive impact at the construction phase of a building, particularly in terms of design. This may involve maintaining existing green areas or improving habitats that are in poor condition. But it can also have a positive impact in the post-construction phase, by implementing green infrastructure (see examples below). This can promote local biodiversity and contribute to climate change mitigation and adaptation. Real estate can also have a positive social impact and provide operational efficiencies.

Types of green infrastructure [2]

  • Sustainable drainage system

    Using green infrastructure as a sustainable drainage system can:

    - retain 60-72% rainwater run-off, which helps flood mitigation.
    - provide 60-80% species richness, which is similar to that of a natural pond.

  • Street trees

    Having trees next to and around buildings can:

    - reduce the air temperature by up to three degrees.
    - provide carbon sequestration (absorbing carbon dioxide) from the atmosphere.

  • Green roof

    Vegetation growing horizontally on a roof of a building can:

    - provide a 6.7% energy saving for the space directly underneath the roof by providing insulation.
    - reduce noise by 11 decibels.

  • Green wall

    Vegetation growing vertically on a wall can:

    - provide an energy saving of up to 8% for the adjacent space.
    - reduce the indoor temperature by 2.7 degrees.
    - improve local exterior air quality by removing nitrous oxides.

     

How does nature benefit real estate investment performance? 

Green infrastructure can have a positive impact on people, by improving the aesthetics of a building, reducing energy costs, minimising flood remediation costs and improving local air quality. Studies show that there can be a 10% increase in willingness to pay for assets that offer green cover. Green infrastructure can increase property values by around 9.5%. And buildings in close proximity to parks or green spaces also benefit from higher values. Real estate assets with green infrastructure are more attractive to tenants, which can help to reduce void periods and increase rental values. 

Real estate has a key role to play in the nature crisis. It can reduce its negative impact on nature, and it can have a positive impact and contribute to climate solutions. Nature also has the potential to enhance investment returns and to make buildings more attractive to owners, tenants and communities. 

Author: Georgie Nelson, Head of ESG, Real Estate


Funds operated by this manager:

Aberdeen Standard Actively Hedged International Equities FundAberdeen Standard Asian Opportunities FundAberdeen Standard Australian Small Companies FundAberdeen Standard Emerging Opportunities FundAberdeen Standard Ex-20 Australian Equities Fund (Class A)Aberdeen Standard Focused Sustainable Australian Equity FundAberdeen Standard Fully Hedged International Equities FundAberdeen Standard Global Absolute Return Strategies FundAberdeen Standard Global Corporate Bond FundAberdeen Standard International Equity FundAberdeen Standard Multi Asset Real Return FundAberdeen Standard Multi-Asset Income Fund

Source:

1. United Nations Environment Programme (March 2022) Managing Transition Risk in Real Estate: Aligning to the Paris Climate Accord. 
2. Millennium Ecosystem Assessment (2005). Millennium Ecosystem Assessment: Ecosystems and human wellbeing. Biodiversity Synthesis. Washington DC: Island Press.

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