Pioneering a Net Zero Carbon Approach for Indirect Real Estate Investing

Chris Burgess, Global Sustainability Lead for Indirect Real Estate, CBRE Investment Management

Green tree in front of office building


The imperative for decarbonisation has reached a critical juncture within the global real estate landscape. Real estate assets that are unable to adapt to becoming net zero are at risk of becoming obsolete1, with reduced leasing and selling potential, as well as diminished rental and asset values.

As a signatory to the Net Zero Asset Managers initiative (NZAMi), CBRE Investment Management (CBRE IM) set a target of achieving net zero carbon emissions across our assets under management (AUM) by 2050 or sooner*. We developed interim targets to reduce emissions within our control by 2030 in line with the latest climate science that recommends a 50% reduction within this timeframe. This task requires decisive actions at both the asset and portfolio levels. However, there is a prevailing misconception that investors in indirect real estate strategies lack the necessary control to effectuate favourable sustainability outcomes. We aim to challenge this perception as no longer valid. As one of the largest indirect real estate managers in the world, CBRE IM uses our influence to effectuate progress with our managers and operating partners. In this article we will showcase how we identify, evaluate and manage the path to net zero carbon emissions across our indirect real estate holdings.

Our Decarbonisation Risk Framework

For several years, we have monitored the net zero carbon aspirations of our managers to understand the collective commitment to decarbonisation and identify areas requiring further development.

The decarbonisation journey for indirect investments is a multi-year endeavour that requires consistency and collaboration from our underlying managers and all stakeholders. We are currently developing the essential foundations for a clear pathway to achieve our targets.

Origins of Our Decarbonisation Risk Framework

Two years ago, we developed a proprietary Sustainability Assessment Framework (framework) to enhance due diligence and monitoring processes for underlying funds and operating partners across all our Indirect Real Estate investments. We continually refine the framework to be relevant given the evolution in sustainability best practices. The framework evaluates an array of sustainability factors, focusing on stewardship and the management of sustainability issues, to determine alignment with our objectives. Within this framework, we screen portfolios and engage managers and operating partners to identify, assess, and manage physical-climate risks. We obtain asset-level data to gauge exposure to physical risks using Moody’s Climate on Demand tool. For assets identified with high or critical exposure to physical climate risk, we engage with managers to delve deeper into the potential threat. We require managers to explain what detailed vulnerability analyses were conducted for flagged assets and whether suitable mitigation was available where needed to address identified risks.

Inspired by the success of our physical climate risk framework, we expanded our approach to encompass transition risks associated with the shift toward a low-carbon economy. Improved data visibility was central to this effort. Collaboration with industry partners, such as GRESB, enabled us access to data needed to gain a better understanding of the energy and carbon intensity of underlying fund assets, i.e., kWh/m2 or kg CO2e/m2. This, in turn, allows us to assess our investments relative to benchmarks like the Carbon Risk Real Estate Monitor (CRREM).

Our approach to decarbonisation relies upon whole building energy and carbon data, which helps us understand current performance, and how managers’ planned improvements will impact progress. This data is particularly challenging to obtain for assets where energy is mainly or wholly procured by the tenant. Historically, most of this type of data has not been available to fund and asset managers. A primary focus of our engagement with fund managers in the last few years has been to discuss disclosure of actual whole building asset-level performance data and best practices as to how to obtain the data from tenants. We seek to share best practices with our underlying managers learned from our direct business and others, including engaging third parties that can access data directly from utilities, using green lease clauses and putting automated meters on site at lease breaks. Obtaining complete, robust and current carbon performance data should be a priority for all fund managers.

In 2023, we updated our annual Sustainability Questionnaire with a focus on decarbonisation plans, including whether our underlying managers are screening portfolios, conducting asset-level audits, and implementing retrofit plans. We identified that screening and audits are taking place, but uptake varies by region and holding. This kind of insight allows us to better focus our engagement efforts going forward.

Operating one-step removed from underlying assets, indirect real estate strategies have distinct challenges influencing sustainability practices. Effective collaboration and coordination with underlying managers are required to ensure shared sustainability goals are met. We rely on our underlying managers for risk information and leverage our global platform to influence best practices. Seeking to collect data on an asset or portfolio’s current and projected carbon performance is now standard practice during investment due diligence. These variables, aligned with net zero goals, may impact capex estimates and underwriting decisions. We are able to draw upon our CBRE IM investment platform for innovation and best practices. For example, we developed an approach to how our directly managed buildings could achieve zero emissions which we share with our managers to employ similar best practice. Our own implementation of this approach at scale also provides us with valuable insights and benchmarks on indicative costs to transition assets.

Collaboration and Progress

Indirect ownership has a role to play in the path to net zero emissions. The combination of enhanced data visibility, benchmarking performance of our indirect investments and development of innovative approaches to asset level decarbonisation enables us to have more targeted and constructive dialogues with our partners in achieving long-term net zero carbon targets. We are dedicated to utilising our influence, scale, and global platform to propel the adoption of decarbonisation best practices throughout unlisted real estate markets.

We expect our managers to continually improve the sustainability of the funds they manage. Where we invest in joint ventures and programmatic ventures we use our controlling position to stipulate certain requirements like delivery of our mid-term decarbonisation targets and routine use of green building certifications. We are committed to helping them achieve net zero carbon targets. Across the real estate landscape, a sense of urgency is building momentum with an emphasis shifting from setting sustainability targets to execution. We believe that sustainability integration is an opportunity to enhance returns, mitigate risk and preserve value.


Although influencing sustainability may be challenging for indirect real estate investors, we have developed systems and processes for obtaining the data we need to manage sustainability risks and opportunities within our portfolios. Along with the global real estate expertise and depth of experience of the Indirect Real Estate team, we draw upon best practices from the broader CBRE IM platform. Our wealth of data, from implementing our decarbonisation programme in the wider business, provides us with a benchmark of expected actions, including what is feasible and the associated costs, as well as proxy data to further refine engagement priorities with underlying managers. The data and information provide our team with greater visibility and understanding of risks and opportunities for our portfolios to the benefit of our clients.

1 Lovelyn Tagalag, Green credentials raise European asset values, REACT news, November 22, 2022.

“This information contains forward-looking statements that are inherently uncertain and subject to change. There can be no assurance that any initiatives, goals, targets, commitments, intentions, projections or other forward-looking statements herein will ultimately be achieved or that they will be successful. Actual results may vary. Past performance is not a guarantee of future performance. This information reflects the views and intentions of CBRE Investment Management as of November 2023 and is not current as of any later date. CBRE Investment Management reserves the right to change any such views or intentions and will have no obligation to provide notice of any such change. It should not be assumed that the successful implementation of any ESG initiatives will have any positive impact on financial performance of any fund or account sponsored by CBRE Investment Management. The information contained herein must be treated in a confidential manner and may not be reproduced, used or disclosed, in whole or in part, without the prior written consent of CBRE Investment Management”.

* There can be no guarantee any targets will ultimately be achieved or achieved within the noted timeframe"