A new report has been launched outlining a comprehensive roadmap aimed at accelerating the decarbonisation of buildings by addressing the pervasive issue of ‘split incentives.’ Released by the Sustainable Markets Initiative’s Sustainable Buildings Transition Hub, the report identifies key challenges and presents actionable solutions to promote energy efficiency and renewable energy investments within the real estate sector.
Split incentives arise when landlords and building developers invest in energy efficiency upgrades but do not directly benefit from these investments, as the financial savings are enjoyed by tenants who pay their own energy bills. This disconnection discourages property owners from committing resources to decarbonisation efforts, ultimately hindering progress in the fight against climate change.
The report, titled “Narrowing the Split Incentive Gap to Decarbonise the Built Environment,” serves as a practical guide for both public and private sectors seeking to implement effective decarbonisation initiatives. It highlights the necessity for collaboration among stakeholders, as buildings are responsible for nearly 40% of global carbon emissions, making their decarbonisation crucial in the broader climate change agenda.
George Oliver, Chairman and CEO of Johnson Controls and Chair of the Sustainable Buildings Transition Hub, emphasised the importance of overcoming these challenges through effective collaboration. “Decarbonising buildings is essential to tackling climate change, and our report provides vital insights to address split incentives—one of the most recognised barriers in the global real estate sector,” he said.
The report identifies three primary areas where strategies can be implemented to bridge the split incentive gap:
- Legislation and Policies: It calls for the establishment of supportive legislation that encourages the decarbonisation of buildings, drawing on successful examples from the EU, UK, and United States. Such measures would facilitate investments in the necessary technologies to achieve sustainability targets.
- Target Setting: By standardising sustainability key performance indicators and developing a common definition of net zero, the report suggests that the industry can foster collaboration, demonstrate financial benefits, and encourage further investments in sustainable practices.
- Green Leases: Promoting leasing agreements that align the interests of both landlords and tenants is crucial for achieving energy efficiency goals. This approach would ensure that both parties share the benefits of energy-efficient upgrades, ultimately incentivising further investment in sustainability.
Jennifer Jordan-Saifi, CEO of the Sustainable Markets Initiative, expressed optimism about the potential for change. “Every challenge can be viewed as an opportunity. The SMI’s Buildings Transition Hub is actively finding solutions to significant issues in the buildings sector, including the problem of split incentives. I extend my gratitude to the Hub members for their pioneering efforts to drive practical results that can be accelerated, replicated, and scaled.”
As the demand for sustainable building practices continues to rise, this new roadmap is expected to provide a much-needed framework for uniting stakeholders in the quest for energy efficiency and carbon reduction within the built environment.