Scope 2 emissions in the property sector:
Opportunities for energy and cost efficiency

As the owner or manager of a building, you are responsible for any modernisation work. Every building faces some necessary or value-enhancing changes that you have to implement. In addition to conventional refurbishments such as renovating facades, painting walls or replacing windows, the property sector is now facing a new challenge: dealing with greenhouse gases, especially CO2 emissions.

In order to operate your building sustainably and comply with regulations, it is important to understand the different sources of these emissions – these are divided into three categories or ‘scopes’.

Let’s start with the basics. What are greenhouse gases anyway? Greenhouse gases (GHGs) are crucial for the Earth’s climate, but an excess of greenhouse gases, especially carbon dioxide (CO₂), leads to global warming and accelerates climate change. This change harbours considerable risks for our environment, our economy and our daily lives. Global initiatives have been launched to reduce emissions of these man-made greenhouse gases and slow down climate change. The best known is the ‘net zero 2050’ target, which aims to reduce emissions so much that they can be fully absorbed by natural processes and technological measures.

The property sector plays a key role in achieving net zero targets. The global building sector is responsible for around 16% of all greenhouse gas emissions (Forbes), while in the European Union the property sector is responsible for around 36% of CO₂ emissions (European Public Real Estate Association). These figures show how significant the property sector’s contribution is in the fight against climate change. Companies in the property sector must therefore develop innovative approaches to reduce their emissions in order to meet the requirements of strict environmental regulations.

More details on sustainability regulations in the EU and how they affect real estate asset management can be found here.

The Greenhouse Gas Protocol (GHG Protocol) has created the Corporate Value Chain (Scope 3) standard in order to comprehensively assess and specifically reduce a company’s emissions. This divides greenhouse gas emissions into three areas, known as ‘scopes’.

• Scope 1 – Direct emissions:
  Scope 1 includes all direct emission sources, i.e. emissions that originate from the direct operation of the company, or to put it another way, they arise in the on-site systems controlled by the building. An example of this is a heating system that is operated with oil, a fossil fuel, and causes CO2 emissions directly through combustion. So that’s Scope 1 – the emissions caused directly by the operational processes and energy use within your building.
  Staying with the example of heating systems, you could reduce Scope 1 emissions by switching from oil to gas or investing in a particularly environmentally friendly option such as a geothermal heat pump.

• Scope 2 – Indirect emissions from purchased energy:
  Unlike fossil fuels which cause direct emissions, indirect emissions are caused by purchasing energy from an external supplier, specifically electricity, heat, steam and cooling. A typical example is electricity, which your building needs for lighting, air conditioning and other electrical installations. As the emissions are generated during electricity production and not directly in your building, they are generated indirectly through your energy consumption.
  For example, you can influence indirect emissions by purchasing electricity from a mix with a high proportion of renewable energies or by increasing the energy efficiency of your installations.

• Scope 3 emissions – other indirect emissions:
  In addition to direct emissions (Scope 1) and indirect emissions from purchased energy (Scope 2), Scope 3 includes other indirect emissions associated with the operation of your building. These include all other indirect emissions along the entire value chain of a company. These include emissions caused by processes such as your employees travelling to the office, suppliers, transport and the use of products by customers or even disposal at the end of a product’s life cycle.
  For Scope 3, it is advisable to look at the entire value chain of your property company and explore the potential of all processes. For example, a property company can choose a supplier that produces particularly low CO₂ emissions for the production of building materials or provide employees with cars that run on electricity instead of petrol.

Now you are probably wondering what is the most efficient way to reduce emissions. This is easy to answer. After all, the building sector is responsible for around 40% of total energy consumption in the EU, with a large proportion of this consumption attributable to energy-inefficient buildings (European Commission). Around three quarters of buildings are considered inefficient. Significant energy savings could be achieved through extensive renovations and the use of modern technologies, which could reduce the EU’s total energy consumption by 5-6%.

The reduction of Scope 2 emissions, which are directly related to energy consumption, is therefore a key aspect of the sustainability strategy in the property sector. These emissions offer a great opportunity to improve energy efficiency and reduce operating costs, which in turn contributes to achieving sustainability goals and environmental compliance.

If the owner is also the landlord, it is important to distinguish that they are only responsible for the portion of emissions generated by the construction, maintenance and operation of the building. The tenant, on the other hand, is responsible for the emissions caused by individual tenant fit-out requests and the operation of their specific tenant equipment, plug-in appliances such as hoovers.

It is crucial for property owners and managers to implement effective measures to reduce Scope 2 emissions. These measures not only contribute to CO₂ reduction, but also offer significant economic benefits, in particular by reducing costs and improving the return on investment (ROI) of energy efficiency measures.

