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Real estate: achieving net zero on behalf of our clients

On behalf of our clients, we have set out our proposed pathway to achieving net-zero emissions by 2035 across the managed assets included within our £6.1bn global real-estate portfolio.

The international business of Federated Hermes was one of the original signatories to the Better Buildings Partnership (BBP) Climate Change Commitment, which now includes 27 commercial real estate investment managers and owners.

The BBP asks the signatories to publish a net-zero carbon pathway that is in line with its Net Zero Carbon Pathway Framework and report against it on an annual basis. It also requires that all assets under management achieve net-zero carbon by 2050 or sooner.

We propose to achieve net-zero emissions in the managed assets included within our £6.1bn real-estate portfolio.1 We aim to deliver on this aspiration in four specific areas:

  1. Decarbonisation. Remove the use of fossil fuels, increase energy efficiency, use green tariffs and reduce embodied carbon in our new development and major refurbishments. This should support improvements in local infrastructure and emphasise best-practice innovation.
  2. Deliver energy efficiency. Reduce energy use intensity by 66% in the years to 2035 against a 2018 baseline.2
  3. Stakeholder engagement. Work with occupiers, suppliers and other stakeholders to successfully transition to net-zero alignment.
  4. Utilise offset opportunities. Use credible, permanent carbon-removal methodologies for residual carbon utilising schemes, such as natural-capital solutions for carbon sequestration to address embodied carbon.

We have developed this pathway using the UK Green Building Council’s Advancing Net Zero Framework. The 2035 target aligns with our clients’ stated objectives and targets.

The fluid nature of our various portfolios means that the pathway timeline will be continually reviewed, with the first review set for 2021. During the first year, we will undertake a full analysis of our assets and consider their ability to achieve net zero.

This will determine whether the pathway can be reviewed further and if target dates can be improved. We will embrace the specific goals of each client fund and support these clients in achieving net-zero alignment by applying the four pillars of the pathway.

The pathway has a phased approach. The first phase aims to address managed assets in the UK, looking at the publication of detailed targets and timelines in 2021.3 Subsequent phases will seek to address the wider international portfolio and consider the specific challenges relating to the occupied areas of the residential assets. A pathway and timescale will be devised and agreed – including a methodology for target setting – and pathways will be published in 2021.

Our real estate clients’ pathway to net zero excludes our corporate office and related activities, our real-estate debt capability and funds where we only have an advisory role. All of these will have their own targets and net-zero strategies and we will look to align our managed-asset portfolio’s pathway.

As an investment manager on behalf of our clients, we seek to continue to be a leader in the implementation of sustainable asset and investment management activities which mitigate climate risks. These activities support the transition to a low-carbon economy, driven by our consistent belief in the benefits of a holistic approach to environmental, social and governance integration as a driver of investment performance.

  1. 1Our net-zero pathway covers £4.05bn-worth of UK-managed assets, representing 66.4% of our assets under management.
  2. 2‘Net zero carbon: energy performance targets for offices’, published by UKGBC on 14 January 2020.
  3. 3The pathway covers everything within the BBP Framework, although each fund will be reviewed independently and we will remain mindful of asset type and portfolio composition.

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