Industry

Are smaller investors the key to unlocking net zero in real estate?

Feb 13, 2023

When it was signed at the Conference of Parties (COP) in 2015, The Paris Agreement was groundbreaking. Nearly 200 states committed to a carbon-neutral world by 2050 and an emissions cut of 45% by 2030, all with the aim of keeping global warming below 1.5C.

The agreement was met with relish. As a global community, we were on our way to net zero and the real estate sector – one of the biggest contributors of carbon emissions – was firmly in the sights of policy makers from Brussels to Canberra. 

Since then we’ve had a few issues to contend with, among them a global pandemic. While lockdowns dented worldwide carbon emissions in 2020, that change was far from sustained. In the building and construction sector, energy consumption and carbon dioxide (CO2) emissions are now higher than they’ve ever been.

A report from the Global Alliance for Buildings and Construction (GlobalABC) late last year suggested the industry was well off track when it comes to hitting net zero targets. The sector’s 2021 operational CO2 emissions were 5% higher than 2020, and 2% above those of 2019. In short, the gap between carbon emissions from building and construction and the industry’s 2050 net zero target is widening. 

The case for sustainable investing

But building and construction is just a piece of the real estate puzzle. The carbon impact of the property sector is multifaceted and includes not just emissions contributed by construction and the manufacturing of building materials, but also the environmental impact of urbanised spaces; i.e., the waste, air pollution and energy usage of those living in built up areas. In its entirety, real estate accounts for 39% of global CO2 emissions, the vast majority of that figure is emitted by buildings and the energy they use.

Which means real assets – property, energy and infrastructure – have an important role to play in decarbonisation. The asset class is thought to be responsible for nearly 75% of all investments in decarbonisation and energy efficiency. 

Investing in a low carbon economy

Spanning everything from transport to digital infrastructure, real assets is a wide class with a total market cap now approaching $8trn. Broadly speaking, it presents sustainable investment opportunities around a few core themes:

Renewable energy infrastructure

Most, if not all, of our audience will be familiar with this one. In fact, a poll of the Hedgehog community in April of last year suggested that 46% of investors who responded were eyeing up renewable energy investments. These cover the generation, storage and distribution of clean, renewable energies from sources such as wind farms, solar panels or hydroelectricity (among others). With oil and gas prices likely to continue skyrocketing throughout the first half of 2023, renewable alternatives will become increasingly sought after by both commercial and domestic buyers. 

Repurposing 

The resources available to us are finite. Circular initiatives – the repurposing of used materials – are increasingly gaining traction in a number of sectors serving the real estate industry. 

While the cost of sourcing virgin materials does not (yet) routinely outstrip repurposed, with supply chain issues and raw materials shortages plaguing manufacturing and construction, reclaiming serviceable materials, whether that's for construction or an interior fit out, offers both speed and sustainability advantages. 

Renovation rather than replacement also falls neatly into this category. With developers retrofitting existing buildings to increase efficiency and improve design rather than demolishing them. 

Innovation

The benefit of global treaties such as the Paris Agreement is that they encourage a greater degree of both public and private investment in innovations that can meaningfully contribute to meeting targets. This might include refinements on existing technologies, such as adapting air source heat pumps for domestic use, or entirely new innovations, like using artificial intelligence (AI) to optimise supply chains and limit manufacturing emissions. 

Helping real estate hit net zero

For investors then, real assets present an opportunity to align portfolios with the goals of the Paris Agreement, which means they benefit from global sustainability initiatives while hedging against the effects of a climate crisis. 

It’s a strategy that’s been widely utilised by institutional investors since 2015 – their size opens up investment opportunities that aren't typically available to all. Now, technologies like tokenization are allowing multiple smaller investors to take a slice of an asset normally only accessible to ultra-high-net-worth individuals, increasing liquidity in real assets and driving decarbonisation initiatives, all while meeting a growing demand from individual investors to invest in the assets they care about.

Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. This article is not intended to be relied upon to make financial decisions. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment. The article may contain links to third-party websites or resources. Hedgehog provides these links and resources only as a convenience and is not responsible for the content, products, or services on or available from those websites or in those resources, the links displayed on such websites or the privacy practices of such websites.‍

Industry

Are smaller investors the key to unlocking net zero in real estate?

Feb 13, 2023

When it was signed at the Conference of Parties (COP) in 2015, The Paris Agreement was groundbreaking. Nearly 200 states committed to a carbon-neutral world by 2050 and an emissions cut of 45% by 2030, all with the aim of keeping global warming below 1.5C.

