Why will carbon sieves be tomorrow’s stranded assets?

The real estate market is undergoing radical change, driven by new regulations and growing investor expectations in terms of environmental performance. While energy slums are already on the government’s radar, a new category of high-risk assets is emerging: carbon slums.

These buildings, whose overall carbon footprint is too high, risk becoming tomorrow’s stranded assets. Unlike energy slums, which are identified by their energy consumption, carbon slums include a still underestimated factor: the embedded carbon of materials and work (Scope 3).

As regulations intensify and ESG requirements tighten, taking Scope 3 into account becomes a strategic challenge to avoid devaluing real estate assets.

1. Energy and carbon leakage: what are the differences?

The first wave of energy regulations

For several years now, the fight against energy wastes has been intensified by increasingly strict regulations:

• In France, the Climate & Resilience Act is gradually banning the rental of the most energy-intensive housing (DPE G and F).
• In Europe, the green taxonomy imposes energy performance thresholds for an asset to be considered sustainable.
• Investors now prefer assets with environmental certifications (HQE, BBCA, BREEAM).

These regulations have prompted building owners to improve the energy performance of their buildings by optimizing heating, air-conditioning and lighting consumption.

A new threat: on-board carbon and Scope 3

But a new category of risky assets is emerging: carbon leakage. Unlike energy huts, these are defined not by their consumption during operation, but by the carbon footprint of their construction, renovation and end-of-life.

The problem lies in the fact that, while buildings are becoming increasingly efficient in operation, emissions from materials and construction are still massive. Scope 3 – which includes these emissions – represents up to 90% of an asset manager’s carbon footprint.

A new building that is ultra-efficient in terms of energy, but built using materials with a high carbon footprint (concrete, steel, glass), may therefore be less virtuous than an existing building that has been well renovated using reused, reusable, recyclable or bio-sourced materials.

2. Why do carbon sinks risk becoming stranded assets?

Regulations evolving to take Scope 3 into account

The first regulations on on-board carbon are already in place and will gradually be extended:

• The BBCA (Bâtiment Bas Carbone – Low Carbon Building) label imposes a limit on emissions linked to materials.
• The RE2020 in France now includes embedded carbon in the assessment of new buildings.
• Investors and financiers are asking for Life Cycle Analyses (LCA) to measure the overall carbon footprint of assets.

These developments show that the question of embodied carbon is becoming a decisive criterion in assessing the ESG performance of buildings.

Growing demand for low-carbon buildings

Large companies are looking to reduce their overall carbon footprint, including that of their real estate.

• Tenants prefer buildings aligned with their CSR commitments.
• Investors are increasingly excluding assets with a high carbon footprint from their portfolios.
• Environmental labels and green taxonomy are becoming essential criteria for attracting financing.

A building with a high integrated carbon footprint that offers no leverage for reducing emissions thus risks being perceived as a stranded asset, difficult to rent or resell.

Renovation costs that can become a burden

If a building requires extensive and costly renovations to reduce its carbon footprint, it can lose value and become an economic burden for its owner.

• Low-carbon materials can be more expensive if they are not anticipated upstream.
• Future regulations may require emission thresholds that some buildings will never be able to reach without complete transformation.
• Investors could apply a “brown discount” to excessively carbon-intensive assets, making them ineligible for attractive financing.

3. How can we prevent an asset from becoming a carbon sieve?

1. Evaluate and model Scope 3 for each asset

One of the main challenges is the lack of accurate data on embedded carbon in existing buildings.

• It is essential toanalyze the carbon footprint of past materials and work.
• Property managers need to integrate embodied carbon into their renovation and acquisition decisions.
• Modeling tools can be used to map the Scope 3 of a property and anticipate its evolution.

2. Integrating reuse and low-carbon materials

One of the main ways of preventing an asset from becoming a carbon sieve is to limit the purchase of new materials.

• Integrate the reuse of materials right from the design stage.
• Favoring bio-sourced and low-carbon materials (wood, natural insulation, low-carbon concrete).
• Optimize waste management and promote a circular economy in renovation work.

3. Anticipating future regulations and investor expectations

Owners and asset managers must anticipate regulatory changes to avoid ending up with obsolete assets:

• Integrate lifecycle analyses (LCA) into investment studies.
• Align with the criteria of environmental labels that take on-board carbon into account.
• Optimize arbitration decisions by taking into account the emissions thresholds that will be imposed in the coming years.

Conclusion: the transition to low-carbon real estate requires Scope 3

Carbon sinks are the stranded assets of the future. Changing regulations and market expectations require asset managers to take Scope 3 into account today, to avoid high future costs and preserve the value of their assets.

Scope 3 integration enables :

• Anticipate risks of devaluation and optimize asset management.
• Structure a carbon trajectory compatible with ESG requirements.
• Easier access to financing and investors committed to the low-carbon transition.

Managers who fail to take this transition into account risk seeing some of their assets lose their appeal and profitability. Transformation is underway, and anticipation is the key to preventing buildings from becoming tomorrow’s stranded assets.

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Do you want to integrate Scope 3 into your real estate strategy and avoid devaluing your assets? Find out how Upcyclea can help you model your buildings and structure effective low-carbon management.