Counting carbon: The built environment and the case for ESG in UK real estate

Introduction

Real estate does not usually top the list of industries associated with climate risk. Oil refineries and steel plants tend to claim that attention first. Yet the built environment, taken as a whole, from the concrete in a foundation to the electricity running a lift, accounts for a share of global emissions that few other sectors can match. This brief sets out why that scale of impact has turned ESG (environmental, social and governance) considerations from a reputational add-on into a structural feature of how UK and European real estate businesses operate, and it lays the groundwork for the two companion briefs in this series, which examine how ESG performance is increasingly written into the pay packets of the people who run these companies.

The weight of buildings

According to Architecture 2030, buildings and construction are responsible for roughly 42 per cent of the world's annual carbon dioxide emissions. Figure 1 breaks that figure down into its two components. Operating buildings, heating them, cooling them, lighting them, running the appliances inside them, accounts for around 27 per cent of the total. The remaining 15 per cent is embodied carbon: the emissions locked into the manufacture and transport of cement, iron, steel and aluminium before a building is ever occupied.

Figure 1. The built environment's contribution to the world's annual CO2 emissions.

Source: Architecture 2030.

This split matters for anyone thinking about how to fix the problem, because the two components respond to different levers. Operational emissions fall as grids decarbonise and buildings become more efficient to run, a process well underway across much of Europe. Embodied carbon is stickier. It is fixed at the point of construction and cannot be retrofitted away once the concrete has cured. A sector serious about its climate footprint has to treat design and materials choices, not only building operations, as core ESG territory.

The materials side of that split deserves more attention than it usually gets. Cement production alone is responsible for a substantial share of global industrial emissions, largely because the chemical process that turns limestone into clinker releases carbon dioxide regardless of how the kiln itself is powered. Steel and aluminium carry similar structural problems: decarbonising the furnace helps, but the underlying chemistry and the energy intensity of primary production set a floor that efficiency measures alone cannot get beneath. A developer specifying low-carbon concrete or recycled steel is making a decision that operational efficiency gains, however welcome, cannot substitute for.

Timing compounds the difficulty. Embodied emissions are released upfront, concentrated in the two or three years of a construction programme, while operational emissions are spread across a building's working life, often forty years or more. A building that looks carbon-intensive on a whole-life basis can still look reasonable on an annual operating footprint, simply because the arithmetic of amortisation favours anything already built. This is one reason refurbishment, rather than demolition and rebuild, has become such a live question in UK planning debates: keeping an existing structure avoids re-triggering the embodied carbon bill entirely, even where the resulting building is less efficient to run than a new one would be.

Standardisation remains the weak link. Existing assessment frameworks help investors and occupiers compare buildings and portfolios, but data quality and consistency across markets still lag behind what the scale of the emissions problem would seem to demand.

A sector under the benchmark

The scale of participation in ESG benchmarking gives a sense of how far real estate has moved. In 2023, more than 2,000 entities, property companies, REITs, funds and developers among them, took part in the sector's principal global benchmarking exercise. Between them, they managed assets worth around USD 7.2 trillion, spread across more than 170,000 properties in 75 countries. That is not a niche compliance exercise. It is a substantial slice of the world's institutional property capital choosing, or being pushed, to open its ESG performance to comparison.

The UK sits at the centre of this picture. It remains the most represented country in the European benchmark, accounting for almost 30 per cent of entries, and the average score for real estate sustainability performance has continued to rise both globally and across Europe. Efficiency measures are becoming routine rather than exceptional: 74 per cent of European assets implemented at least one efficiency measure in the preceding three years, and 35 per cent of European portfolios now carry on-site renewable energy generation. The number of participants setting, and meeting, zero-emissions targets is also climbing.

None of this happened because regulation compelled it. Most UK private companies are still under no legal obligation to publish ESG disclosures. What has driven the shift instead is market pressure: lenders pricing climate risk into loan terms, institutional investors screening portfolios before committing capital, and occupiers, particularly large corporate tenants, favouring buildings that can demonstrate credible sustainability credentials over those that cannot.