The agreement was met with relish. As a global community, we were on our way to net zero and the real estate sector – one of the biggest contributors of carbon emissions – was firmly in the sights of policy makers from Brussels to Canberra. 

Since then we’ve had a few issues to contend with, among them a global pandemic. While lockdowns dented worldwide carbon emissions in 2020, that change was far from sustained. In the building and construction sector, energy consumption and carbon dioxide (CO2) emissions are now higher than they’ve ever been.

A report from the Global Alliance for Buildings and Construction (GlobalABC) late last year suggested the industry was well off track when it comes to hitting net zero targets. The sector’s 2021 operational CO2 emissions were 5% higher than 2020, and 2% above those of 2019. In short, the gap between carbon emissions from building and construction and the industry’s 2050 net zero target is widening. 

The case for sustainable investing

But building and construction is just a piece of the real estate puzzle. The carbon impact of the property sector is multifaceted and includes not just emissions contributed by construction and the manufacturing of building materials, but also the environmental impact of urbanised spaces; i.e., the waste, air pollution and energy usage of those living in built up areas. In its entirety, real estate accounts for 39% of global CO2 emissions, the vast majority of that figure is emitted by buildings and the energy they use.

Which means real assets – property, energy and infrastructure – have an important role to play in decarbonisation. The asset class is thought to be responsible for nearly 75% of all investments in decarbonisation and energy efficiency. 

Investing in a low carbon economy

Spanning everything from transport to digital infrastructure, real assets is a wide class with a total market cap now approaching $8trn. Broadly speaking, it presents sustainable investment opportunities around a few core themes:

Renewable energy infrastructure

Most, if not all, of our audience will be familiar with this one. In fact, a poll of the Hedgehog community in April of last year suggested that 46% of investors who responded were eyeing up renewable energy investments. These cover the generation, storage and distribution of clean, renewable energies from sources such as wind farms, solar panels or hydroelectricity (among others). With oil and gas prices likely to continue skyrocketing throughout the first half of 2023, renewable alternatives will become increasingly sought after by both commercial and domestic buyers. 

Repurposing 

The resources available to us are finite. Circular initiatives – the repurposing of used materials – are increasingly gaining traction in a number of sectors serving the real estate industry. 

While the cost of sourcing virgin materials does not (yet) routinely outstrip repurposed, with supply chain issues and raw materials shortages plaguing manufacturing and construction, reclaiming serviceable materials, whether that's for construction or an interior fit out, offers both speed and sustainability advantages. 

Renovation rather than replacement also falls neatly into this category. With developers retrofitting existing buildings to increase efficiency and improve design rather than demolishing them. 

Innovation

The benefit of global treaties such as the Paris Agreement is that they encourage a greater degree of both public and private investment in innovations that can meaningfully contribute to meeting targets. This might include refinements on existing technologies, such as adapting air source heat pumps for domestic use, or entirely new innovations, like using artificial intelligence (AI) to optimise supply chains and limit manufacturing emissions. 

Helping real estate hit net zero

For investors then, real assets present an opportunity to align portfolios with the goals of the Paris Agreement, which means they benefit from global sustainability initiatives while hedging against the effects of a climate crisis. 

It’s a strategy that’s been widely utilised by institutional investors since 2015 – their size opens up investment opportunities that aren't typically available to all. Now, technologies like tokenization are allowing multiple smaller investors to take a slice of an asset normally only accessible to ultra-high-net-worth individuals, increasing liquidity in real assets and driving decarbonisation initiatives, all while meeting a growing demand from individual investors to invest in the assets they care about.

Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. This article is not intended to be relied upon to make financial decisions. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment. The article may contain links to third-party websites or resources. Hedgehog provides these links and resources only as a convenience and is not responsible for the content, products, or services on or available from those websites or in those resources, the links displayed on such websites or the privacy practices of such websites.‍

Industry

Are smaller investors the key to unlocking net zero in real estate?

Feb 13, 2023

When it was signed at the Conference of Parties (COP) in 2015, The Paris Agreement was groundbreaking. Nearly 200 states committed to a carbon-neutral world by 2050 and an emissions cut of 45% by 2030, all with the aim of keeping global warming below 1.5C.

The agreement was met with relish. As a global community, we were on our way to net zero and the real estate sector – one of the biggest contributors of carbon emissions – was firmly in the sights of policy makers from Brussels to Canberra. 

Since then we’ve had a few issues to contend with, among them a global pandemic. While lockdowns dented worldwide carbon emissions in 2020, that change was far from sustained. In the building and construction sector, energy consumption and carbon dioxide (CO2) emissions are now higher than they’ve ever been.

