The built environment is linked to 40% of all UK carbon emissions1 and as a major investor with a £19 billion UK property portfolio across residential, commercial and industrial assets we believe we have an important part to play in tackling the climate crisis.
At the end of 2020 we published our real estate net-zero roadmap, which laid out Legal & General Investment Management’s (LGIM’s) strategy to transition its real estate portfolio to net-zero carbon.
Through this strategy we will seek to deliver on the commitments we made in 2019 as signatories of the Better Buildings Partnership’s Climate Change Commitment, to seek to achieve net-zero for all our real estate assets by 2050 or sooner.
And we have now adopted new interim science-based targets to reduce all our carbon emissions by 2030. We have committed to reducing Scope 1 and 2 absolute carbon emissions (those from our landlord-controlled areas) by 42% compared to a 2019 baseline. For the Scope 3 emissions associated with the energy use of our occupiers, we will seek to reduce their carbon intensity by 55%.2
Sustainability is a priority
As a global institutional investor, we believe we have a responsibility to generate value for our clients. We believe that sustainability is a key factor in real estate value and performance and its importance will only increase over time.
During 2022, we carried out an exercise to estimate our wider carbon footprint. This was an estimate of emissions associated with activities such as the energy being used each year by our many occupiers, the embodied carbon built into our developments, and all the carbon wrapped up in operating and managing our real estate portfolio.
We found that only around 3% of emissions came from the electricity and fuel that we buy to operate our buildings (Scope 1 and 2 emissions). The majority (around 71%) are due to the energy used and controlled by our occupiers, which means that collaborating with them will be essential if we are to meet our targets. The second most significant source is from capital goods, primarily the embodied carbon built into our new developments.
“Collaboration across our organisation and with external partners will be the key to decarbonising and future proofing these assets. We will be working closely with all our stakeholders; from our colleagues, designers and developers, to building occupiers, managing agents and facility managers. These partnerships will be vital in our race to net zero.”
Global Head of Real Assets
Legal & General Investment Management
Net-zero portfolio
To achieve net zero we are firmly committed to the principles defined by the UK Green Building Council framework. We will aim to measure and reduce embodied carbon, use energy hierarchy to drive down the demand of our properties to lower energy levels and increase renewable energy supply. Our aim is to only consider verified offsetting as a final step.
“We have to take the whole lifecycle of each building into account, from new build all the way through operation, refurbishment and in some cases to redevelopment. So, we are measuring and seeking to reduce the embodied carbon at the construction stage, which includes the materials used and the build process, and reducing energy demand in the operational phase.”
Head of Responsible Investment & Sustainability
LGIM Real Assets
The gathering of emission data at each stage of the building lifecycle is key to understanding performance, opportunities and progress. For the operational phase we must increase the scope and accuracy of the emissions data that we hold for our occupiers. To do this we have launched a programme to sub-meter occupier energy use, increasing the scope, accuracy and robustness of the data that we hold for our occupier energy use.
By the end of 2022 we had achieved sub-metering for 80 assets. We also collected data directly from our tenants. And we have begun working with a new environmental, social and governance data platform partner, Deepki, and we believe this technology-led platform will enable us to more rapidly move towards remote data collection.
For new build and major refurbishment projects we place a requirement on our design teams to set net-zero targets and carry out operational and embodied carbon studies as appropriate. We have taken a series of other steps too, such as the introduction of net-zero audits for both acquisitions and existing assets. We also launched a pilot project to help develop a holistic view of the opportunities around on-site renewable generation and developed new tools to take advantage of the opportunities to embed energy improvements during refurbishment and fit-out.
Our net-zero roadmap is part of LGIM’s response to climate change, which has so far included: our Climate Impact Pledge, which made a commitment to hold more companies to account in an effort to improve sustainable practices; seeking to ensure all houses built by Legal & General’s housing business will be capable of operating at net zero carbon emissions by 2030; and our role as one of the 30 founding signatory global investors of the Net Zero Asset Managers Initiative. As part of this initiative, we commit to aiming to decarbonise investment portfolios, accelerate their contribution to achieving net zero and encouraging other asset managers to join for a more sustainable future.
We believe every business has a role to play in creating a more sustainable world, but there must also be a collective effort by governments, policymakers, companies, investors and society.
Key risks
The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. Past performance is no guarantee of future results.
1Promoting Net Zero Carbon and Sustainability in Construction, Government Commercial Function guidance note (September 2022).
2LGIM Real Assets 2022.