The benchmarking exercise itself works because it forces comparability. Participants submit portfolio-level data on energy, water, waste and emissions, which is then scored against peers in the same property type and region rather than against an abstract ideal. That relative structure is part of why participation has grown so quickly: a company can see, in concrete terms, where it sits against direct competitors, and boards tend to respond to that kind of legible pressure faster than they respond to a general appeal to sustainability. It also means the benchmark rewards continuous improvement rather than a single compliance threshold, which suits a sector where most of the building stock in use today will still be standing, and still needing to be decarbonised, in 2050.

Regulation catching up with the market

Legislation is, however, moving in the same direction as the market, and probably faster than many private landlords expect. Mandatory disclosure regimes are being extended and tightened across Europe, and the direction of travel for the UK, even outside the EU's regulatory perimeter, points the same way. Firms that treat ESG reporting as voluntary best practice today are likely to find it a legal minimum within a small number of reporting cycles.

The obstacle is not appetite, it is measurement. A widely cited academic assessment of sustainable real estate development notes that the sector still lacks a settled, comparable way to quantify how sustainable a given building or portfolio actually is, leaving companies choosing among competing frameworks and investors struggling to compare like with like.

This is not a minor technical gap. Without reliable, comparable data, ESG claims are vulnerable to challenge, and companies that overstate their performance risk the kind of reputational damage that data-poor sustainability claims increasingly attract. Better measurement is therefore not a peripheral concern for sustainability teams; it is a precondition for every other use to which ESG data is put, including, as the next brief in this series sets out, tying part of an executive's pay to it.

From emissions to earnings

The scale of the built environment's carbon footprint explains why real estate has become such an active testing ground for ESG practice more broadly. It is one thing to publish a sustainability report; it is another to build incentive structures around it. A growing number of companies have chosen to do exactly that, linking a portion of executive and staff compensation to measurable ESG outcomes, from emissions reduction to governance transparency. The next brief in this series, Six Drivers, One Framework, examines why that shift is happening and what it looks like in practice. The third brief sets out the five operational pillars that determine whether an ESG-linked pay scheme actually changes behaviour or simply changes the wording of the annual report.

For now, the starting point is the one this brief has tried to establish: the built environment's emissions are large, only partly addressed by current market practice, and increasingly visible to regulators, investors and tenants alike. That combination is what has made ESG, and eventually ESG-linked pay, unavoidable for real estate as a sector.

It is worth being precise about what that combination does and does not prove. A high emissions share establishes that the sector matters to the climate problem; it does not, on its own, establish that any particular company is managing its share of that problem well, or that pay is the right lever for improving it. Those are the questions the next two briefs in this series take up directly.

References

Architecture 2030. “Why the Built Environment?.” Accessed 2025. https://www.architecture2030.org/why-the-built-environment/.

GRESB. “Real Estate Assessment.” Accessed 2025. https://www.gresb.com/nl-en/real-estate-assessment/.

GRESB. 2022 Real Estate Assessment Results. Amsterdam: GRESB, 2022. https://www.gresb.com/nl-en/2022-real-estate-results/.

Pepper, Andrew, and Judy Gore. “The Economic Psychology of Incentives: An International Study of Top Managers.” Journal of World Business 49, no. 3 (2014): 350–61. https://doi.org/10.1016/j.jwb.2013.07.002.

Pomè, Anna Paola, Andrea Ciaramella, and Laura Sdino. “Sustainable Real Estate Development: How to Measure the Level of Introduced Sustainability?.” In Mediterranean Architecture and the Green-Digital Transition, edited by Ali Sayigh. Cham: Springer, 2023.

Disclaimer: The views expressed in this article are solely those of the author and do not necessarily represent the views, policies, or positions of the organisation.