1. Increase the Proportion of Renewable Energy in the Electricity Mix.

An important measure for reducing Scope 2 emissions is the proportion of renewable energies in the energy mix. As a general rule, all renewable energies are significantly lower in emissions than fossil fuels. This means that if the proportion of renewable energies in the electricity mix increases, Scope 2 emissions are reduced.

However, it is important to note that there are significant differences in CO₂ emissions per kWh between the technologies and countries of origin:

Source: Deutscher Bundestag

2. Optimisation of Facade Insulation and Window Technologies.

Around 30 % of heat escapes through the façade. Improved façade insulation and the use of modern window technologies can significantly reduce the energy required for heating and cooling. This leads to a direct reduction in Scope 2 emissions, as less energy is required to heat and cool the building.

• Take façade insulation, for example: according to HEIM & HAUS, insulating external walls results in 5 – 15 times less heat loss than an uninsulated façade.

3. Investment in Intelligent Lighting Systems

The use of intelligent LED lighting can significantly reduce electricity consumption for lighting. By switching to energy-efficient lighting systems, the light is controlled automatically and according to demand, thus reducing the burning time and consequently the energy consumption of the lighting.

• Example of efficient lighting: intelligent lighting systems from LEDCity achieve average energy savings of 90% with an amortisation period of 2-3 years.

4. Use of District Heating from Sustainable Sources

Switching to district heating systems based on renewable energies can make a significant contribution to reducing Scope 2 emissions. District heating from sustainable sources is significantly lower in emissions than heat production using fossil fuels.

• For example, switching to district heating: Energieschweiz states that financial savings of up to 16 % can be realised over 20 years.

5. Installation of Solar Systems on Roofs

Using solar energy to generate your own electricity can reduce dependence on external power sources and improve a building’s carbon footprint. Solar energy offers a direct reduction in Scope 2 emissions and can lead to significant cost savings over time.

• Tamesol states that on average between 50 and 70 % of electricity costs can be saved. In addition, CO₂ emissions per kWh are significantly lower than for non-renewable electricity generators, for example 95% lower than for lignite.

“Incorporating sustainable practices and measures often contribute to higher rents, lower vacancy rates, and ensure that real estate assets and portfolios remain efficient and economically attractive.” – Swiss Sustainable Finance

As the measures show, investments in energy efficiency measures are not only good for the environment, but also offer economic benefits. The reduction in operating costs leads to an increase in the return on investment (ROI) and increases the value of the property portfolio in the long term. Various studies have shown that energy-efficient buildings tend to achieve higher rents and can be sold more quickly, which further increases the ROI (Kempf, C., Syz, J. 2022)

As this blog has shown, Scope 2 emissions play a key role in the property sector – particularly in terms of meeting increasingly stringent environmental regulations and financing sustainable investments. This is because in order to achieve the overarching goal of net zero emissions, all activities of companies that cause emissions must be addressed – not just the direct ones.

Despite the challenges and costs that property companies face in the area of sustainability, this change also offers opportunities: technological innovations will continue to transform the industry and create opportunities to lead the way and differentiate themselves.

Opportunities for sustainability measures in the real estate sector:

• Technological innovations: New technologies will further improve the efficiency and sustainability of buildings, leading to new business opportunities.
  Increased value through sustainability: Sustainable properties are more stable in value in the long term and more attractive for investors and tenants.

Challenges of sustainability measures in the property sector:

• Financing: financing energy-efficient measures requires significant initial investment, which must be well planned and strategically implemented.
  Regulation: Stricter environmental regulations require continuous adaptation and investment in sustainable technologies and processes.

In conclusion, the future of the property industry will largely depend on how effectively companies reduce their Scope 1, Scope 2 and Scope 3 emissions while developing economically viable, sustainable business models. The consistent use of the measures described not only offers the opportunity to minimise ecological footprints, but also to position themselves as pioneers in an increasingly sustainability-oriented industry. Companies that successfully follow this path will benefit in the long term from the advantages of sustainable property development, including increased market value and enhanced attractiveness for investors and tenants.

Lighting accounts for up to 30 % of energy costs in commercial buildings. Take advantage of the need for sustainability measures and save operating costs: with the plug-and-play lighting system from LEDCity, you can reduce energy and costs in no time at all thanks to retrofitting. Benefit from average energy savings of 90 % compared to conventional lighting systems and up to 80 % energy savings compared to modern LED lighting systems – without any loss of comfort.

Arrange a free consultation now and discover the savings potential in your property portfolio.