Road to Real Estate decarbonisation

The market targets and the instruments
The Carbon Risk Real Estate Monitor (CRREM) is a European Horizon 2020 research and innovation project, aimed at assessing climate risk for the real estate sector.

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Climate change affects the industries all over the World. The AEC (Architecture, Engineering and Construction) sector is one of them. Businesses and Portfolio managers have a new risk to consider, climate risk. Assessing such risk is not a trivial task, as it is affected both by science and policies. In this context, the European Union proposed a useful methodological framework, the Carbon Real Estate Monitor (CRREM) [1], instrumental to provide quantitative tools to assess climate risk.

This article aims at presenting the concept of climate risk in the real estate market, providing reference to the background science and regulations, giving a description of what is CRREM and which tools are available. A sample carbon reduction analysis for a typical office building is then presented, to demonstrate the main outputs of the tool, consisting in an emissions and energy reduction scenarios.

Climate risk: the combination of physical and transition factors

Risk is the possibility of suffering a loss, damage, or other adverse or welcome circumstance; a chance or situation involving such a possibility. The concept is used in many practice areas including business, economics, environment, finance, information technology, health, insurance, safety, security etc.

In the context of climate, we can see two phenomena summing up to define the risk level: physical risk and transition risk.

Physical risk is the one connected to insufficient action taken with regards to climate change. This manifests in an uncontrolled increase of global temperature, and other related weather phenomena. Damage to physical assets and to the society structure, as we know it, would be on the line.

Transition risk is the one connected to excessive action taken against climate change. This manifests itself in higher overall costs to obtain the same services and products, strongly limiting the development capabilities of the global economies, thus impacting the wellbeing of the individuals.

A balancing act between the two risks must be performed, as both have extreme consequences that we want to avoid.

A useful analogy to understand such balancing activity is the isoquant. An isoquant in microeconomics, is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. The x and y axis on an isoquant represent two relevant inputs, which are usually a factor of production such as labour, capital, land, or organization.

In our case, we can put Transition risk on the x axis and Physical risk on the y axis. The resulting isoquant is the set of points that defines climate risk, as a balancing between the two inputs.

Climate risk isoquant

Figure 1 | Climate risk isoquant

What we want to find is the optimal balancing spot along this line. Note that this point is not unique for every country, sector, business, portfolio or asset, so finding it requires specific analysis, in a holistic framework.

Science, Regulation, Stranding

The ipcc AR6 Synthesis Report [2] highlights that:

  • Human activities, principally through emissions of greenhouse gases, have unequivocally caused global warming, with global surface temperature reaching 1.1°C above 1850–1900 in 2011–2020.
  • Limiting human-caused global warming requires net zero CO2 Cumulative carbon emissions until the time of reaching net-zero CO2 emissions and the level of greenhouse gas emission reductions this decade largely determine whether warming can be limited to 1.5°C or 2°C.
  • All global modelled pathways that limit warming to 1.5°C (>50%) with no or limited overshoot, and those that limit warming to 2°C (>67%), involve rapid and deep and, in most cases, immediate greenhouse gas emissions reductions in all sectors this decade. Global net zero CO2 emissions are reached for these pathway categories, in the early 2050s and around the early 2070s, respectively.

With the Paris Agreement [3], 196 Parties at the UN Climate Change Conference (COP21) held in Paris, France, on 12 December 2015, set the goal to limit global warming to 1.5°C.

Further regulations are being put in place locally by countries or group of countries to define how this goal will be reached for every sector and business type.

Science to policies

Figure 2 | Science to Policies

Regarding the Real Estate market, we say that an asset is “Stranded”, or at risk of stranding, if it does not comply with local climate regulations. This has consequences in terms of the usability and the cost of operation of the asset, which are reflected in its market value.

CRREM: The Carbon Risk Real Estate Monitor

What is CRREM

The Carbon Risk Real Estate Monitor (CRREM) is a European Horizon 2020 research and innovation project. The objective of CRREM is to accelerate the decarbonisation and climate change resilience of the EU real estate sector by providing appropriate science-based carbon reduction pathways at property, portfolio and company level (“2-degree-readiness”). CRREM aims to integrate carbon efficiency and retrofit requirements into investment decisions by evaluating and clearly communicating the downside financial risks associated with a low energy performance and quantifying the financial implications of stricter regulatory environment regarding carbon intensity on the building stock.

In short, the goal is to assess climate risk to properly manage assets, optimising interventions like building renovations, with a strategy that limits stranding and other carbonrelated costs.

The goal of CRREM

Figure 3 | The goal of CRREM

In practice, two tools are available:

  • The CRREM Pathways provide the targets in terms of theoretical decarbonisation scenarios.
  • The CRREM Tool provides a mean to predict future carbon and energy performance, based on the current or planned characteristics.

The following two sections describe these tools in more detail.

CRREM Pathways

The Pathways [4] are values for maximum CO2 only emission (measured in kgCO2/m2/yr), maximum Green House Gas (GHG) emission (measured is kgCO2e/m2/yr) and maximum energy consumption (measured in kWh/m2/yr). These three values are available for each year from 2020 to 2050, for thirty countries in the European geographical region, and fourteen countries outside it.

Grid Emission factors (EFs) are also provided, to allow the conversion between site and primary energy consumption (the EFs are measured in kgCO2/kWh).

