Key Takeaways
- • The Science Based Targets Initiative (SBTi) has established a standardized framework for private equity real estate firms to measure and set science-based greenhouse gas reduction targets, with guidance released in November 2021 tailored to PE's unique business models and asset classes.
- • PE firms must compile granular GHG inventories including direct and indirect building energy emissions, tenant energy consumption, property type, and floor area in square meters, though data collection challenges persist due to privacy concerns and incomplete metering across portfolios.
- • Financed emissions attribution is calculated using a specific formula dividing outstanding investment amount by property value at origination, allowing PE firms to accurately allocate portfolio-wide emissions across individual assets.
- • Target-setting baseline expectations include 73% reduction in emissions per square meter by 2030 for real estate investments, with six major PE firms (including Intermediate Capital Group and 100% Hg) having achieved SBTi net-zero target approval as of the guidance release.
- • Multiple data sources and proxy databases—including the Global Services Real Estate Sustainability Benchmark, EU Buildings Database, and CRREM Risk Assessment Tool—are available to PE firms to fill data gaps when actual metered energy consumption cannot be accessed.
Summary
The Science Based Targets Initiative has introduced a comprehensive framework enabling private equity firms managing real estate assets to establish science-based climate targets aligned with global emissions reduction pathways. The guidance, released in November 2021, addresses the specific operational and structural challenges PE firms face when measuring and reducing greenhouse gas emissions across dispersed real estate portfolios, establishing what many view as a critical climate standard for the sector.
The foundational requirement under this framework is compilation of a detailed greenhouse gas inventory. PE firms must capture direct energy-related emissions from buildings alongside indirect emissions encompassing tenant energy consumption, building classifications (residential or commercial), and total floor area measured in square meters. A primary challenge for implementers involves accessing high-quality granular data; many PE firms struggle to obtain actual metered tenant energy consumption due to privacy restrictions and incomplete historical records. To address this constraint, the SBTi guidance permits emissions estimation using asset-level data converted through emission factors when metered data is unavailable, while recommending parallel strategies to progressively improve data quality over time.
The attribution methodology ensures accurate allocation of financed emissions to PE investors. Using a formula that divides the outstanding investment amount by the property value at the time of investment, each asset's calculated emissions are multiplied by its individual attribution factor and summed across the portfolio. This approach enables PE firms to transparently measure their financial exposure to climate risk within their real estate holdings.
The framework establishes baseline reduction targets of 73% per square meter by 2030 for real estate investments, establishing a quantifiable ambition level for participating firms. Several prominent PE investors have already aligned with these standards; six private equity firms, including Intermediate Capital Group and 100% Hg, have secured formal SBTi approval for net-zero targets. To facilitate implementation, the SBTi has identified multiple data sources including the Global Services Real Estate Sustainability Benchmark, EU Buildings Database, PCAF European building emission factor database, and CRREM Risk Assessment Tool, enabling firms to populate missing data points using standardized proxy methodologies.
The foundational requirement under this framework is compilation of a detailed greenhouse gas inventory. PE firms must capture direct energy-related emissions from buildings alongside indirect emissions encompassing tenant energy consumption, building classifications (residential or commercial), and total floor area measured in square meters. A primary challenge for implementers involves accessing high-quality granular data; many PE firms struggle to obtain actual metered tenant energy consumption due to privacy restrictions and incomplete historical records. To address this constraint, the SBTi guidance permits emissions estimation using asset-level data converted through emission factors when metered data is unavailable, while recommending parallel strategies to progressively improve data quality over time.
The attribution methodology ensures accurate allocation of financed emissions to PE investors. Using a formula that divides the outstanding investment amount by the property value at the time of investment, each asset's calculated emissions are multiplied by its individual attribution factor and summed across the portfolio. This approach enables PE firms to transparently measure their financial exposure to climate risk within their real estate holdings.
The framework establishes baseline reduction targets of 73% per square meter by 2030 for real estate investments, establishing a quantifiable ambition level for participating firms. Several prominent PE investors have already aligned with these standards; six private equity firms, including Intermediate Capital Group and 100% Hg, have secured formal SBTi approval for net-zero targets. To facilitate implementation, the SBTi has identified multiple data sources including the Global Services Real Estate Sustainability Benchmark, EU Buildings Database, PCAF European building emission factor database, and CRREM Risk Assessment Tool, enabling firms to populate missing data points using standardized proxy methodologies.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.