A report from the Global Alliance for Buildings and Construction (GlobalABC) late last year suggested the industry was well off track when it comes to hitting net zero targets. The sector’s 2021 operational CO2 emissions were 5% higher than 2020, and 2% above those of 2019. In short, the gap between carbon emissions from building and construction and the industry’s 2050 net zero target is widening. 

The case for sustainable investing

But building and construction is just a piece of the real estate puzzle. The carbon impact of the property sector is multifaceted and includes not just emissions contributed by construction and the manufacturing of building materials, but also the environmental impact of urbanised spaces; i.e., the waste, air pollution and energy usage of those living in built up areas. In its entirety, real estate accounts for 39% of global CO2 emissions, the vast majority of that figure is emitted by buildings and the energy they use.

Which means real assets – property, energy and infrastructure – have an important role to play in decarbonisation. The asset class is thought to be responsible for nearly 75% of all investments in decarbonisation and energy efficiency. 

Investing in a low carbon economy

Spanning everything from transport to digital infrastructure, real assets is a wide class with a total market cap now approaching $8trn. Broadly speaking, it presents sustainable investment opportunities around a few core themes:

Renewable energy infrastructure

Most, if not all, of our audience will be familiar with this one. In fact, a poll of the Hedgehog community in April of last year suggested that 46% of investors who responded were eyeing up renewable energy investments. These cover the generation, storage and distribution of clean, renewable energies from sources such as wind farms, solar panels or hydroelectricity (among others). With oil and gas prices likely to continue skyrocketing throughout the first half of 2023, renewable alternatives will become increasingly sought after by both commercial and domestic buyers. 

Repurposing 

The resources available to us are finite. Circular initiatives – the repurposing of used materials – are increasingly gaining traction in a number of sectors serving the real estate industry. 

While the cost of sourcing virgin materials does not (yet) routinely outstrip repurposed, with supply chain issues and raw materials shortages plaguing manufacturing and construction, reclaiming serviceable materials, whether that's for construction or an interior fit out, offers both speed and sustainability advantages. 

Renovation rather than replacement also falls neatly into this category. With developers retrofitting existing buildings to increase efficiency and improve design rather than demolishing them. 

Innovation

The benefit of global treaties such as the Paris Agreement is that they encourage a greater degree of both public and private investment in innovations that can meaningfully contribute to meeting targets. This might include refinements on existing technologies, such as adapting air source heat pumps for domestic use, or entirely new innovations, like using artificial intelligence (AI) to optimise supply chains and limit manufacturing emissions. 

Helping real estate hit net zero

For investors then, real assets present an opportunity to align portfolios with the goals of the Paris Agreement, which means they benefit from global sustainability initiatives while hedging against the effects of a climate crisis. 

It’s a strategy that’s been widely utilised by institutional investors since 2015 – their size opens up investment opportunities that aren't typically available to all. Now, technologies like tokenization are allowing multiple smaller investors to take a slice of an asset normally only accessible to ultra-high-net-worth individuals, increasing liquidity in real assets and driving decarbonisation initiatives, all while meeting a growing demand from individual investors to invest in the assets they care about.

Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. This article is not intended to be relied upon to make financial decisions. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment. The article may contain links to third-party websites or resources. Hedgehog provides these links and resources only as a convenience and is not responsible for the content, products, or services on or available from those websites or in those resources, the links displayed on such websites or the privacy practices of such websites.‍

Hedgehog is the trading name of Hedgehog Invest Limited, which is registered in England and Wales under company number 13336465 and has its registered office at 167-169 Great Portland Street, 5th Floor, London W1W 5PF. Hedgehog Invest Limited (FRN 961050) is an Appointed Representative of Khepri Advisers Limited (FRN 692447) which is authorised and regulated by the Financial Conduct Authority of the United Kingdom. Copyright © 2022 Hedgehog Invest Limited. All rights reserved. Your capital is at risk and investments are not protected by the Financial Services Compensation Scheme (FSCS). The value of your investments can go down as well as up, so you could get back less than you invested. Stated returns are forecasted and may not reflect the reality of your return on investment. Nothing contained in the Hedgehog website constitutes investment legal, tax or other advice, or recommendation on the merits, suitability or appropriateness of any investment product. The information contained herein should not be relied on when making any investment or other decision. If you require any investment or other advice, you should contact your financial or other professional adviser.‍Only qualified investors in the UK, US and Switzerland are eligible.