The term “maximum” means that these values represent the allowed emission or energy consumption, to reach the 1.5 °C global climate target.

Specifically, the following European region countries are available: Austria, Belgium, Bulgaria, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherland, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom, Croatia, Switzerland and Norway.

The following Non-European region countries are available: Australia, Brazil, Canada, China, Hong Kong, India, Japan, Malaysia, Mexico, New Zealand, Philippines, Singapore, South Korea and USA.

As can be seen, the geographical detail is higher in for European region, which may be a limitation for some applications.

The Pathways have been determined following a Top-Down downscaling approach, meaning that they start from a global emission budget that complies with the 1.5 °C target (i.e. 759 GtCO2,e from 2020 to 2050) distribute it across countries and sectors, depending on both the current and projected economic market capitalisation and capacity to act.

Countries as sectors start with very different budgets but they converge overtime (SDA-convergence approach [5]).

CRREM downscaling

Figure 4 | CRREM downscaling approach (values are updated as per Update-V2_V1.0-11-01-23 of the downscaling guide, they are used to explain a concept. Do not take them as reference, for actual assessments follow the most recent CRREM pathways)


The Tool [6] is an instrument which calculates an energy and emission scenario for a real estate company based on the size, location, use type and energy use by source of its asset portfolio. The Tool follows a Bottom-up approach, meaning that the inputs at asset level are then aggregated to show the full portfolio and company picture. The Tool also allows to estimate the impact of refurbishment interventions.

Where the Pathways provide a mandatory target, the Tool suggests a prediction methodology to assess the compliance to such targets. In this regard, it is possible to develop one’s own alternative tool, which must, however, comply with the Pathways.

CRREM upscaling

Figure 5 | CRREM Bottom-up carbon assessment approach

Carbon reduction scenarios

This section shows the typical output of a basic CRREM analysis, which consists of a comparison between a pathway and a scenario.


Here the CRREM Tool default parameters are used to make the scenario curves, for visualisation purposes. A more accurate representation of an actual asset future scenario can be performed by a more advanced analysis of the building envelope and systems, both with current and planned design documentation and dynamic energy modelling (you can contact GET here if you want to know more).


For this example, the asset is a 10,000 m2 office building in Italy, which consumes 1,000,000 kWh/yr of grid electricity (reported in 2020). In 2030, a retrofit is planned to reduce energy consumption by 60 per cent.

The following images show the pathway in blue, the scenario without retrofit in dashed black, the scenario with retrofit in black.

CRREM emissions scenario

Figure 6 | Emissions reduction scenario

The emission target is very strict, as it requires reaching near-zero. The remaining emissions will have to be addressed outside the asset scope in order to reach net zero globally, for example with carbon capture technology not directly related to the analysed asset/portfolio.

CRREM energy scenario

Figure 7 | Energy reduction scenario

The energy target is more permissive. This makes sense because there is not much that can be done to limit energy consumption (note that the energy consumption to check against this pathway considers the whole energy consumed, regardless of any production that may happen on site). In the end, the goal is to bring emissions to net zero by 2050, not energy use.

Current application in the real estate market

The CRREM initiative collaborates with organisations and initiative addressing transition risk worldwide, to support stakeholders in many ways [7].

  • Learn more about your (real estate related) carbon and overall GHG emissions;
  • Enable development of strategies regarding mitigation;
  • Enable investors to align their real estate portfolios against Paris-compliant-decarbonization-pathways (including 1.5°C and 2C° scenarios);
  • Undertake aggregated analysis of portfolios;
  • Track mitigation of GHG over time each year and evaluate the progress of investors’ carbon performance;
  • Monetarization of transition risk for operational carbon emissions / Quantify risk on property and portfolio level;
  • Support transparency and communication regarding ESG targets;
  • Analyse impact of retrofit on total carbon performance (trade-off of embodied carbon vs. operational savings);
  • Visualize the energy performance of single properties, portfolios and companies;
  • Use massive amount of default data (on EF, Carbon Pricing, Development of energy mix, HDD/CDD etc.) or own assumptions;
  • Apply proven and reliable methodology based on SBti SDA convergence approach;
  • Create transparency and accountability, and to enable real estate investors to align their portfolio with the Paris Climate Agreement;
  • Ensure alignment with many other standards and initiatives (GRESB, INREV, PCAF, etc.).

We have seen the climate risk problem, as a combination of physical and transition risk. There is a dividing line between scientific findings and political decisions, both of which affect the real estate market. We need methodologies to assess impacts and optimise intervention strategies. The European CRREM project provides an example of such methodology. We have seen the top-down approach that determines the target pathways, and the bottom-up approach to estimate the scenarios, and their comparison in a CRREM analysis.


Get in touch: Talk to Teodoro for more information about CREEM and Decarbonisation

Teodoro Maiorano – Head of Energy and Decarbonisation
+39 348 0059 748


Useful references

  1. CRREM introduction (2020 presentation) |
  1. Ipcc AR6 report 2023 | AR6 Synthesis Report: Climate Change 2023 — IPCC
  1. The Paris agreement 2015 |
  1. CRREM Pathways v2.02 |
  1. Downscaling and assessment methodology |
  1. CRREM Tool |
  2. CRREM Objectives and Benefits |
Mattia Bressanelli
Teodoro Maiorano, Daniele Guglielmino

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